Thinking About Crowdfunding? 5 Keys to Bringing in Money

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A proper crowdfunding campaign does more than just raise money. It’s a force multiplier as you enter the marketplace.

Most crowdfunding advice is aimed at artists, musicians and lone gadget inventors. For those of us who run startups, crowdfunding can also be a powerful tool–but leveraging it gets harder every year. Despite being a $60 billion industry, crowdfunding is far from easy money, and entrepreneurs need to know what they’re doing to approach the crowd as a serious funding round.

Done well, however, the benefits can be enormous. Unlike traditional investors, a successful crowdfunding campaign offers a lot more than money. It lets you test the market, polish your concept, and build a customer base before you ever launch your business. So how do you make your campaign explode? Here are five key lessons that go beyond the usual buzz.

  1. Start the planning before the planning

Many experts will say that the first step of a crowdfunding campaign is to build your email list. Not quite. Before you even have a list, you want to test your message with real people–even if it’s just a handful. This one step will save you from putting months into a campaign only to miss the mark with your key audience.

One campaign that didn’t do this is the Gyro Caddy on Kickstarter. It’s a clever product: a coffee holder you can clip onto things, that keeps your coffee upright even as you roll over bumps. The inventor behind the product thought people would attach it to their suitcases, to make it easier to roll with coffee through a crowded airport.

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He was wrong–most people don’t go to airports often enough to care about the problem–but he totally missed out on a different demographic. As soon as his campaign launched, he received a slew of messages asking if the Gyro Caddy will attach to a bicycle. Cyclists are members of a diehard community, and they use their bikes everyday. A bump-proof cupholder has a lot of appeal for them.

The information came too late to pivot without a product redesign. Halfway through the campaign, the founder pulled the plug, never raising more than $4,000 out of a desired $35,000.

Your product might be perfectly good, but might also need a different message, name, or target audience. Testing this is easy:

  • Ask for feedback from people who are not friends or family. Explaining your product at networking events can help you gauge real interest.
  • Present a problem and explain how your product solves it. Do people’s eyes light up?
  • Note what type of people seem interested. Is it a certain demographic over and over? What made them interested?
  1. Choose your platform carefully

Kickstarter remains the biggest name in crowdfunding, but it does not have a lock on the industry. In fact, many entrepreneurs make the mistake of choosing Kickstarter purely for its name recognition, without considering the advantages of other platforms. For example:

  • Fundable exists specifically to crowdfund businesses, not just one-off inventions or artistic projects
  • Indiegogo lets you keep the money you raise even if you miss your funding goal
  • CircleUp and Crowdfunder are better for seeking traditional equity funding for a business
  • Appbackr and Appsfunder specialize in funding apps
  • Smaller platforms offer huge audiences dedicated to a specific niche, such as Microryza for science-themed projects

Choosing a platform should involve some research, but it doesn’t have to be hard. Check out this flowchart of 22 crowdfunding platforms or read detailed profiles of each platform here.

  1. Account for hidden costs

If you raise $100,000 on Kickstarter, you don’t get close to $100,000 to take home–especially not if you ran a professional campaign with an advertising budget. The most common expenses people cite are reward fulfillment and the cut taken by the crowdfunding platform, but these may only be half of the fees you end up paying. Other costs include:

  • Video production
  • Logo design and marketing collateral
  • Advertising (typically through Facebook ads and other social platforms)
  • Credit card processing fees
  • Money lost to unfulfilled pledges

These costs are a normal part of running a campaign, but they can be staggering. Musician JJ Heller ended up with over $13,000 in fees on an $81,000 album campaign. After adding in perk fulfillment, she paid roughly $16,000 of her own money despite exceeding her funding goal.

As a general rule, expect to set aside 20% of the total raised for fees, particularly if you are hiring professional services to help you. This doesn’t include reward fulfillment, which can cost even more depending on how many of your perks are physical versus digital. You do want to follow the common wisdom of setting your goal as low as realistically possible, but only if it clears these costs.

  1. Get free publicity

Another major cost for any crowdfunding campaign can be hiring a PR firm. Stories about your product, your startup, or your explosive funding round can all help fuel further pledges–which means they come at a premium. Attracting the media’s attention is not always easy and, accordingly, tends to be expensive.

But crowdfunding is a remarkably transparent world, and that makes it easy to piggyback off the success of others, including your competitors. Your pre-campaign research should already include identifying other crowdfunded products in your niche. Using that information, Soma co-founder Mike Del Ponte offers a simple strategy:

  • Find every article published about these campaigns
  • Identify the contact information for the authors of the articles
  • Craft a short but compelling pitch and send it to each author

If your pitch shows why your campaign is relevant to each author’s audience, you can expect sincere interest and a small flurry of earned media.

  1. Get your startup funded before you launch your campaign

It’s no secret that the buildup to your campaign should start at least six months before you actually launch. What this actually means, however, is that you have a crowdfunding video up on your site before there’s ever a campaign–with the email signup being the only ask. Then approach your campaign buildup as a series of mini „rounds“ aimed at concentrically larger groups of backers:

  • Approach your family and friends
  • Spread the word in your professional network
  • Use your brand’s social media reach
  • Then seek media stories to draw wider attention

As your list grows, you may also want to form a „launch team“ of dedicated fans. These are the 50 to 100 people who will help spread the word on their own Facebook pages, and who will make their pledge within hours of your campaign going live. The result? The hat is stuffed, you have social proof, and the whole campaign picks up momentum.

You should know that you have enough backers on board to fund a sizable percentage of your goal before you ever launch the campaign. If you lay this groundwork your startup will reach your goal early, and could get famous for a meteoric launch. If you don’t? Well, it may be time for a post-mortem.

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