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Thursday
Aug082013

Thoughts on Flexible Funding

First, Some Definitions

All or Nothing Funding (Kickstarter): If the project succeeds in reaching its funding goal, all backers’ credit cards are charged when time expires. If the project falls short, no one is charged.

Flexible Funding (Indiegogo): The project will receive all funds raised when time expires,  even if the project fails to reach it’s goal.

Irrational Margins and Why The Meaning of Words Matter

Donation and Charity. These two words come up often in the vocabulary of those that are critical of crowd funding. Using these words implies that the artist is destitute, insignificant or somehow incapable of paying for the project on their own and they are simply begging their fans for money. This may be the right terminology one would use to describe helping victims of disasters, abject poverty or illness, but it doesn’t fit here. In fact, these words are the opposite of what a well-designed crowd funding campaign sets out to accomplish.

Pledge and Reward. This is the correct terminology to use when talking about crowd funding. An artist announces a project and a goal then fans pledge money to help that artist achieve that goal. They become a project’s “Backer”. In return, the backer gets a reward equal to the value of their pledge. Sometimes the reward is the physical product that the project produces, like a record or CD. For a higher dollar amount the reward can be an enhanced experience like tickets to the session, a unique piece of merchandise or a house concert. Oftentimes, it’s all of the above.

The business world jargon for the revenue these high dollar amounts create is “irrational margins”. Fans of an artist, actor or sports team are willing to spend almost any amount of money to own a special item, show support or gain a unique experience. A great real world example would be the $8 I paid for a cup of beer while watching Alex Avila crush a Grand Slam at Comerica Park last week, or the $500 my Dad paid for his signed, game worn Miguel Cabrea Jersey. Certainly we could have watched the game on television at Nancy Whiskey while drinking $2 drafts in a $40 Tiger Jersey from The Sports Authority. After all, that’s the “real world” dollar value of those items, right? But, that wasn’t the choice we made. We wanted the experience of being there, at the park, in person. Because of that choice, I’ll always remember the day my Dad and I went to Comerica Park and saw my favorite Tiger crush that fastball over the wall. And, you can bet my Dad will frame up Miggy’s All-Star Jersey and show it off in his office for years to come. We’re fans, we got our money’s worth and we had a great time supporting our team. We pay for tickets, beer and swag, the Tigers invest our money into better players, nicer stadiums and hopefully wins a World Series or two along the way. Everyone wins.

When it works properly, that’s what the economics of crowd funding is designed to accomplish. Fans show support for the artists they love and they get to be a part of that artist’s success. While doing so, they often times pay irrational margins for projects, rewards and unique experiences that have meaning and value. It’s simple and it works.

But what happens if the artist fails to deliver on their project?

Poor Planning + Flexible Funding = Screw You Fans

Let’s go back to that Tigers game.

What if when we got to Comerica Park we learned Dave Dombroskwi had decided to play a bunch of rookies from Lakeland, Florida instead of Max, Alex, Miggy and Prince? What if they said, “I know you fans paid to see All Stars, but those guys were too expensive. We called up these kids from A ball instead. Don’t worry, it’ll be just as good”. Even worse, what if Jim Price got on the radio and said “I know you guys paid to see a Tigers game, but we didn’t make enough money on ticket sales, so we decided to just show you two kids playing the MLB Xbox Game on the big screen instead”. There would be riots in the streets.

I know what I described sounds crazy, but we’re seeing a similar scenario happen every day on Indiegogo. On that platform, just like Kickstarter artists set their own goal for the project, (say $10,000 to record a new album in a professional studio with a well-known producer). Sounds pretty familiar so far, right? But here’s the rub, by choosing the “Flexible Funding” option, the artist gets to keep all of the money the backers pledged, even if they fail to reach their goal. In these cases, it doesn’t matter if the artist raises $20 or $15,000, the backer’s credit cards are charged at the end of the campaign, no matter what.

-  A backer pledges money for a great project that they think has meaning and value.

-  That project fails to reach its funding goal.

-  The artist keeps whatever money was pledged anyway, with no real prospect or plan for delivering the project or rewards they promised.

 

If you need $10,000, you’re in for a rough ride after raising $1,500 with a bunch of backers expecting you to complete your $10,000 dream project. In fact, it’s impossible.

Best case scenario, instead of making a great record with a respected producer like they promised, the artist comes up with a justification for using the backer’s money to do a watered down version of the project, perhaps using the money to buy a Macbook and Protools Bundle and “does it all themselves”. Worst case (and this is the most likely scenario we’ve witnessed) the artist pays off a few bills and just forgets the whole thing. Bottom line, you need to hit your goal to pull off the project you promised your backers.

Accountability, What’s That?

We can’t think of bigger threat for the long-term viability of crowd-funded music than flexible funding campaigns. When an artist runs a crowd-funding campaign that fails to meet it’s goal yet they take their backers money anyway, they run a high risk of completely eroding any faith fans have in their ability to follow thru on projects or promises. The reality is, it’s more likely that artist will create a rift between themselves and their fans. Even worse, these fans will be less willing to pledge to another crowd funding campaign from a different artist, no matter how worthy it may be because of the negative experience they’ve had with other projects failing to deliver. With these examples becoming more and more common, it’s easy to see where critic’s comparisons of crowd funding to charity are coming from.

When you take a closer look, most artists that run flexible funding campaigns are actually telegraphing their lack of confidence in their projects and exhibit signs of poor planning. It’s apparent that most of them haven’t completely thought thru to the final outcome of their projects and probably shouldn’t be running a crowd funding campaign in the first place. For crowd funding to work, you have to be prepared, confident and organized. Your project MUST have a clear purpose and a measurable outcome. This is not a platform for indecisiveness. Your fans are letting you use their money, trust and enthusiasm for your art as capital to fund your dreams and further your career. Let them down and you may never get them back.

Do these artists think about their responsibility to their most enthusiastic supporters?

Do these artists think about the damage they could do to their reputation?

Do they think about the effects these failures have on their local music scene?

Do they realize that they are poisoning the well for their peers?

Where is the accountability?

Raising the Collective IQ of Our Music Scene

So, why has Groovebox Studios decided to weigh in on this issue? What business do we have criticizing the decisions of others? The short answer is, it’s our business to care.

Groovebox Studios exists to serve the artists, fans and supporters of independent music and to elevate the scene. Not just here in Detroit, but in other cities and regions as well. As we’ve grown, we’ve realized that Groovebox Studios has stumbled upon an idea that has the potential to disrupt an already fractured music industry and interject health and viability into special music scenes like Detroit. Sure, GBS spends a lot of energy creating professional audio and video content for our artists. That’s the easy part. What makes us unique is how we’ve become innovators in manipulating crowd-funding tools like Kickstarter to energize, finance and ultimately elevate music scenes like Detroit. After running nearly 100 successful music Kickstarters and raising almost a quarter million dollars for independent artists, you’d be hard pressed to find a team of professionals that are spending more time and energy studying, executing and evolving the art of crowd-funded music. Sure, we’ve made a few stumbles of our own and I’m sure we’ll make more in the future, we’re all learning. However, with that experience under our belts we can say with complete confidence that delivering on the promises you make to your backers is the most difficult and important aspect of crowd-funding, period. It’s so important that over the last year GBS has expanded it’s team and focused the bulk of their mindshare on making sure that all of our Kickstarter Campaigns completely live up to the wildest expectations of our artists and their backers.

We speak up from time to time to offer our thoughts in the hopes that it will spark a conversation that leads to the betterment of our music scene. We believe in sharing knowledge, not hoarding it all for ourselves. Don’t mistake this as a hit piece trying to shame these artists or their projects. Of course, we’re certain all of these projects started with the noblest of intentions. However, considering the outcomes perhaps it’s possible they were launched without a clear vision and solid game plan to drive its success.

Final Thoughts

We think any artist in our market that’s thinking about running a crowd-funding campaign should work with us first. Our track record speaks for itself. Not only do we have success with our own projects, but we’ve consulted several of our alumni artists on successful Kickstarter projects of their own. When you add those numbers to the tally, working with GBS is a no-brainier. We arm you with the tools you’ll need to succeed. But, we realize some artists will choose a different path and go at it on their own. That’s fine; we don’t own a monopoly on crowd-funding. All we ask is that if you’re going to use this tool, take your responsibility to your backers seriously and spend lots of time thinking through ALL of the possible outcomes. 

That being said, when we watch artists outside of our model run failed flexible funding Indiegogo campaigns or Kickstarter campaigns that fall way short of their potential, we know that it’s only a matter of time before the goodwill and trust of the broader fan base erodes and this powerful tool of crowd-funding will disappear for good. We can’t let that happen. Independent artists and the amazing music they create needs crowd-funding to thrive. This IS the future of music!

-  Put extra thought into your projects. Make sure they elevate your career, your music and your fans.

-  Make sure your rewards have meaning and value.

-  Think about all of the costs involved to pull off your project and rewards and set a realistic goal to achieve that result. Then dedicate yourself to reaching that goal.

-  DO NOT USE FLEXIBLE FUNDING! Use an “All or Nothing” platform like Kickstarter.

-  Execute an amazing project, hit your goal, deliver your rewards and blow away your fans with how great it turned out.

If you choose to ignore our advice and run a flexible funding campaign anyway, do us all a favor, HIT YOUR GOAL AND DELIVER AN AWESOME PROJECT. But, as the last few hours of your campaign draws near and you find that you’re falling way short of your goal, do the right thing and cancel the project before time runs out. Show your backers the respect they deserve. Look, if you don’t hit your goal it’s not the end of the world. Evaluate what went wrong, make the proper adjustments to your project, budget and vision and launch a new campaign based on those goals. Your fans will still be there to support you and they’ll have even more respect for you because you didn’t waste their time, money and enthusiasm for your music.

Remember… You’re an artist, not a charity case.


About The Author

Shawn Neal is the co-founder of Groovebox Studios, a completly fan-funded “micro-label” based in Detroit, Michigan that focuses on creating live, one room, one take music videos and EP’s for independent artists in Detroit, Michigan. “GBS” is currently opening their second location in Chicago, IL with plans to expand to other markets by 2015. Over the last 18th months, Groovebox Studios has succesfully funded 100 Kickstarter Campaigns raising nearly a quarter million dollors for independent muscians in Detroit.

Reader Comments (1)

Great points in this article, and while not reaching a goal and taking the money and running doesn't work, great planning and an organized business mind CAN make flexible funding the way to go. Basically, you need a backup plan. Flexible funding is great for someone who does not know what kind of goal they can reach. 3 years ago I would NEVER have thought I could raise more than $5-10k. But my fans rallied and came up with $30,000. AMAZING! I was able to hire the string section I wanted, an effective PR firm to help boost the release, and several other things. NOT reaching a Kickstarter goal makes it near impossible for the artist to go back to the fans and say "oh, sorry, I know you thought your card was charged, but it wasn't so i'm going to try again, can you pledge for my new project?". Insert dog with tail between legs image.

Obviously I will have to write another article flushing these ideas out, (to be posted on www.livingongigging.com) but the gist is- with a plan, integrity and accountability, an artist can set out to create a great record, and depending on the depth of their plan, will be able to make any donation size work towards that. I discourage artists to go into a record totally broke and depend on fans' money. It's something to save for- that shiny new CD. Fan funding shouldn't be the make or break of a project with a plan. I also think that if the artist is 100% honest and upfront with the fans, they can manage their expectations of the project.

Just a note: I'm not for or against either platform, I just know they can both work well and can suit an artist for different reasons and I wouldn't advise any of the artists I coach to eliminate one all together without looking at the big goal.

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