When done right, crowdfunding can be a great way to kick off your product development and distribution. Put simply, crowdfunding is essentially fundraising for the production or marketing of your business. You convince individual investors to put an arbitrary amount of money behind a specific product or project in exchange for a small or large incentive (typically an in-kind product or service). Crowdfunding is a unique business fundraising model because it relies more heavily on a large number of individual, smaller investments rather than depending on a hand full of very large investments and does not typically require sacrificing equity in the business.
The popularity of businesses relying on crowdfunding has soared in the past few years, so much so that it is predicted to produce more funding than venture capital by the end of this year. This is partly due to the mass proliferation of websites that allow businesses, no matter their size, to raise money – As just one indicator of their proliferation, there are now more than 600 crowdfunding platforms around the world, with fundraising reaching billions of dollars annually.
Crowdfunding allows startups and companies in their early stages to build some capital quickly. The business world of the past required waiting on angel investors or bank loan officers and often resulted in disappointment – 95% of business plans received by the accredited investors and VCs are rejected. With crowdfunding, your business can pitch your new product or service straight to the masses. This helps not only gain the necessary capital for your project, but also helps build a base of customers who feel ownership of the project and want to see it succeed.
Why Choose Crowdfunding?
For many businesses and organizations, crowdfunding has proven to be a very successful alternative to acquire and invest money. There are many reasons why crowdfunding continues to increase in popularity but it’s mostly beneficial because:
- It’s convenient. – Applying for a loan or meeting with potential investors is not only nerve wracking, it is a lengthy process that requires a lot of paperwork and preparation. More importantly, you either need to carry debt or give up a significant portion of your business. In comparison, setting a crowdfunding campaign is significantly easier. All it takes is selecting the right platform, putting together a killer marketing plan including a stellar video that glorifies your product, and engaging with your audience while offering enticing rewards.
- It validates your concept. – Crowdfunding offers a valuable window into your target market and how they will react to your product before your business invests more money into design and development. A successful crowdfunding campaign helps prove there is interest in your idea and that people will be willing to spend money on it. In addition, you will be able to get real-time feedback to understand what people like and what can be improved before you go to production.
- It reduces risk. – Echoing the benefit of validating your product, crowdfunding campaigns help reduce the risk factor for both your business and your investors. It also helps reduce the cost of inventory, since you’ll have a reasonable gauge on how much of the product to produce depending on how much interest the campaign garnered.
In addition to the benefits above, a crowdfunding campaign serves as a great marketing tool. It can help spread your brand’s message and goals to a very wide audience and garner interest for your product.
How Crowdfunding Drives Development
In addition to helping get funding for your business’ project, crowdfunding can have a positive impact on the product development process as a whole. You can measure market readiness through revealing your product prototype to the general market early on and measuring potential demand to ensure you aren’t introducing the product too early – or too late. When you choose to crowdfund, you are also allowing customers to participate in the product design and development process, empowering them while gaining valuable feedback. Those choosing to fund your crowdfunding campaign are the exact customer you want to capture responses and feedback from so it can be extremely beneficial to have them accessible.
How to Create the Perfect Crowdfunding Campaign
In 2010 there was a relatively small market of early crowdfunding adopters, resulting in about $80 million gained. Fast forward just four years and the innovative fundraising method garnered $16 billion and over doubled in 2015 with $34 billion. Needless to say, crowdfunding is skyrocketing in popularity and is proving successful for many businesses. However, with the proliferation comes more competition, so it’s important to know how to make your product stand out in the sea of crowdfunding campaigns.
Although seemingly obvious, it’s very important to do as much diligent planning of your crowdfunding campaign as possible before you get started. Although it’s hard to anticipate what will happen, you can try to plan for what may happen. For instance, if your campaign goes viral, you’ll need to be ready to handle the press attention. It’s important to be ready for anything and have the proper staff in place to make sure you can handle it.
In addition to planning how to implement your campaign, it’s essential to leverage as many channels as possible to get the word out about your campaign and new product. Below are some channels to consider:
Thirty percent of your initial donations will be from people you know. Use email to spread the word about your campaign to your entire network and see if some of those will do you a favor and disseminate it among their own networks as well. The more emails, the better. Get interested business partners- even friends and family – to invest at least a little bit right away. People are much more likely to jump right in if they see others are already investing. Also, large investors are likely to visit the crowdfunding campaign page early to gauge interest so, if they see the campaign is going well, they may be more likely to invest as well. One thing to keep in mind however is to beware of Canadian Anti-Spam Legislation Compliance (CASL) when directly emailing people you do not have a relationship with.
- Social Media
As with nearly every kind of campaign, social media can be an incredibly powerful tool in marketing your new product. And it can be as cheap as free, although it does take a time investment. Be sure your business has a strong social media presence before you start the campaign. You need to dedicate time to curating your content – i.e. not just plugging your campaign for donations – to build trust with your customers and garner their support. The more genuine your brand is reflected as a whole, the more likely they will feel compelled to donate to your crowdfunding campaign. Set up listening for related words and phrases for your product and reach out to people who are already talking about it to help get the word out.
- Pay Per Click (PPC)
If your crowdfunding campaign has a significant goal and you have some initial funds to invest in marketing, running a PPC campaign could be very helpful in spreading the word beyond your network. Google, Facebook and many other platforms allow for paid ads that can target audiences of very wide or granular demographics. Be careful about how much it costs per click to get someone to your site and how much they are worth to you in the end. Choose a small target audience you know are interested and watch your budget carefully for waste.
Another easy way to spread the word about your campaign AND get higher donations is through offering cool incentives. Crowdfunding donations are often driven by the incentives that you offer for each level of investment so get creative, even if you don’t have the funds to offer big budget items. Offer something that is unique that still reflects your brand’s missions, like a home cooked dinner with the CEO or fun outing with the product development team.
The key to every successful crowdfunding campaign often rides on how trustworthy and transparent the business is. People will want to give to a crowdfunding campaign in which they like the product but also trust your business and believe in the idea behind it. Throughout the entirety of the campaign, it’s important to build trust and be transparent with the crowd of investors. Be communicative about how you’re going to spend the money, what your customers will get out of investing, and engage with them if they have comments or suggestions. This will help your customers feel more confident in what they’re investing in and lead to a more successful crowdfunding campaign.