How to use crowdfunding to start a business

10 Crowdfunding Platforms

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How to use crowdfunding to start a business

Published By Janet Gershen-Siegel at January 1, 2018

10 Crowdfunding Platforms>

Crowdfunding has become all the rage and it’s not surprising. It’s (generally) free money which you do not have to repay. And you can get these funds without needing to give up any ownership or control over your small business. Additionally it can help you to determine the popularity of an idea or a prototype or invention. Because there is no sense in continuing if there is no interest in your design.

You will need to make a lot of choices before you even launch a startup crowdfunding campaign.

How much?

Your very first decision should be: just how much do I need to crowdfund? If you need $1 million, you are going to need to crowdfund more than that. Why? Because that is how crowdfunding platforms make their money– they take a percentage of any money you can raise. Thus, you will need to take that into consideration. Crowdfunding percent charges vary from 4% to 10%.

Will I succeed?

Another decision has to do with how successful you think your campaign will be. If you are extremely confident that you will be 100% funded at the end of your campaign, then traditional funding is for you. If you are not sure, then try GoFundMe’s flexible funding. With flexible funding, you, the campaign runner, can keep your donations even if your campaign falls short. However, for this benefit, you will have to pay a higher fee to GoFundMe. Other crowdfunding platforms like Kickstarter don’t offer this option.

What should I offer for perks?

Yes, you will have to offer perks to your donors. Perks can take many forms– buttons, tees, book marks – every one of those are possible tangible perks. Consider a perk format which can sync with your business. If you sell homemade jam, then perhaps create a unique flavor just for the campaign, and offer bigger and bigger-sized jars depending on donation amount. If you are a horseback riding stable, offer a complimentary lesson or a postcard with a favorite horse’s image on it, or something like that. Does your startup flip houses? Then consider offering a coupon to a neighborhood home supply company (work with them beforehand, of course) or the like.

Pro tip: physical perks are a pain! A lot of people love them, and they will stand out. However, you also have to ship physical perks. International shipping is extremely expensive, even for small items. So if you offer physical perks, specify whether you will allow international donor addresses. Even if everything has to be shipped in the US, you are still left with working with a data base of names and addresses (a few of which might have misprints or be incomplete) and usually a range of available perks. Did Jane want the stuffed teddy bear or the book mark? Did Alan want the pennant or the tee shirt? Do Jane and Alan live at the same address so perhaps you could mail their perks out together? What if a perk is lost or broken in the mail?

Because of this, if you can do it, try for digital perks. For a house flipping startup, you might record video footage about home design or repair. For a pastry shop, you could offer downloads of recipes. And for a health club, maybe offer digital coupons for a free month of membership.

Your Campaign

Your campaign’s success is far from assured. However, you can capitalize on a few proven approaches. First off consider these four feelings that you need to engender in donors. Use one or more of them as the focal point of your campaign as a starting point.

Urgency

The first two and last two days of a crowdfunding campaign are pretty much always the days with the biggest payoffs. Often, lengthening the campaign doesn’t make you significantly more money. So why not open a campaign for only a week? Don’t let donors feel they can contribute any old time they feel like it.

Scarcity

If you have thousands of something or other to supply as a perk, it will not be as desirable. If you only have a few copies of a specific perk, that will instill a feeling in some potential donors that they just have to have it. Do this with your larger donation levels only. Therefore, you might want to establish a perk/donation level system similar to this:

Donation Level Number of Perks
Lowest 1,000
Second lowest 500 (reward also incorporates lowest level reward)
Second highest 50 (reward also includes two lower level rewards)
Highest 10 (reward also incorporates all other levels’ rewards)

Remember: a lot of variety in physical perks will make fulfillment a lot harder, so don’t work with greater than maybe five separate varieties of physical perks– and even that is pushing it.

Novelty

If you are offering the identical thing as a thousand other places, no one will want to make a donation. Your widget needs to be lighter, hotter, cheaper, or more resilient. Your food should be reduced in calories or higher in nutrition or better-tasting. Or your professional services need to be delivered better or quicker, by friendlier and more skilled employees, and with a money back guarantee your competition don’t provide.

Cool factor

Is your product a work of art? Is it a new, gadget-like innovation? Then it may have a coolness aspect which you can construct your campaign around. But don’t be discouraged if it isn’t! These days, some of the most unforgettable advertising campaigns are based around a product the majority of people found uninspiring not ten years ago– insurance.

Crowdfunding Strategy

A few words on strategy:

  • Your pitch video will need to be great. Use an expert to film it and develop the script. Are you unable to pay for experts? Then try schools, both pupils and educators. Your script doesn’t need to be verbatim but you should have points you wish to make and not babble. Write a script and stay with it. This is not the right time to ad-lib.
  • If you have tangible evidence of your project, then make sure to present it in your campaign video and on your campaign page. This means a picture of your health spa’s sign or a short video clip of your prototype robot. A number of people are naturally doubtful about crowdfunding. An image and a tangible thing will go a long way to assuring them that your project isn’t vaporware.
  • Manners matter. Say please, thank you, and you’re welcome to everyone. Use these magic words in your pitch and in your communications with your donors, even in the cover letters you deliver with your perks (even internet perks can include a cover email message). You do not have to be servile, but you absolutely must be diplomatic.
  • Don’t be greedy! If you need $250,000 for your campaign, but you call for $1,000,000, that will not do anyone any good. You’ll just look like you want to leech off other peoples’ generosity. Instead, explain your expenses as plainly and transparently as possible. And incidentally, if you misuse your funding, you may end up in an unpleasant meeting with your state’s attorney general. So be truthful!
  • Your stretch goals should be a combination of readily achievable and pie in the sky. If you are crowdfunding for $100,000, a reasonably easy to attain stretch goal is $125,000. Pie in the sky going to be more like $300,000. Make it abundantly clear what you will do with any added money if you are fortunate enough to get it. Will you buy the property your startup is in? Employ five more people? Replace your old equipment? Launch a brand-new market on another continent? Let your donors know what you are pursuing, so they can dream with you.
  • Be gracious if your campaign fails. Even if you use GoFundMe’s flexible funding option, you nevertheless may not receive enough to make an appreciable dent in your funding requirements. If you wanted $100,000 and you just got $500, your best option is to simply give back the money. If you nearly made it with $95,000, then thank everybody who donated and see what you can possibly do, although there’s a deficiency. And let them know what you are doing! Maybe you’ll purchase your building next year, or hire four people rather than five. Once more; give your donors a stake in and an inside look at your startup. This will enable them to feel invested. And they may just opt to make up the deficiency themselves. Even if your crowdfunding campaign concludes does not mean a donor cannot send a check or buy extra goods or services. If that comes about, then politeness is essential.
  • Line up the most significant and most dependable donors you can before you start. Tell your mother or your brother in law or your former high school soccer coach to postpone on handing over their $1,000 or $10,000 donation till you start your campaign. And ask them (nicely!) to release their donation at a very precise time. Which time? The initial or final day of the campaign (split the funds as well as you can; if the split isn’t around half and half, then request the larger chunk of donations to come on the very last day of the campaign). Make the most of the novelty factor of the first day of the campaign, or the urgency factor of the very last. Just like a busker with a couple of her own bucks in her hat, to motivate people to toss in a few bucks for a song, you want your biggest donors to demonstrate to other donors that they believe in you and in your project. And you also want them to suggest your other donors that they had best get in on investing in your startup before the opportunity ends.
  • Share your campaign on social media and ask your family and friends to do so, too. Tweet the link. Incorporate it as a Facebook status. Make it a Tumblr post or a snap on Snapchat or create a blog post about it. Ask your network to publicize the link. The most effective technique to get your network to help you out is by assisting them in return. If your relative’s rock band is on Facebook, share their page, or tweet about it. Be a collaborative member of your own personal network, and your contacts will be more likely to help you out when you ask. And rerun these social media postings. Considering time zones and our all-too hectic lives, people may not see your message the first time around. Mix it up and deliver it at odd hours (you can oftentimes use scheduling software such as Hootsuite for this), including what is the middle of the night where you live.

Finally, if your small business crowdfunding campaign succeeds, think about donating a few dollars to others’ campaigns, or at the very least to charity. Because your business goodwill and a good reputation are priceless.

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