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Is Crowdfunding The Right Route For Your Startup?

By now, I’m certain you’ve heard of crowdfunding and how it has changed the face of business. Thanks to websites like Kickstarter, angel investors and VC firms are no longer the only means of securing funding for a startup. With a good enough pitch and the right marketing, a brand can fund itself directly through its future customers.

In theory, that seems like a dream come true for consumers and businesses alike. In addition to funding, startups get a ton of (theoretically) free marketing, and the opportunity to connect with customers. On the other side of the coin, the consumer gets to feel like they’ve a personal stake in the brand, making them significantly more loyal.

But is it really all it’s cracked up to be? Can a business really fund itself solely through platforms like Kickstarter? More importantly…can your business do so?

Enterprise Has No Place Here

Before you even think about diving into a crowdfunding campaign, ask yourself one simple question: is the product you’re working on business-to-business, or business-to-consumer? If it’s the former, then you should probably look at more traditional methods of funding. The vast majority of crowdfunding platforms are consumer—oriented: you’ll be hard-pressed to sell a product designed strictly for enterprise use—the average consumer simply won’t see a use for it.

There’s a reason so many of the most successful crowdfunding campaigns are video games, board games, movies, or documentaries—they’re products the consumer can see an immediate, obvious use for.

See A Need; Fill A Need

Of course, even if your product is designed specifically for consumers, there’s no guarantee it’s going to sell. In order for a crowdfunding campaign to succeed, the product or business it aims to fund must fill a need in the lives of its target demographic. Not only that, it has to differentiate itself in some way from the competition—it needs to be unique enough that people want to buy it.

A Mastery Of Marketing Is A Must

It should go without saying that success from a crowdfunding standpoint is only partially about the product you’re selling, though. The rest is all about how you market it. Do you have a polished, professional-looking video on your crowdfunding page explaining who you are and what you do? Are you able to respond quickly and effectively to any questions, comments, or concerns backers might have? Do you know how to get people pumped up on social media? Are you able to design creative, valuable rewards for backers?

If marketing isn’t your strong suit and you lack the capital to hire a marketing firm, then crowdfunding is going to be an uphill struggle.

Be Prepared To Pay The Price Of Going Public

Crowdfunding is significantly more risky than securing traditional capital—not in the least because if you fail, everyone will remember it. Even if you launch a second crowdfunding campaign later, there’ll be people who recall the first. Once you’ve failed, it’ll be incredibly difficult to pick yourself up and start again; even if your business gets funded, you might end up with a poor reputation after the fact.

On top of that, you’re putting your ideas on the Internet for the whole world to see—potentially before you’re even able to copyright it. An unscrupulous competitor could easily snatch up your concepts and put out their own cheap copy. Worse still, that copy could, through pure luck, end up being more successful than the original.

Speaking of luck…

Understand That Crowdfunding Can Be Unpredictable

Unlike with venture capital, there’s really no way to guarantee that you’ll make money off a crowdfunding campaign. I’ve seen scores of worthy projects fail, while Zack Danger’s Potato Salad Kickstarter raised over 500,000% of its initial goal. Admittedly, he pitched the whole thing pretty masterfully, but at the same time…

It’s just potato salad.

What I’m trying to say here is that backers can be remarkably fickle. While crowdfunding can certainly be a valuable alternative, you should never look at it as guaranteed income. It isn’t.

A New Avenue For Fundraising

At the end of the day, I can’t definitively say whether or not crowdfunding is the correct choice for your organization. That’s a decision you need to make on your own. If, after reading all of the information here, you feel like it’s something you stand to benefit from, then go right ahead and give it a try. There are plenty of platforms you could use — Kickstarter, Fundable, and Indiegogo are just a few of your options.

Crowdfunding has changed the world of business in a way no one could possibly have foreseen, empowering the consumer to decide which startups succeed. For the right organization, the decision to crowdfund can be the best choice they’ll ever make. It’s not for everyone, though—before you jump on Kickstarter or Fundable, make sure you know exactly what it is you’re getting into.

Kevin Blanchard

Kevin Blanchard

Kevin Blanchard is the CEO of ServerMania.