Is crowdfunding right for you?
Crowdfunding isn’t going to work for everyone. If you don’t participate in social media, have an active mailing (email) or understand how to ask for donations, you can stop reading right here. I get inquiries about projects every day and I’ve developed a series of basic questions to help people figure out if they can play in this arena.
The first question has to do with whether you are a legal business:
- Do you have a business plan and how long have you been in business?
- Do you have any marketing experience or ability?
- How big is your database and does that list include Facebook, LinkedIn and Twitter or other sites, like Tumblr, Instagram, and Pinterest?
At this point I offer a little math exercise to help highlight the correlation between the amount of money the person wants to raise and the number of people they have the ability to market to. Example: You want to raise $5,000. You have 100 people in your database that you can send an email to. To reach your goal of $5,000, each of those people must send you $50. Now, if the statistics of response to email are anywhere close to being accurate for crowdfunding, then you can expect about 10-20 people out of your 100 to open your email, on a really good day. Of those people about 1-5% will click on the link you provide in the email and they’ll go to your project site. Of those people you hope at least 5 of them will give you a pledge. So, of your original 100 people, maybe 5 of them will give you money. Not great, huh? And, of those 5 backers, only one will help you spread the word. The statistics will vary from one kind of project to another, but the fundamental rule here is that not everyone will donate and, of course, some people will have better email open rates, but they usually have been communicating with their datebase on a regular basis, providing well written emails, good information or good offers.
So, the next conversation with people interested in crowdfunding is about how they need to think about their “crowd” or their database. Most lists will include people they know who will also have lists. There will be people you can call to ask if they will pass your email on to their friends and colleagues or post in Facebook, Twitter, etc. There may be colleagues whose business clients or vendors could benefit from the success of your product or service, so they might be more inclined to want to help you find success. The whole point of crowdfunding it to spread the word about your project, what you’re trying to do, and get others talking about it, sharing it and widening your sphere of influence to a larger and larger group of people. Then those people become your “crowd” and if your message about your project and product resonates with them, they’ll give you money and continue to be part of your database. You can continue to communicate with those people throughout your business launch and beyond.
It’s up to you to create a community with the people who’ve shown an interest in what you’re doing. If you’re pre-selling a hard, tangible product, crowdfunding can also provide product testing, market research, and (if you’re asking the right questions) can provide customer research on how you can improve your product. Plus, you have now established a list of potential return customers for your next, new and improved product or your newest product in your company’s line of wares.
One of my favorite examples of a successful crowdfunded project is Revolights.com, because they started and grew their business (halogen lights for bicycles) through crowdfunding, private funding, and angel investors and have even been on Shark Tank. They’ve done crowdfunding projects at least 3 times and now several bike companies pre-install their product, REI carries their sets, they hold customer events and races, and they’ve launched in Europe. Their most recent crowdfunding project was the pre-sale of their new tail light. They worked really hard to set themselves up before they ever launched their project and they keep using the same methods to grow their business, a stay in relevant conversation with their “crowd”.
Too many people think that if you simply put up a crowdfunding project, people will just show up and give money. It just doesn’t happen that way. People have to be told about the project, the great reward they’ll get for donating to the project and they have to be given the link to the project’s website.
Think about it this way. If I built a cute little shop with wonderful gifts and goodies, but it was off the main streets and away from traffic flow and I didn’t tell anyone about it, how long do you think I’d stay in business? But if I built this adorable boutique filled to the roof with affordable, creative, hand-made, one-of-a-kind gifts and offered free hot chocolate and cider for the holidays and I posted on my Facebook page, my LinkedIn page, Twitter, blogged on my website, handed out flyers and emailed everyone I’ve ever known in my entire life, what do you think would happen? Well, in the first scenario, I’d probably take a lot of naps with all my free time. Conversely, in the second scenario, I’d probably be busy handling new customers who heard about it from me, a friend, saw my flyer, and got a Tweet about it, and so on. If I was really resourceful, I’d call the people who do local radio, TV, magazines, newspapers, and Internet blogs and ASK for them to do an article, a show, an interview or blog about my project.
We know this works. We know it works because that’s what the really successful crowdfunding projects have done. And they don’t just use one medium, they use ALL of them. They blog, they Tweet, post on Facebook, they do interviews and write articles. They attend networking events and mixers. They ask their relatives, friends and business associates to help them. They talk about it to everyone and anyone who will listen. They ask their friends for help with their video or hire someone to do a great video for them. They get the help of college students to tell their friends through social media. Whatever is at their disposal to promote their project, that’s what they do. They don’t blanch and say, “I don’t know how to do social marketing”, they figure out how and get it done.
Crowdfunding isn’t for everyone, but it can be one of the tools you use to raise funds for your business. It can be a rung on the ladder to get started, to get to the next level for greater funding, to get pre-sales for your product and move along the road to success. It takes work, but the rewards can be great. You can sure that if you don’t do the work to market your project, no one will ever know.