10 Things You Should Know About Crowdfunding Your Startup
Crowdfunding is big business these days. The crowdfunding ecosystem is driving billions of dollars of revenue all across the globe each day. It’s also proven to be a game-changer in the startup world, too. But before you launch your next project out into the crowdfunding netherworld, there are a few things you need to know:
1. Know What Crowdfunding Is (and Isn’t)
A lot of would-be entrepreneurs think of crowdfunding as the goose laying the golden eggs of startup capital, but it’s far from that. At its base, crowdfunding is simply the process of raising capital from potential customers pre-launch. Think of it as global beta-testing. However, the ins and outs of marketing, messaging and customer relations are, if anything, even more important to understand within the massive ecosphere of crowdfunding sites. While your reach is much bigger in terms of potential audience, it’s also much more diluted than gathering a small group of folks in a room for a classic pitch of your product or service. So, messaging and audience targeting are vastly more critical to a crowdfunding campaign than they would be to a traditional marketing pitch.
2. Know Your Idea
You must know your vision, your idea, or your product. If you can’t explain to your audience exactly what it is that you want to achieve by launching, your fundraising efforts will be in vain. Likewise, a successful crowdfunding campaign requires you to lay out as much information regarding yourself and your product as posssible in order to attract backers.
3. Know How To Be Humble
Crowdfunding campaigns open you up to a world (literally) of criticism. The smartest, and most successful crowdfunders know that a good campaign is also a test of your product, to determine if there is even a market for it. Think of crowdfunding then, not only as a way to raise money, but also as a way to get your potential product out into your customers’ line of sight before you ever make a single sale. You must remain open to changing or altering your concept as a result of feedback you get during your campaign.
4. Know Your Message
Crowdfunding is all about the message. You have to focus on the problem that you solve, rather than the benefits you offer. Remember, you’re competing with hundreds or thousands of other, very similar offers within the ecosystem, and you have to prove to your potential backers why your product or service solves their problem better than anybody else’s. If you focus on benefits in your messaging, your unique sales proposition (USP) will get lost in the noise of competition.
5. Know Your Audience
Spending money marketing your product to people who don’t care sucks. Along with your message, your audience targeting is critical to a successful campaign. While opening the aperture and carpeting the internet with your message may net you one or two random backers, a targeted, direct marketing campaign is the secret to funding your project. The more refined and detailed you can be about your target audience, the more successful you will be at delivering your message to them in a way that makes them buy into your campaign.
6. Know Your Market, Space, and Positioning
Along with your USP, you must know where you fit into the market for your product. Are you the first to develop this particular app, or service, or gadget? Probably not. Recognizing your space and your positioning within that space is a key component of framing both your messaging and your audience targeting to achieve the greatest number of backers possible. A lack of familiarity with other potential competitors within your space will have you in the red faster than almost any other aspect of crowdfunding.
7. Know Your Network
Leveraging existing customers, friends, social media followers, blog readers and others will prime the pump before you ever launch your campaign. The successful campaigners know that gathering a cadre of motivated, excited backers before the campaign ever goes live is critical to early success. Most of the crowdfunding platforms use algorithms that reward early backing, and so will show your campaign to more people faster. Think of it as putting that first $5 in the tip jar: It plays into the psychology of how we spend money. Nobody wants to be the first idiot to back a loser project. Having a devoted following, even if it’s small, immediately upon launch is the best way to prove that you are a serious contender in the space.
8. Know Your Platform
Which platform are you going to use? Will you be on Kickstarter, Indiegogo, Gofundme, Fundable or some other site? Did you know that each site has its own rules and regulations for running campaigns? Some (Kickstarter and Fundable, for example) require you to meet or exceed your stated goal to receive any money, while others like Indiegogo will let you keep whatever you raise, even if it’s not up to your original goal. Each site has their own network of fees, too, with some taking heftier commissions than others. Finally, do you know which platform your target audience is more likely to use? Each platform has a certain flavor of project that performs better than others. Kickstarter, for example, tends to be product-oriented, whereas Indiegogo is more focused on the arts (bands, new albums, exhibits, and the like). This is not to say that your campaign will inherently fail, or succeed, on any one platform, but it’s best to know the flavor of platform before you choose.
9. Know That You Will Have To Do Most Of The Marketing Yourself
According to one study, Kickstarter, the biggest and most comprehensive crowdfunding platform, supplied a miserable 4% of all donations to a particular project, with the other 96% coming from the campaign owners’ own marketing efforts. This is the reality of crowdfunding: You must, oftentimes, bring your own crowd. Going back to Point 7, your own personal network will be more valuable for you, especially in the early days of your campaign, than any organic traffic from the crowdfunding site. Think of your campaign as a “fly and forget” model, whereby you set up your site and the donations automatically start pouring in and you will be disappointed. Think of it as a clearinghouse where people from all over the world have a secure, trusted and legal opportunity to back your project, and you will be much more likely to succeed.
10. Know How Much You Really Need
Finally, don’t think of crowdfunding as the end-all-be-all of fundraising. Remember, depending on the site, you must achieve your goal or you get nothing, so setting a smaller goal and exceeding is not only smart business, but it functions as a form of social proof for other prospective backers. Would you back a project that’s been live for a month and only secured 1% of its target? Me neither. But, if you break your crowdfunding campaign into smaller, concrete goals (and tell your audience what those goals are!) you will have a better chance of meeting them. Backing a product, or initial setup of an app or website is a much easier pill to swallow than “help me start a corporation!”
In the end, your crowdfunding campaign is only as good as the time, effort, and passion that you put into it. Like other forms of fundraising, crowdfunding is a powerful option if your product is viable, needed, and popular with your target audience. But if you haven’t done your homework, expect to be looking at a big zero in your bottom line at the end of your campaign.
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Jonathan is an author and consultant covering entrepreneurial leadership, business management, and personal development. Like what you read? Follow his blog!