Myth: If I have a great product, the crowds will come
The reality is that crowdfunding works well for those companies that have already built a loyal base of followers! For most start-up companies, crowdfunding is not the first place to look for money. Unless entrepreneurs are ready to make the proper investments in a campaign for a crowdfunding success, it can be a huge waste of time, not to mention an ego deflator when no one visits the site. Crowdfunding IS, however, an excellent way to test your concept.
There are a lot of misconceptions around crowdfunding. The myths are perpetuated by word of mouth and in the media because a few phenomenal crowdfunding successes stand out. It seems ‘too good to be true.’ The truth? These successes are by far the minority; capital raises of a million or more are a tiny percentage of all campaigns.
What most people don’t understand is that these highly successful campaigns had already built the huge networks that were leveraged to support a successful crowdfunding campaign. Many of them also spent significant sums on media relations, search engine and social marketing and even direct advertising. No matter how many stories you hear about crowdfunding success, remember, the smart entrepreneurs who got funding this way started building their fan base long before activating a successful crowdfunding campaign to take in money.
The reality is that the majority of crowdfunding campaigns barely raise a few dollars. Crowdfunding is not a magic bullet.
Crowdfunding = Social Proof
While most entrepreneurs think of crowdfunding with dollar signs in their eyes, a smarter way is to look at the crowd is to envision them as future customers or investors ready to help in the early stage. Those individuals who actually spend time on your crowdfunding site are the people who are interested enough to tell you what they like and dislike about your concept. They might comment on anything from packaging to pricing to how you describe your product. You will absolutely hear things you never thought of before even if your idea has been germinating for years. Get enough of these comments and you have market data. Analyze the comments, interact with people online to go deeper into the topic and you will get patterns that mean something. Put together these patterns of what people DO like about your concept and act on them. That will gain you the social proof you need to make crowdfunding work.
By the way, this isn’t just something to do on a whim because it’s worth a try. Crowdfunding can provide highly valuable market research with very little upfront cost. But you have to do your homework. Mostly, you have to understand what crowdfunding can do for you right now. Are you ready?
Doing Crowdfunding Right
Crowdfunding is not as simple as posting a project on a website and hoping the crowd shows up. There is a reason that big numbers do show up for successful campaigns. They are the ones who have used advance PR to point people to the site. They’ve harnessed their networks to reach many more people than a founder/entrepreneur could hope to reach alone.
Connect with as many social media groups and individuals in advance to make connections that are tied to their interests, not just yours. Then add a dash of magic like an exceptional video and a project could go viral. There is no overnight success; even in crowdfunding. It just looks like overnight success when people have spent weeks or even months preparing to do it right. Nothing happens by accident.
The Secret Sauce
A clear articulation of the passion behind your product or business concept is the secret sauce that makes any crowdfunding campaign successful. It takes a lot of work to get that message just right. An early crowdfund post with a small dollar goal can be one of the ways to test your messaging so when it’s ready to go for the Real Money, your story is perfected. And it’s real, because you’ve tested it with the market you want to reach.
This is why entrepreneurs like Sean Stevens, founder of 4S Labs, was able to use Crowdfunding to discover that the market did not exist the way he had originally envisioned. Crowdfunding was cheaper than going into production for his iPhone wallet case. When entrepreneurs get plenty of positive, specific feedback and support for the project that is social proof they can show to potential equity investors. This third-party support makes the process of going to bigger investors that much easier. Perhaps more important, getting positive social proof for a concept can tell an entrepreneur whether it’s worth quitting a job to make major life changes in order to pursue their dream. Entrepreneurs can’t get social proof fast enough! Just ask Sean Stevens.
“I hate theory. For me, as an entrepreneur, it is useless. So when the idea of designing and building wallet cases for the iPhone platform with the help of the crowd (future customers who would vote and help us pick designs, colors, materials and even the name) I needed to know if this concept could gain traction in the real world, with real people…not just theoretical looks at market research, others who had gone before us, etc. Crowdfunding allowed our 4S Labs team to quickly and relatively inexpensively explore this theory without having to gamble on the theory. Even though we weren’t successful in raising the necessary funds or building the product, crowdfunding let us know that months ahead of time and hundreds of thousands of dollars earlier than had we not used crowdfunding.”
Sean Stevens / Founder and CEO / 4S Labs
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