This column is part of a series brought to you by Entrepreneur Coaching. Click here to learn more.
With the recent Securities and Exchange Commission ruling that companies may now use equity crowdfunding to sell pieces of their company to the general public, crowdfunding -- in all its forms -- is becoming a truly mainstream option for funding new businesses.
Funding a new product or a business startup via the likes of Kickstarter or IndieGoGo can provide an excellent means of market research. When people are willing to put up money to help develop a production prototype or bring to market a finished product, the clear implication is that the need and market exist.
Crowdfunding is also an excellent channel for building a customer base or leveraging an existing one. A successful crowdfunding campaign generates case studies and testimonials and jump-starts word-of-mouth marketing.
The key word here, however, is “successful.” Crowdfunding can be a viable financing approach, but only when done properly. Here are five keys for successful crowdfunding.
The best crowdfunding campaigns grab people’s emotions, because they're as much about feeling as rewards or return on investment. To hook people's feelings, start with a great idea. Great ideas can be a new solution to an old problem, or solutions to problems people didn’t even realize they had. Crowdfunding is no refuge for poorly thought-out products that don’t meet compelling needs for sizable markets.
To help snare emotions, use the most powerful media for transmitting your message: video. Find a way to tell your story and demonstrate your product this way, and you’ll have a better chance for a successful crowdfunding campaign.
Crowdfunding is much more than a one-way transfer of funds from backers to startups. It is a two-way conversation. So, entrepreneurs seeking crowdfunding must interact with backers and potential backers. Make sure you are watching and available on the social media platforms your customers use. Strive to respond in a timely fashion to each and every comment and question received.
Even though staff and other resources are in short supply in most startups, I urge my coaching clients to devote whatever it takes to make sure they engage effectively with potential backers.
Increase the scope and power of your campaign by tapping influencers who can bring your message to larger numbers of customers and backers. Trendsetters, bloggers and journalists can lend unmatched legitimacy by writing about or even endorsing your product and telling their followers about it.
While you're making sure you have your social media bases covered, don’t neglect traditional media. Send traditional press releases and story pitches to broadcasters, newspapers and magazines that are seen by your target audience. A mention or review on a show watched by millions can make the difference between a campaign that reaches its goals and one that falls short.
Learn everything you can about your market and your customers and their needs before you design your crowdfunding effort. Entrepreneurs sometimes want to rush in. But time and effort spent up-front will pay dividends later once your messages are well-targeted and tell customers exactly what they need to know in order to back your campaign.
While crowdfunding is often seen as a way to fund development of prototype products, entrepreneurs who have refined and market-ready offerings tend to get better results than those with only an idea or blueprints. Consider bootstrapping your product first, using internal and friends-and-family financing to distill your design, vet it with prospective customers and get the idea truly ready for market.
Just as applicants for bank loans have to make sure every detail in an application is complete and accurate, crowdfunders need to present a polished image to their potential customers and backers. All materials used in the campaign should be professional-looking and convey the idea that this is a serious business with a real product and viable plans.
Use clear, compelling language to tell customers why they should back your product and your company. And be sure to include images to ensure your message is getting across in multiple dimensions. It is especially important to have close-up, high-resolution photos to show people you have a real working product that works and is ready to go into production and to market.
Crowdfunding provides entrepreneurs with a way to get financing from any citizen with the money and interest to back startups and new products. Those who can do it well have before them a truly historic opportunity.