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Crowdfunding: Optimism Isn’t Enough To Get Committed Investors

Some say optimism is the fastest path to success. While that might be true to some extent, too much optimism can be blinding. For example, most entrepreneurs believe their crowdfunding campaign will successfully secure all necessary funding, but that’s not always how it works out. Being optimistic doesn’t guarantee success. From manufacturer delays to miscalculations and poor production, well-intentioned crowdfunding campaigns fail all the time.

 

Although campaigns fail often, those failures aren’t a reflection of crowdfunding. Crowdfunding has big potential. In 2015, in just 31 days, the Pebble Time smartwatch generated $20,338,986 from 78,471 backers. One year prior, this revolutionary cooler with an ice-crushing blender generated $13,285,226 in just 52 days. These success stories give everyone hope that they can achieve the same level of success. The problem is, astronomical success is rare, and when it occurs, it’s driven by a well-orchestrated marketing campaign. Crowdfunding is simply the end of the funnel.

Is crowdfunding right for you?

Although crowdfunding skips the gatekeepers of traditional financing, it’s not a push-button approach to getting fast cash. Offering t-shirts for $25 donations won’t get you far. You need a compelling pitch and a marketing campaign that generates targeted traffic.

As Raise Capital points out, crowdfunding isn’t suitable for everyone. If you can rally a community around your business idea, crowdfunding can be a significant resource for capital. For instance, if your business idea will solve a local community problem, you’ll have plenty of support from people in your community. If your idea is self-serving, crowdfunding probably won’t work for you. People who invest in ideas want to know what’s in it for them. The most successful crowdfunding campaigns provide that value to others.

If you’re not adept at marketing, crowdfunding may not be right for you. On some popular platforms, if you don’t reach your intended goal, you don’t collect any of the money you’ve raised. That makes crowdfunding a high stakes game; setting your goal too high can cost you everything. On the other hand, many campaigns exceed their goals by thousands of dollars.

Your success ultimately depends on your ability to strategically engineer your campaign. You need to set the right financial goal, create enticing rewards, and market to the appropriate audience. While rewarding people with your product is standard, people don’t donate just to get a ten-dollar discount off the retail price. Investors want to feel like they’re getting in on something while it’s still underground. That’s tough to accomplish with rewards.

In a rewards-based campaign, people donate money in exchange for a reward. For example, if you’re a musician launching a new album, you might create three rewards. For $10, you’ll provide a copy of the album. For $50, you’ll provide a signed copy of the album, and for $200 you’ll provide a copy of the album and credit the donor in the insert. These are great rewards for existing fans, but this type of campaign will generate limited funds unless it aims to reach new fans. To reach new fans, the rewards need to exist within a broader context that speaks to non-fans.

If you’re not looking for much capital, generating donations from existing fans is probably sufficient. If you’re intending to launch a revolutionary idea or your concept isn’t tangible, rewards may not work. For those types of ideas, there are other options.

Crowdfunding isn’t always rewards-based

Launching a rewards-based crowdfunding campaign is easy on platforms like Indiegogo, and Kickstarter, but that’s not the only model. Crowdfunding campaigns can generate funds based on debt or equity as well.

It’s important to know the difference because some business ideas wouldn’t work well with a rewards-based campaign. For instance, if entrepreneur Boyan Slat used crowdfunding to raise money for his ocean cleanup efforts, he’d have a difficult time coming up with tangible rewards. He’d do better with the equity model, providing investors with a percentage of ownership in his company. Although he’s running a non-profit organization, people are drawn to being part of something they believe in.

The recipe for a successful crowdfunding campaign

If you’re new to crowdfunding, rather than flailing around in the dark, check out this crowdfunding launch plan written by Khierstyn Ross. Ross has extensive experience with crowdfunding, and has seen both success and failure. For her podcast, she’s interviewed over 25 people who launched successfully funded campaigns.

Optimism is one ingredient in the recipe for success, but it’s like salt and pepper – it gets sprinkled throughout the dish at various times, and isn’t the main ingredient.

Author : Holly Hutton

Born in the Big Easy and raised in the Sunshine State, Holly has spent the last five years brunching in the Big Apple and bantering with Big Ben. As a wandering writer, techy-in-training, and avid alliterator, Holly has written everything from educational policy and political news briefs to web content and travel blogs. She is thrilled to be a part of the KS team and working with a community of smart, savvy, entrepreneurs on all things startup!

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