It’s time big companies caught on to the benefits of crowdfunding

Crowdfunding sites like Kickstarter and Indiegogo are generating a lot of attention for their ability to raise millions of dollars from ordinary people who are prepared to invest in pre-buying products from entrepreneurs unable to raise cash conventionally, but that may still never make it to production.

Over the course of its relatively short life, crowdfunding has already produced several success stories. But with few exceptions, such as recent initiatives such as Prelaunch, very few corporations have yet to turn to crowdfunding.

The fact is that crowdfunding offers huge potential, given the right conditions:

• Raising money is not necessarily the most important aspect of crowdfunding, although crowdfunding can provide much-needed cash when a project is in danger of running aground. In the case of entrepreneurs, this can be a matter of life and death. In the case of corporations, using crowdfunding is more nuanced: a large company unable to raise money conventionally automatically prompts concern about its solvency and management, but nevertheless, it may have a place under certain circumstances.
• For example, crowdfunding can be a way to build support among consumers, much along the lines of a focus group. There is no better way to assess the likely reception of a product than seeing whether people are prepared to pre-buy it when it is still in the development stage. Some products have been successful precisely because they are low-investment and because from the get go the company behind them made it clear that it was simply sounding out the market potential.
• Shared ideas: successful crowdfunding projects generate close contact with the potential market, and provide input on the product. This type of close contact (while avoiding spamming) has often been a key aspect of a successful project: nobody is going to put money into something and then simply wait to receive the product. At the same time, investing in close contact with potential consumers can be highly rewarding.
• Risk perception: This is one of the most interesting aspects of crowdfunding. When established companies carry out crowdfunding, they are often able to build up a picture about pricing, promoting, as well as gauging other factors.
• Listening to the market: Successful crowdfunding campaigns allow the market to make decisions about a product. This allows backers to feel much more involved. This is very difficult when large corporations launch a product, and shows the potential of crowdfunding.
• Creating stakeholders: It is important to distinguish between equity shareholders and those who feel they have a stake in the company, people who are prepared to spread the word about the product through the social networks.
• Visibility: Crowdfunding can increase a product’s profile. Many successful projects depend on blogs and online publications that are on the lookout to see which products are on crowdfunding sites, and then further spread the word about them online.
• The team: Another key aspect of many successful crowdfunding projects lies in providing a human face to a project. Conversely, products launched by large corporations lack this, and tend to be seen as impersonal, produced in the abstract, represented simply by a brand or corporate identity, meaning that the potential market does not necessarily identify with them. Companies need to explore the idea of presenting the people behind their projects.
• Keep it simple, make it informal: Making a video is a good way of preparing a launch campaign, and can often have more impact than the traditional campaigns using the mass media.
• Honesty: Crowdfunding makes it possible to be direct and sincere. Launch campaigns along the lines of, “We are a company, we believe that this product is interesting, and we’d like your feedback” are still relatively uncommon, but will likely be used more and more in the future.
• Innovation: Using crowdfunding is not just in itself innovative, although few large companies have yet caught on to the benefits; equally important, it is also a way of reaching out to a potential market and can generate any number of new ideas.

Bearing in mind the long list of potential benefits, we can expect to see large companies begin to use crowdfunding more and more. In short, crowdfunding is not simply about panhandling or “we need money”. It need not compromise a company’s image, and indeed, can bolster it, making the company appear more approachable and sensitive to the market. My feeling is that in the near future we will see more and more products launched in this way.

(En español, aquí)