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20 Nov 2016

Research: When Selling a New Idea, Differentiation Beats Transparency

If you would like to raise funds for a project using crowdfunding, recent research highlights that it is better to underline what makes your idea unique rather than emphasize transparency and a multitude of explanations. This conclusion is the result of an analysis of 30,000 crowdfunding campaigns on the Indiegogo platform.

This article from Grégoire Croidieu and Mickaël Buffart is the subject of the 30th GEM LAB Executive Summaries.

From the article

TMI : Signaling Credible Claims in Crowdfunding Campaign Narratives
Group & Organization Management, 41(6), 717–750.
Phillip H.Kim, Mickaël Buffart & Grégoire Croidieu (2016)

How can you convince others that your project (entrepreneurship, charity, artistic, etc.) is worthy when you do not yet have any proof of its value? The authors of this study explored the question using the specific case of crowdfunding.

Their work examined approximately 30,000 presentation texts for projects on Indiegogo between 2008 and 2013. These pitches were on average 640 words long and promoted projects with an average yield of 3,500 dollars.

Finding the right balance between two key ingredients

The authors compared two strategies. First, communication that centered on the uniqueness of an idea, or what the idea offers of better in comparison to competitors. Second, communication based on transparency in order to share all details about the idea including facts, motivations and costs (the result being a more complex message).

Both of these ingredients can of course be found in the majority of pitches. However, the balance between the two varies greatly from project to project and this can have a significant impact on how much was raised in comparison to the initial goal.

The results of the study highlight that the more language elements related to uniqueness and differentiation, the better the ratio between funds raised and initial goal (on the condition that all other factors are equal).

Quantity does not remplace quality

In contrast, the more a pitch included language elements tied to transparency, the further it was from its fundraising goal. In this case, examples of language elements include words such as because, for example, as and in fact. This also includes statements such as I think that, I believe that and I know that...

Of course the balance between these language elements is most likely different if an entrepreneur is speaking with banks or potential investors. However, in the context of crowdfunding, there is no reason to compensate a lack of concrete achievements by offering extra transparency and explanations. Uniqueness and differentiation are what speaks most to anonymous crowdfunders.

Key points

  • The words used in pitches are the primary resources an entrepreneur has at his or her disposal to convince and collect funds from anonymous crowdfunders.
  • An entrepreneur has to chose the right balance between a message based on transparency or differentiation. Too much of the former can create a message that is too complex. The latter, which is based on communicating how the project is different from existing ideas, appears to be the most efficient approach.
Mara Saviotti