Why did SwipeGood fail?

I’ve written about SwipeGood in the past; I was impressed by the simplicity in which they allowed consumers to set aside a little money for charity. But SwipeGood will be shutting its doors soon, evidenced by this message they sent to their users recently:

Hey SwipeGoods,

It’s with a heavy heart that I say SwipeGood is shutting its doors soon. No new users will be able to sign up. However, existing users will be able to log into their accounts and see their previous donations for several months.

While you may not be able to give your change, please keep up the great support of organizations such as Room To Read by giving to them directly at http://www.roomtoread.org/.

Team SwipeGood

So why did SwipeGood fail? It wasn’t for lack of exposure. They had plenty of coverage, from Mashable, TechCrunch, Simon Mainwaring, Good.is, and Fast Company, to name a few. Backed by the well-connected incubator Y Combinator, endorsed by Ashton Kutcher (right on the home page, no less), and founded by what look like some pretty bright guys, SwipeGood certainly had the financial and human capital needed to get off the ground.

An easy answer might be that their business model wasn’t well thought-out. But I think it was. Here’s some simple math: Let’s assume that the average user charges their credit card 40x per month. Assuming an average “round up” of $0.50, that would equate to $20 of monthly donations. SwipeGood takes out 2.5% for credit card fees and 5% for operating costs, so 5% x $20 equals $1. Each user would be worth $1/month, or $12/year. Now, let’s make some assumptions about SwipeGood’s operating costs. I counted three employees – let’s pretend that the cost of salaries, taxes, etc. for each is $100,000, for a total of $300,000/year. Now let’s assume another $200,000/year for things like office space, legal work, servers, insurance, etc. SwipeGood would need $500,000 each year just to cover costs. Now let’s give them a meager 10% profit margin; they’d then need to rake in $550,000 each year.

Have you done the math already? With those assumptions, SwipeGood would need 45,833 users to make a small profit. Hardly an insurmountable user base to achieve. That is, of course, assuming  you have a compelling product. Obviously it wasn’t, so here are my thoughts as to why.

Getting users to try something new requires one of two things: it must allow them to do something they already do, but cheaper, or it must allow them to do something they want to, but can’t. SwipeGood did neither.

To the first point, SwipeGood actually made it more expensive to give to charity: by taking a 7.5% cut, SwipeGood’s model was necessarily more costly than giving directly to a charity. At best, a user might know that non-profits have to pay credit card fees too. But that doesn’t mean he’d be willing to pay additional fees on top of that. At worst, the user assumes that all of the 7.5% cut is money that a non-profit would have received otherwise. Regardless of what the user thinks, he’s not left feeling any better in either situation. Witness another new fundraising startup: rally.org, whose 4.5% fee charged to non-profits covers everything, including credit card fees. It will be interesting to see if they fare any better. At least they are up front about the costs – it is listed right on the homepage, instead of buried in the FAQs on SwipeGood’s page. Anyway, SwipeGood hardly made it cheaper to donate.

To the second point, the giving experience through SwipeGood was neither new nor better. Donors can already sign up for recurring donations nearly anywhere else, so this feature wasn’t novel. But here’s the real kicker – SwipeGood offered no real way for users to build relationships with charities. Instead, it was static experience – it could never improve, regardless of how much a donor gave. To me, the fact that SwipeGood didn’t allow users to further connect with charities reflects a deep misunderstanding of why people choose to donate at all. Giving isn’t a purely mechanical action that one simply turns on and off. It’s an emotional, altruistic action that requires real human connections to work well. A non-profit isn’t necessarily successful at fundraising because it offers the easiest donation process on its website. Instead, successful charities know how to build relationships with their donors, and they are able to create a bond between the giver and the receiver. They know how to thank donors for their support. And they know how to make them feel good about the experience so they continue to give. SwipeGood offered none of this, and left users with a sliver of the giving experience that they deserved and could easily find elsewhere.

SwipeGood wouldn’t be a bad idea, IF it were part of a larger service that cultivated relationships between donors and charities. In that case, it could be a GREAT idea. But on its own, it failed to provide the human connectivity that fuels philanthropy at its core. Hopefully the SwipeGood team will come up with something more compelling next time around – at least their intentions are in the right place.

What do you think – what could SwipeGood have done to create a more engaging giving experience?