What All Small Business Owners Should Know About Crowdfunding (Before They Do It)

Author: Stephanie Taylor Christensen | March 2, 2016

Crowdfunding sounds like a no-brainer way to gauge interest and financial support for a product or service before you bring an idea to market—while minimizing your own risk in the process. But its popularity within the small business community has raised the bar for what it takes to build and execute a successful crowdfunding campaign.

Here are some of the most important–and misunderstood– aspects of crowdfunding that all small business owners should know before deciding to launch a campaign.

  1. Be prepared to invest in your upfront strategy. Crowdsourcing campaigns do well because they are engineered to do well,” says Christopher Hawker, CEO of Trident Designs, a product development and commercialization firm that helps independent inventors and businesses bring products to market. Plan to invest plenty of time building a buzz around your campaign before it launches, and potentially, hiring the professional resources to help you build the components—like graphics, videos and marketing tools– to support your campaign. “You can’t usually get by with garage quality production any more. It takes a lot of man-hours to create a well-thought out campaign and execute in excellence,” says Hawker. 

Eric Black, co-owner of Lyla Tov Monsters financed his first line of plush toys on Kickstarter, and successfully raised about $21,000. He credits the time he spent researching the crowdfunding industry, building a base of support on social media, and contacting the appropriate press contacts with information about his product and the campaign launch date long before the launch, as key to his success.

  1. Identify how you can appeal to emotions. Regardless of what you’re trying to fund, it has to appeal to your unique audience on some emotional level, says Ronjini Joshua, president of The Silver Telegram, a public relations agency that has helped fund 35 campaigns over the past three years. “You need to really include some personal tugs in any campaign video and make it entertaining; it shouldn’t be as serious as a commercial.” She adds that the reader/visitor should be able to determine what they are purchasing if they donate to your cause within the first 10 seconds of your campaign. Likewise, your reward needs to make sense with your pricing –-and the interests of your audience.
  1. Plan to be involved once the campaign is underway. Crowdsourcing is not a “hit it and forget it” undertaking. “It can easily take 40+ man hours per week to stay on top of everything, for a period that lasts anywhere from 8 to 16 weeks, depending on how much time you spend in pre-campaign mode, and how long a campaign you run,” says Hawker. According to data compiled by Indiegogo, the most successful campaigns run for at least 30 to 39 days, and involve four campaign updates. This can include tasks like updating the donation page to reflect evolving campaign progress, sending targeted emails to donors and campaign contributors, continual media relations activities to maintain interest and momentum, and the addition of new perks after the campaign is launched.
  1. Don’t rely on it to get rich. Yes, the Pebble smartwatch came to market thanks to Kickstarter, and crowdfunding revived the 80’s kids show Reading Rainbow. But those massive crowdsourcing success stories aren’t the norm. Hawkes says they may not even have been as lucrative as they appeared. “When you see campaigns raise hundreds of thousands of dollars, it’s easy to think those people just got rich. But because of fees to the crowdfunding platform (which may be 10%), cost of goods sold (often 30% to 50%), campaign building costs (which are easily $10,000), and advertising costs, there is much less money left over,” says Hawker. “Know how much you will need to satisfy your funders and keep your business momentum for another year after the campaign,” advises Black.

Aside from approaching your campaign’s expenses and goals with a budget—don’t expect money to instantly appear. “Crowdfunding best practices say the first portion of your funding are going to come from your internal network. You need to secure 30-40% of your funding goal from people you already know, prior to launching the campaign,” says Joshua.

Ready for more?

Apply for funding and find out if you qualify today