On the surface, crowdfunding seems like a panacea for all that ails the venture capital and angel investment community. Instead of creating complex business plans and pitches and hoping influential groups of wealthy investors will decide your business or startup aligns with their vision of public taste, you can instead go direct to the end-user with a compelling video plea.
Using sites like Kickstarter, IndieGogo, RocketHub, Peerbackers and dozens of emerging rival platforms, scrappy entrepreneurs are increasingly using prototypes, attention-getting film clips, and a little personality to garner public support. Courting everyday Internet users’ financial backing in exchange for merchandise, pre-orders or more personal awards (e.g. appearances in their next film or TV show), the best part is that business owners typically don’t give up any equity or ownership stake in the venture.
But successful as outings such as Double Fine Adventure and the Pebble: E-Paper Watch have been at garnering media attention and investment dollars, it’s important to remember: Crowdfunding isn’t for all businesses or industries. From planning to production and execution, there are several factors to consider if you are thinking about using a crowdfunding model to finance a business, product, project, service or event. Following are several hard questions to ask yourself before turning to crowdfunding as a source of startup capital – think long and hard on all before taking the plunge.
- How good is your idea – really? Are you certain that people will be interested in it?
- Why is your product, service or venture destined to sell – what value does it offer the customer?
- What differentiates your project from existing competitors, or alternatives that have come before? Are you utilising an existing brand, IP or personality that has a pre-existing base of fans or consumers? (Using an existing, if perhaps older, brand or IP which consumers have fond memories of can be a very effective strategy.)
- Can you express your idea simply and at the same time get people excited about it? If not, it may be that the idea isn’t all that compelling, or that you may not be the right person to communicate or present it.
- Do you have something tangible to show when presenting your venture – some visual aspect of your project that can help other people visualise it?
- How well do you know and understand your target audience?
- Do you have confidence in your ability to reach out and connect with potential backers? Have you planned which vehicles you will use to reach out and connect with them?
- Have you calculated just how much money you need – truly need – to get your ideas off the ground?
- Have you factored in all financial variables, including the costs of reward fulfillment, payments to the crowdfunding service, and taxes?
- Have you been sensible enough to build a budget that allows for breathing room in certain areas, and factors in conservative projections?
- Are you positive that you can fulfil all your promises, including completing the project in the allotted timeframe, and delivering on all features and content covered in your pitch? Have you considered the impact on your product’s brand identity, or your own personal brand, should your campaign not succeed?
- Do you have some great rewards in mind to give backers and fans incentive to donate? Have you mapped out your reward tiers? How will you offer these rewards, and what dollar amount will you attach to them?
- Can you offer meaningful rewards at a variety of investment levels to attract all potential patrons?
- What specific or unique rewards will you use to get people talking? Can you create any singular ones that can be utilized in social media campaigns or for press outreach?
- Do you understand all the personal and professional demands that the process of running a crowdfunding campaign demands from creators? Are you prepared to put 110% effort into making your crowdfunding project a success?
- Do you have at least some marketing, public relations and social media connections and savvy?
- What promotional campaign activities do you plan to pursue leading up to and during launch? How will you keep the buzz going after your crowdfunding project debuts?
- Are you ready and able to take a big personal risk?
- Do you – and at least a few other people you can look to for support, whether financial, emotional or otherwise – fully believe in your project?
- Who can you turn to for help, whether in terms of assistance with asset creation, financial backing, raising awareness or just help spreading the word?
And finally, the most important question of all: Have you examined other crowdfunding projects – both successes and failures – to understand which approaches, techniques and strategies work or tend to result in failure? If you can satisfactorily answer all of these questions with a straight face, and believe with certainty in your ability to deliver on all, there’s a good chance that you can be successful with crowd funded ventures.
Professional keynote speaker Scott Steinberg is a leading expert on leveraging new technology trends to enhance business strategy and family life. A noted industry consultant and bestselling author, his new book The Crowdfunding Bible is 100% free to download at www.CrowdFundingGuides.com, or in eBook form on Apple, Nook and Sony Reader devices.
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