What is Crowdfunding? And When is it Right for My Business?

Crowdfunding, simply put, is raising money for your business or project through micro-donations/pledges from many different people, and in return they either get a piece of your business or a product you are creating (some sort of reward).

Why Would You Do Crowdfunding?

There are three common reasons for venturing into the crowdfunding world as a business or entrepreneur:

1. You need to raise money and don't have access to or don't want to use investors or funding from another source

2. You want to validate an idea or product to see how the market perceives it before jumping in with two feet

3. You are an established company that wants to launch its products in a unique way and your target audience lines up with crowdfunding enthusiasts. I'll give you some examples for each of these below!

All are completely legitimate reasons for crowdfunding and you will find out quickly if your product or business idea is successful or not. The crowdfunding world is incredibly fickle and if you don't hit the right milestones within the first 72 hours or so, your crowdfunding campaign may be rendered a flop and therefore won't generate the funding or approval you are searching for (your goal).

When is Crowdfunding Right for Your Business?

As an entrepreneur you are often faced with the "go/no-go" decision when determining whether a business idea is viable or not, or whether it is worth spending your life savings and time to do. Crowdfunding may be the right answer to help with that decision making process, however, you will have to have some seed money to give your crowdfunding project/campaign the opportunity to succeed.

One company that I ran a crowdfunding campaign for, Swidget, a smart home technology product that was new to the smart home industry in 2017, wanted to validate what research was telling them about their product before sinking a ton of capital into a business/product that consumers may not have been ready for. We ran a 6-week crowdfunding campaign and raised over $125,000USD (exceeded our goal by approximately $100k). We had 3,500 people pledge to our campaign essentially "pre-ordering" the Swidget products. This gave the Swidget team the market validation they needed to proceed with the investment and ultimately the business.

Another example is a company called, Peak Design - they make carrying solutions and accessories for cameras (adventurous photographers if you will). Peak Design used Kickstarter, one of the original crowdfunding platforms, to launch their first carry bag with enormous success and now they still launch all of their major products through crowdfunding as a way to generate excitement, enthusiasm and demand for their products. Like minded target audience to Kickstarter, Indiegogo and the likes -- it works for them!

How Do You Make a Crowdfunding Campaign Successful?

To make your crowdfunding campaign a success, you will need to create content like videos, imagery, infographics or charts to describe your idea/product. You will need creative and compelling rewards for those individuals that do pledge money toward your project, and if you want to give your project the best opportunity to succeed, you will need advertising/marketing dollars to generate a database or email list to start from and even drive buzz after it has launched. A successful crowdfunding campaign can certainly help with the big decision on whether to go forward with your business idea or new product, but a good crowdfunding campaign isn't for the faint of heart.

Other factors, in addition to a budget, to consider when deciding if crowdfunding is right for you are:

• Who is your target audience? Are they computer-savvy enough to figure out how to pledge for your project?

• Do you have a team member(s) that can communicate with the crowdfunding community regularly? They can be a needy bunch and answering emails, messages, and comments can be a tedious and time-consuming job if your campaign is a success.

• Do you have a strong database to start marketing your campaign to? If not, do you have a plan or budget to start one? This is one of the most critical factors to a successful crowdfunding project.

• Do you have social media platforms that you can use to drive awareness and launch ads from?

• Is there someone on your team that can create compelling and visually-impressive content?

• Do you have creative or compelling rewards to entice people to pledge money toward your campaign? These are extremely important and need to be well thought-out for your target audience.

So, what do you think? Is crowdfunding right for your business? It can be incredibly rewarding and/or challenging, so be honest with yourself and ask these questions before investing your time, energy and money into crowdfunding and ensure you are doing it for the right reasons.