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Nichole Elizabeth DeMeré

All About the Crowdfunded Startup

Nichole Elizabeth DeMeré
All About the Crowdfunded Startup

Crowdfunding is when a large number of donors contribute small amounts of money during an online fundraising campaign in order to finance a new product, project, venture, adventure or even an entire company. Crowdfunding campaigns have been used by video game companies and movie makers, toy makers and authors, and the possible uses are nearly limitless for startup companies. But you know what they say: if it were easy, everyone would be doing it.

Since major crowdfunding websites like Kickstarter launched, the crowdfunding universe has become overwhelmingly crowded, drowning out many promising projects. Competition is fierce, and even startups with great ideas for products and services people really want will find it difficult to rise above the noise.

How Startups Can Use Crowdfunding

For startups following the Lean Startup approach, crowdfunding can be especially appealing as a way to validate their business models – but that’s not the only goal startups can use crowdfunding to achieve.

Startups can use crowdfunding to:

  • Test product-consumer fit (if they’re willing to donate, that means they really want it! Usually.)
  • Validate demand and price point
  • Eliminate the risk of manufacturing products before earning revenue
  • Reduce unit cost by securing volume early
  • Raise capital in a short period of time
  • Prove that a project is worth serious investor consideration
  • Pre-sell products
  • Market, market, market!

Prove your worth, attract potential investors, get a sense of product fit before investing in manufacture, and even ensure profit with pre-selling – why would you not crowdfund?

As with anything, there are drawbacks and caveats.

First of all, crowdfunding is a lot of work. It’s a full-scale marketing campaign when your company might not have the infrastructure in place to pull it off properly. Think of it this way: if you think launching a new product is hard, try crowdfunding (it’s just as much work, if not more).

In addition to hours of social media marketing and email campaigns and updates, be prepared to answer questions. Crowdfund donors expect nothing short of full transparency and get uncomfortable if they don’t hear from you frequently and on-demand.

And, finally, before you upload your super-creative video to Kickstarter, do the math and find out how much time, resources and money it will take to ship your product and/or donation thank-you gifts. You don’t want to go broke with shipping costs, or find out that it’ll take months before your promises can be delivered.

Your 10 Step Kickstart to Kickstarter (and Other Crowdfunding Sites)

Essentially, you want to treat crowdfunding like the marketing campaign for a new product launch, but with even more emphasis placed on social media interaction, videos and updates. But, whatever you do, don’t expect crowdfunding to replace actual market research. If you make this mistake, you might do everything else right but miss a vital detail that makes or breaks the deal for your target market. Here are the primary tasks associated with a successful crowdfunding campaign.

  • Start building your following on social media long before you begin your campaign.
  • Perfect your company website and place your blog in a prominent spot for easy reference by donors hungry for updates.
  • Get inspired by other companies’ successful campaigns, and notice what did and didn’t work (ask if you can).
  • Invest in a great video. The video is what everyone will see first and determines whether they even read the rest of your pitch.
  • Contact the media, send press releases and see if you can land a few articles on sites your target audience frequents.
  • Send emails to targeted contacts, and make them fun and personal.
  • Seed the pot – you don’t want it to look like nobody wants to invest in your company, even if it’s the first minute of the first day of your campaign. You’ll need seed money from your own account to get other people enthused.
  • Explain how funding will be used, step by step. Donors want to know exactly where their money is going, and what they can expect to receive from it.
  • Be sure to show appreciation. Most crowdfunding sites require you to set “prizes” for every level of donation, but don’t stop at sending products or cheap freebies. Make it personal. Handwrite notes. Send postcards. Treat your campaign like a wedding, and each donation like your favorite gift from Great Aunt Frieda.

And, in the words of Alicia Ostarello who raised twenty-thousand dollars in her first Kickstarter campaign to fund her cross-country documentary, 50 Dates in 50 States, and then founded the crowdfunding copywriting company We Write Kickstarters:

“To rock at crowdfunding you need an idea that can be presented in a compelling manner, copy that engages the reader, and a video that is no longer than 90 seconds (a minute is ideal). People have a lot of options for who to back, and you need to stand out. Don't just slap your campaign together. Write, re-write, and ask for advice. Same with the video. Write a script, don't just ad hoc it; you need to convey a lot of information quickly while remembering attention spans are short. Finally, look at successful campaigns for inspiration. It's okay to get ideas from them. Imitation is the best form of flattery, in this case.”

Sources:

http://readwrite.com/2015/03/30/crowdfunding-what-you-need-to-know

http://www.seedinvest.com/blog/sec-comment-letter-startups-shouldnt-gamble-crowdfunding/

http://www.marsdd.com/mars-library/crowdfunding-campaigns-for-startup-funding-what-you-should-know/

http://www.forbes.com/sites/85broads/2014/04/30/the-new-strategy-for-successful-crowdfunding/

Do you have additional tips for businesses looking to crowdfund a startup? Please leave your advice in the comments below!

Nichole the Chief Strategy Officer at Inturact. She is also a moderator at Product Hunt and GrowthHackers.com; Previously, she was in growth at Inbound.org. View her website.

Comments

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Cherry Kwan F
Great article Nichole. I find that it gets difficult to find the projects with high potentials on Kickstarter to support when there are so many projects. In addition to starting social media earlier to stand out, I think it's also a great way to have the company share their story with local news and sites. A lot of times, people love supporting local projects/companies if they're great.
Joe Sturgess
Joe Sturgess
We used crowdfunding to get ourselves some traction and expand our early customer base for Tweet Rocket. It was a proof of concept more than anything and we smashed our goal. I'd recommend trying crowdfunding as a fairly high priority. Just make sure you spend time crafting an exceptional campaign.
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