We’ve covered what crowdfunding actually is briefly in a previous story, but should you look into crowdfunding your company? What are the risks and rewards? In today’s installment, we’ll look at and address some of the pros and cons of crowdfunding your project.
Let’s start off with the pros.
Control: One of the biggest pros of crowdfunding is that you get to be in charge of everything. From marketing, creative vision, timing, cost, and customer service, you’ll be in charge of it all. Crowdfunding also means you get to keep complete control over your company, instead of giving away equity or ownership to investors.
Low risk: By taking small donations from a lot of people, you minimize the risk for your company. If you don’t make your crowdfunding goal, you can always try again.
Easier VC and angel fundraising: If you’re seeking investment from VCs and angels, having a popular crowdfunding campaign can do wonders in convincing them that your idea is a good investment for them.
The ability to test: Crowdfunding allows you the luxury of constantly testing your design, marketing strategy, and more. With traditional funding methods, you have to have a clear strategy to implement before you even begin.
Gauge interest: Is your product actually good enough? With crowdfunding, you can gauge public interest in your product before you begin working on it. This way, you won’t need to invest thousands to make prototypes of a product that customers just aren’t interested in.
Direct connection to customers: By seeking funds directly from your prospective customers, you’re establishing trust and loyalty with the people that will become advocates for your product. A direct connection to your customers also gives you valuable feedback to help you improve your product before it launches.
Emotional investment: Customers who you directly engage with will be emotionally invested in your product and brand. It’s exciting for them to partake in a new venture, and it’s these customers that will be your biggest advocates.
Long term focus: With crowdfunding, you’re able to focus on long term goals instead of being pressured to produce short term results for investors.
Unexpected success: Instead of having a cap on success, crowdfunding provides unlimited potential. You’ve probably seen campaigns rocket
past their initial goal a hundred times over. If your campaign goes viral, this could be a reality for you.
Crowdfunding offers a lot of advantages over traditional funding methods, but it’s also not for the faint of heart. Consider these cons before you decide whether to use crowdfunding for your project.
Stress: Since you control every aspect of your company, marketing, sales and fundraising, you’ll have to deal with the stress of doing it all.
It’s public: Crowdfunding is a public affair. You won’t be able to run your company in stealth mode, and as a result, some competitors will know what you’re up to and may mimic some of your ideas.
A different audience: Instead of pitching to investors, crowdfunding requires you to modify your pitch to the general public. This means changing the language to focus less on business and more on your product. If you haven’t pitched to the general public, this can be a huge challenge. This also means you’ll have to answer questions from people with very different expectations. You’ll have to be on your toes about everything.
Crowded market: The crowdfunding market is saturated so you had better make sure your product is unique and offers clear benefits to your customer’s lives. You’ll have to work extra hard to get your campaign to stand out with a solid pre-launch strategy. You’ll need to maintain momentum throughout the campaign as well, so a well throughout media strategy is necessary.
You’re on your own: With traditional funding methods, venture capitalists and angel investors can open doors for you through their connections. With crowdfunding, you don’t have that luxury, so you’ll have to work to build your own connections.
Most campaigns never get funded: According to Statista, 64.15% of Kickstarter campaigns never reach their goal. Indiegogo has an even lower success rate with 87% of campaigns not reaching their goal, according to Entrepreneur. Although these stats are discouraging, there are a number of factors that prevent campaigns from succeeding. First of all, many products just aren’t that good. Then there’s the issue of newly built companies running every aspect of their campaign without the expertise to do it right. If you don’t have any social media marketing experience, hire someone who does. Working with an agency like Crowdtoolz ensures you have the best chance at success.
Still have questions about crowdfunding? Get in touch and let us make your campaign the best it can be.
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