Don’t you just love hype cycles, aka bubbles? I do because they’re so predictable and yet we all go along for the ride. What's funny is that you can see them coming, but they’re hard to resist because the excitement that surrounds them is so palpable. Even if we realize that all bubbles eventually pop, we still seem taken by surprise when they do. The dot com boom, energy, and the rise in housing prices (I’ll admit that one lasted a long time) to name a few recent ones that made a lot of people rich and then took it all away.
So what exactly is a hype cycle? The term was actually coined by industry research giant Gartner, Inc. to describe what happens to technologies from the time they’re introduced until they reach mainstream adoption. Below is a typical graph of the components of a hype cycle.
As you can see, when the hype about something is at its peak, meaning everyone’s talking and writing about it, watch out! Because that period of euphoria is quickly followed by the discovery that the technology doesn’t work quite like it was hyped. Then people become disillusioned, badmouth the technology, and eventually stop using it. At that point, the only thing that can save the technology is someone figuring out how to solve the problems with it and inject new life. That’s what happened with the dot com boom/bust/recovery and that’s what happening with energy.
Recently, I wrote about one of the latest bubbles in the making: business accelerators. They’re heading toward the peak of inflated expectations pretty rapidly. There will be a crash; there will be disillusionment, but the best of the accelerators will figure out how to get it right and survive.
Kickstarter, the crowdfunding site that has been in the news a lot (especially since The JOBS Act was signed into law in April), is another example of moving up the hype cycle curve. Let me explain with a couple examples.
Best-selling marketing guru Seth Godin (“Poke,” “Purple Cow,” etc. etc.) has decided to take advantage of Kickstarter to create some serious groupies around a new book project—serious because he wants them to invest in the book. Then he can go to a traditional publisher that puts books on bookstore shelves and prove that the book will be a best seller. According to a WSJ article, on June 18, Godin launched his effort on Kickstarter to promote The Icarus Deception, which, in his own words, is about “the mythology of success (and failure) and how our economy rewards people who are willing to stand up and stand out.” He offers investors, who can pledge in categories starting at $1 up to $1,150 or more, the opportunity to get in return things like signed copies of the book, hand-printed, hand-signed posters by Godin, and too many other things to mention here.
Godin has a deadline of July 17 to reach his goal of $40,000. Well, guess what? He’s currently at 3,482 backers who have pledged $237,041! That’s pretty impressive. It’s worth 5 minutes of your time to check out his pitch page. You’ll definitely learn something. And apparently, as of 3 days ago, Penguin/Portfolio agreed to publish the book. So goal achieved.
OK, that’s the good news, but is that the norm? Most decidedly not. Although Kickstarter has been criticized for not revealing how many projects have failed, according to Sarah Kessler on Mashable, about 56% of projects don’t get funded. Approximately 7,000 projects at any one time don’t receive any pledges at all. Kickstarter.com did report that about 8.5% of funded projects actually received double their goal. The point is, don’t look at Seth Godin as the norm. Do look at him as an example of how to build a tribe of groupies around your project.
Terre Roche knows that for a fact. A 59 year old musician, she and her band, Afro-Jersey, tried to raise $21,000 to create a CD of their music. Instead of songwriting and practicing his music, she spent her days sending emails to encourage people to go to the Kickstarter site and checking to see if she had any contributions. According to the NY Times, Roche raised $8.700, but since she didn’t reach her goal of $21,000, she didn’t get the money. She followed this with an attempt on Indiegogo where you don’t have to reach your goal to get the money you raise. There she ended her campaign with just $4,400 out of which 9 percent when to Indiegogo, 25% to the government, and about $800 to cover the costs of sending the bonuses out to the investors (you should always incorporate the mailing costs into your goal). Needless to say, Roche is a bit discouraged with the whole process.
As time goes on, more and more stories like Roche’s will come out to balance the hype around crowdfunding. Like Roche, more people will be disillusioned. But, that’s not necessarily a bad thing, because I believe we’ll start to see much better projects on the crowdfunding sites and perhaps the success rate will go up.
At least that's what typically happens with a successful hype cycle.
