Published By Janet Gershen-Siegel at October 6th, 2020
If you have ever wondered how to use recession crowdfunding to finance your business, then this one is for you! But before you commit to numbers, perks, a pitch, or anything of the sort, be sure to read this first. And, in particular, be sure to read this if that last sentence made no sense to you.
Even in a bad economy, crowdfunding is still possible. People still want to believe in your dreams. But you will probably need to lower your expectations on funding totals when everyone is feeling the pinch.
Crowdfunding has become all the rage and there is no wonder. It is (usually) free money which you do not have to pay back. And you can get these funds without having to give up any ownership or control over your small business.
Plus it can help you to gauge the popularity of an idea or a prototype or invention. Because there is no sense in continuing if there is no interest in your handiwork.
Before delving into how to do it, let’s first look at when and how crowdfunding came to be.
In a way, crowdfunding is the child of angel investing. But what is an angel investor?
According to Investopedia: “Angel investors invest in small startups or entrepreneurs. Often, angel investors are among an entrepreneur’s family and friends. The capital angel investors provide may be a one-time investment to help the business propel or an ongoing injection of money to support and carry the company through its difficult early stages.”
The term comes from Broadway theater. Angels were originally the investors who backed plays, and they still do so. Those people are also called patrons of the arts.
The Statue of Liberty was essentially a crowdfunded endeavor. And that was in 1885. But it goes back more than that, as war bonds are a species of crowdfunding. Plus in the 1730s, the London mercantile community saved the Bank of England by supporting the currency. This averted a confidence disaster.
Heck, even the bank scenes in It’s a Wonderful Life show a form of nascent crowdfunding, because the citizens of the town forego full payments to help each other out.
And then we get to crowdfunding on the internet. Kickstarter, for example, was started in 2009. And ArtistShare goes back to 2003. Today, there are several crowdfunding platforms. They handle everything from inventions to artistic endeavors to medical bills.
So let’s get started. But you will have to make a lot of choices before you even start a business crowdfunding campaign.
Your first decision should be: how much do I need to crowdfund? If you need $1 million, you are going to have to crowdfund more than that.
Why? Because that is how crowdfunding platforms make their money. They take a percentage of whatever money you can raise. Therefore, you will need to take that into consideration. Crowdfunding percentage charges range from 4% to 10%.
Another decision is about how successful you believe your campaign is going to be. If you are super confident that you will be 100% funded at the end of your campaign, then traditional funding will be for you.
But if you are not sure, then try something like GoFundMe’s flexible funding. With flexible funding, you, the campaign runner, can keep your donations even if your campaign fails. But for this privilege, you will have to pay a higher fee to GoFundMe.
Other crowdfunding platforms like Kickstarter do not offer this option.
Yes, you will have to offer perks to your donors. Perks can take several forms. Consider buttons, tee shirts, book marks – all of those are possible physical perks.
Think about a perk format which can dovetail with your business. If you sell homemade jam, then maybe create a special 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 free lesson or a postcard with a favorite horse’s picture on it, or the like. Does your business flip houses? Then consider offering a coupon to a local home supply company or the like. But do work with them beforehand, of course.
Pro tip: physical perks are a pain! A lot of people love them, and they will attract attention. But physical perks also need to be shipped. International shipping is extremely expensive, even for small items. So if you offer physical perks, specify if you will allow international donor addresses.
And even if everything has to be shipped in America, you are still left with dealing with a database of names and addresses. And some of which might have typos or be incomplete.
Plus you often have to deal with a variety of available perks. Did Jane want the stuffed teddy bear or the bookmark? Did Alan want the pennant or the tee shirt? Do Jane and Alan live at the same address so maybe you can combine their perks?
What happens if a perk is lost or damaged in the mail?
Therefore, if you can do it, try for virtual perks. For a house flipping company, you might record videos about home decorating or repairs. Or for a bakery, you could offer downloads of recipes. And for a health club, maybe offer electronic coupons for a free month of membership.
There is absolutely nothing wrong with just going ahead and asking your potential donors about what they might like for perks. They might surprise you. Of course, the final decision will be your own.
But this is an excellent means of investing your donors and potential donors in the process. This is far more vital than you may think. That is because, when the donors are invested in your process, they will be invested in you. And they will want very badly for you to succeed. This will stand you in good stead if you have delays. And it will also help you out, big time, when your company is up and running.
Furthermore, if you ever crowdfund again, treating your donors right and giving them a seat at the table will assure that they just might follow you to your next campaign.
Your campaign’s success will be far from guaranteed. But you can take advantage of a few known strategies. First of all consider these four feelings that you want to engender in donors. Use one or more of them as the centerpiece of your campaign as a starting point. We will start with two today and the other two in the next post.
The first two and last two days of a crowdfunding campaign are nearly always the days with the biggest payoffs. Often, dragging out the campaign does not make you significantly more money.
So why not open a campaign for just a week? Do not let donors think they can contribute any old time they feel like it. If you give them the feeling that they had better act now, or else lose out, you will get more people to donate.
The fear of missing out is a very real thing.
If you have thousands of something or other to offer as a perk, it will not be as desirable to your donors. But if you only have one or two of a particular perk, that will create a feeling in some people that they just have to have it. Scarcity can create a bit of anxiety in your donors. And you do want that.
So do this with your higher donation levels only. Therefore, you might want to set up a perk/donation level scheme which looks something like this:
|Donation Level||Number of Perks|
|Second lowest||500 (this reward also includes the lowest level reward)|
|Middle||100 (this reward also includes the two lower level rewards)|
|Second highest||50 (this reward also includes the three lower level rewards)|
|Highest||10 (this reward also includes all of the other level rewards)|
But be sure to remember: a lot of variation in physical perks will make fulfillment a lot harder. So do not work with more than maybe six separate types of physical perks. And even that is pushing it. After all, look at the complexity already inherent in one less tier than that (see the table, above).
Multiply that by all of the donors you get to your campaign. Larger platforms offer software for fulfillment purposes. It will nearly always be best to work with it.
But if you have to do it all yourself, then seriously consider no more than three tiers. Trust me. You will thank me later.
If you are offering the same thing as a thousand other places, no one will want to make a donation. Your widget has to be lighter, hotter, cheaper, or more durable. Your food has to be lower in calories or higher in nutrition. Or at least it should be better-tasting.
Or your services have to be delivered better, by friendlier and more knowledgeable people. And they should come with a money back guarantee your competitors just plain do not offer.
Think about how services or goods can differentiate themselves. Why do some people prefer Macs? Why do others prefer PCs? And why do some people want to get their insurance from Progressive? But others want theirs from Liberty Mutual.
Consumer choice, particularly in the United States these days, is huge! So offering true novelty can be a way to try to get beyond all of that clutter. And it is a lot of clutter indeed. Have you been to a toothpaste aisle in a drug store lately? Yeah. It is just like that.
Is your product a form of art? Is it a new, gadget-like invention?
Then it might have a coolness factor. And then you can build your campaign around that. But do not be discouraged if it is not! These days, some of the most memorable ad campaigns are based around a product most people found dull not ten years ago – insurance.
Now is the time for us to get back into the nitty gritty of the crowdfunding campaign itself.
Here are a few words on strategy.
You will not get anywhere without a pitch video. Yes, even you, you camera shy business owner, you!
Your pitch video needs to be good. Use a professional to film it and write the script. Can’t afford professionals? Then try schools, both students and teachers. Your script does not have to be word for word. But you should have points you want to make and not ramble. A script will help you to focus on exactly what you need to say. This is absolutely not the time to wing it.
Taking time with a script will show in every frame of the finished product. And your professional film maker? They might be charging you by the hour. So it is a really good idea to spend some time on a script or at least an outline of one. Do this before your professional film maker goes on the clock.
If you have physical evidence of your project, show it in your campaign video and on your campaign page. This means a picture of your health club’s sign. Or it could be a short video of your prototype robot.
A lot of people are understandably skeptical about crowdfunding. A picture and a tangible thing will go a long way to assuring them that your project is not vaporware.
Manners matter. ALWAYS. Say please, thank you, and you’re welcome to everyone. Use these magic words in your pitch and in your communications with your donors. And even use them in the cover letters you send with your perks. This is because even virtual perks can come with a cover email. And they should, as that is another chance to connect with your donors.
Do not get greedy! If you need $250,000 for your campaign, but you ask for $1,000,000, that does not do anyone any good. You will just look like you want to freeload off others’ generosity.
Instead, work hard to account for your expenses as clearly and transparently as possible. And by the way, if you misuse your funds, you might find yourself in an uncomfortable meeting with your state’s attorney general. So always, always, ALWAYS be honest!
If you need help, then hire an accountant or at least a bookkeeper. Much like with your pitch video, if you are low on cash, you can then try a local school.
Your stretch goals should be a mix of easily attainable and pie in the sky. If you are crowdfunding for $100,000, a fairly easy to attain stretch goal could be $125,000. Pie in the sky could be $300,000. Only you know your donors, or at least you know some of them. Be realistic about your prospects when it comes to your base. But for stretch goals, feel free to go just a little bit wild.
Make it abundantly clear what you will do with any extra cash if you are fortunate enough to get it. Will you buy the building your business is in? Hire four more people? Replace your old equipment? Open up a new market on another continent? Let your donors know what you are striving for.
This is also an excellent way to help get your donors to feel more invested in your project.
Be gracious if your campaign fails. Even if you use GoFundMe’s flexible funding option, you still might not get enough to make a dent in your funding needs. And of course with most forms of crowdfunding, you have to give everything back no matter what.
But let’s look at how to handle this kind of a situation if you took advantage of the flexible funding option.
Make an executive decision about the funds. If you wanted $100,000 and you only got $500, then your best bet is to just return the money. This kind of a shortfall should also give you a reason to take a good, hard look at your pitch, your campaign, and even your idea. Maybe you are being overly optimistic. A bad failure in crowdfunding can have a way of throwing a bucket of cold water on your dream, yes. But sometimes, that is exactly what you need.
If you almost made it with $95,000, then thank everyone who donated. And see what you can do, even though you have a shortfall. But also tell them what you are doing! Maybe you really will buy your building next year, or hire three people instead of four. Once again, get your donors invested in what you are doing. It will make an enormous difference.
Line up the biggest donors you can before you get started. Talk to your mother or your brother in law or your former high school football coach. And ask them to hold off on handing over their $1,000 or $10,000 donation until you start your campaign.
Also ask them (nicely!) to release their funds at a very specific time. Which time? The best times will always be the first or last day of the campaign.
Take advantage of the novelty factor of the first day of the campaign. Or take advantage of the urgency factor on the last day of your campaign.
Think about the busker (street musician) with a few of her own dollars in her hat, to encourage people to throw a few bucks for a song. Taking your cue from her, you want your biggest donors to show other donors that they have confidence in you and in your project.
Make sure to share your campaign on social media. And always ask your friends and family to do so, too. Tweet the link. Add it as a Facebook status. Make it a Tumblr post or a snap on Snapchat. Or write a blog post about it. Be proud of what you are doing! Tell the world!
Also, ask your network to circulate the link. The best way to get your network to help you out is by helping them in return. So if your cousin’s band is on Facebook, share their page, or tweet about it.
Be a cooperative member of your own personal community. And then your network will be far more likely to help you out when you ask.
Finally, if your small business recession crowdfunding campaign is successful, consider donating a few bucks to others’ campaigns. And this is because business goodwill and a good reputation are going to be priceless. Karma in crowdfunding matters.