Crowdfunding is getting a group of regular individuals to collectively fund your venture. And when I say “regular individuals” I am contrasting them to professional investors and lenders like banks, venture capitalists and angel investors.
Clearly, crowdfunding gives the key benefit of providing funding to your business. But, I have found other key benefits. Below I list those benefits as well as 5 keys to successfully raising crowdfunding.
5 Benefits of Crowdfunding
1. Market Research
Pre-selling your product is incredible market research. If people buy it, then your marketing message is on target and there is a real need for your product or service.
If people don’t buy it, then maybe a market doesn’t exist, or you need to adjust your marketing message or target market.
In either case, getting this market research BEFORE raising or trying to raise a ton of money is invaluable. It allows you to test whether you have a winner before going through this process.
2. Built-in Customer Base
When you get others to fund you via crowdfunding, you build a customer base. If you provide a good product or service, these customers will be prone to buy more products and services from you (the same products, upgrades and/or new products you develop) in the future.
3. Case Studies/Testimonials
Showing case studies and testimonials from customers is a great way to convince new customers to buy from you. And you can get these case studies and testimonials from those customers you gain from crowdfunding (assuming you delivered them the product/service and they liked it).
4. Word of Mouth Marketing
People who fund your company will tell their friends about it. Particularly if you make them feel like founders/initial investors (which you can easily do via email and on your website).
Done correctly, crowdfunding can result in thousands of customers, most of whom can tell numerous friends and colleagues about your products and services. This word of mouth marketing can be worth millions of dollars.
Local media sources are enamored with crowdfunding as it’s new and unique. As a result, countless entrepreneurs who have raised crowdfunding have been profiled in local newspapers, radio shows and TV broadcasts.
So, with some legwork, raising crowdfunding can get you lots of PR.
So, now that you understand the benefits of crowdfunding, how do you raise it? Below are five keys.
5 Keys to Raising Crowdfunding
1. Inspire People
When you tell your “story” to potential crowdfunders, inspire them. Yes, they are investing in your product or service, but they are also investing in you. Give them an inspiring story about yourself and why you are building your company. Inspire them to want to help you.
2. Provide Value
When people crowdfund you, they need to get something in return, such as equity in your business or your promise to give them a certain quantity of the product or service you create. Make sure potential crowdfunders feel they are getting value for their investment. If not, they won’t fund you.
3. Create Social Proof
Social proof is the psychological concept that if someone sees someone else doing something, they are more prone to do, or want to do, that same thing. For example, a line outside a bar shows social proof that the bar is hip/cool/the place to be, and inspires others to want to go inside.
Social proof can be created in crowdfunding. Here’s how. As soon as you launch your crowdfunding project, get as many of your friends and family as possible to fund it. Then, when others that don’t know you go to your crowdfunding page, they will see that lots of other people have already funded you. This will make them much more likely to fund you too.
4. Market and Build Buzz
Even if you have the coolest company, product or service in the world, chances are that crowdfunders won’t automatically beat a path to your door. Rather, you need to market your crowdfunding raise. Email all your friends about it and tell them to do the same. Tell everyone on Facebook and Twitter about it. And so on. Even if your company is buzzworthy, you need to first create the critical mass of people who know about it and can spread the word. So make sure you do just that.
5. Don’t Slow Down
Once you start getting more and more backers to your crowdfunding campaign, don’t just sit back and let the money roll in. Crowdfunding is a fixed-term capital raise. For example, on Kickstarter, your crowdfunding campaign can only last 90 days. So, once those 90 days is up, you can’t raise more money (you’d have to start and market a separate campaign later). So, during the campaign, try to raise as much money as possible. Communicate with those who have backed you. Thank them and tell them to tell their friends to back you too. And make sure they don’t have “buyer’s remorse” – assure them that you remain steadfast in achieving the vision you laid out when you convinced them to back you.
Crowdfunding is an exciting new source of funding with many benefits. To get it, prepare yourself and follow these steps.
by Dave Lavinsky. President of Growthink.com