Crowdfunding is a new tool in business, and one that hasn’t always been well understood. Having worked with many organisations that have attempted a crowdfunding campaign, let’s clear up some misconceptions…
Crowdfunding is visible. If you have a good video, a photogenic product, an idea that spreads easily, then crowdfunding is a great platform to show off your enterprise.
Crowdfunding isn’t a new audience. The temptation is to think that you can benefit from the existing audience of the site, thereby doubling your usual exposure. In theory this is possible, I just haven’t seen it play out in the real world, and especially not in Australia where most platforms are quite small. Thankyou did this well with their Chapter One campaign, raising $1.4m on a target of $1.2, but this was them leveraging their existing network.
Crowdfunding is lucrative. If you have a good network, a desirable product and the right price points, crowdfunding can help finance your growth and expansion without selling equity or going into debt.
Crowdfunding isn’t free money. This new revenue has strings; you now have to deliver a product or service to each supporter. A campaign that raises $60k doesn’t then have $60k of surplus, you may have to spend $35k creating and delivering rewards to your funders. Don’t forget the 5% fee charged by the platform....
Crowdfunding is validation. If you’ve been working on an idea for a business, this can help you check if your market is actually interested. The first test is “Will people look at it for more than two seconds?”, then after that you get to “Will people see enough value to pay for it?”. This is an inexpensive way of finding out what people want, and people vote with their wallet.
Crowdfunding isn’t charity. People typically don’t just jump on the platform and play mini-philanthropist, throwing cash at new projects on a whim. Instead, people are motivated by self interest. What does this product/service do for me? What sort of story can I share? Jonah Berger has the perfect term for this: Social Currency. That’s what ultimately drives sales.
Crowdfunding is about prizes. Seth Godin raised a good point; if this was about getting a project off the ground, surely people would stop contributing towards campaigns once they’re 100% funded. But they don’t, the popular ones get to 1,600% funded. Customers love prizes, and if you design the tiers well, you can create pre-sales that fund your product’s development.
The best way to learn about what works and what doesn’t is to watch it yourself. Go to Start Some Good or Chuffed and see what projects are live, see how they’ve structured their story and campaign, then look at the dollars.
People vote with their wallets, and so the financial performance is the most honest indicator possible.
Now look at Kickstarter. What’s different? How does the storytelling change?
If this is for you, great. Go into it with your eyes open, and let your audience fuel your work. Just don't rely on a miracle, and don't blame your network.