In researching and learning about crowd funding, I kept running over the same basic advice. I've read countless articles on how to make great videos, pricing for campaign incentives and other general topics.
However, after interviewing numerous crowd funding veterans, I've also found that there are a few 'tricks of the trade' that the most savvy crowd funding entrepreneurs are using to increase their rate of success.
Here are a few insider tips that aren't typically discussed in most crowd funding how-to guides:
1) Pre-raise 5%-35% of your goal prior to launch
In my expert interviews and research of highly successful campaigns, the pre-raise was mentioned as the most significant financial component that influence success. Crowd funding backers like to jump on bandwagons, so you had better show up with one!
It is important to note that the pre-raise must come from grass-root sources like fans of products related to your invention. Scott Purcell, author of The Definitive Guide to Equity Debt and Crowd Funding, stresses that "Pre-raises are about quality over quantity". Therefore, putting in family money, investor cash or otherwise 'astro-turfing' the first contributions do not qualify as a genuine pre-raise effort and will most likely not generate the results you need.
According to Purcell, here are the numbers behind pre-raise amounts and chances of success:
|Pre-Raise Amount||Rate of Success|
The great news is that pre-raising just 5% of your goal will launch you with an 80% chance of success. This will also help you to get some market validation and early fans that are ready to help promote your campaign on day one. Trouble raising that first 5% is a red flag, signaling problems down the road. Failure to pre-raise at least 5% of your goal should be treated as a sign that you might need to do more planning or even revisit aspects of your pitch or product.
Pre-raising will also help optimize your campaign for the algorithms that choose the order in which projects are presented to platform visitors. Early momentum by a pre-raise will make your project much more likely to be featured at the top of the list of campaigns in your category.
2) When to start freaking out
There are no hard stats on timing expectations on hitting your goal, but you can calculate your path to success throughout the campaign to determine if and when you will reach your goal.
Sandeep Sood of the crowd funding marketing group RainFactory explains that people running these campaigns "Must keep in mind that funding growth rates decrease as time goes on." Therefore, be realistic when you plot the path to your goal by taking into account diminishing pledge amounts as time goes on. Keep this plot on a whiteboard to keep your finger on the pulse of your campaign.
If it looks like your campaign is falling short, then be proactive with outbound messaging through advertisements or grass-root efforts on social media or blogs. As you will see in the next section, there is always a way to stay productive throughout your campaign.
However, if it is clear that you aren't going to reach your goal, then you may need to re-visit your campaign messaging. Purcell suggests that "If you don't have traction, then you should probably pull it down. Reality is, you have not emotionally engaged your audience."
3) Be productive during the lull period
According to Sood, there is an inevitable 'lull period' in attention and money coming into every campaign. Well-funded entrepreneurs can turn to digital advertising to bridge the lull, but the garage inventor most likely doesn't have deep pockets to fund advertising campaigns. Therefore, you must get scrappy and creative beyond simply connecting your Twitter and Facebook accounts to the campaign page.
Mary Juetten of Traklight suggests that "Entrepreneurs must find and connect with their crowds through social network interest groups and relevant blogs." Mary further explained that entrepreneurs that are at a loss for ways to be productive throughout the campaign can always interact with relevant interest groups on blogs, forums, social networks and news websites. Post updates, blog posts, photos, videos and links to your campaign page on relevant social networks, communities and websites.
It is also crucial to post updates consistently throughout the campaign. However, many entrepreneurs find themselves at a loss here since, from their perspective, the campaign is largely a waiting game on reaching the goal. However, updates don't have to be a big announcement or monumental event. Purcell stresses that "Campaign updates can be anything--a percentage increase, details on product development conversations, team meeting notes or even streams of consciousness." The point is to stay engaged with your backers and let them know that they are genuinely helping the cause.
4) Big goals usually have big marketing & PR
According to Sood, "Crowdfunding has gone pop"--meaning that what was once a scrappy solo entrepreneur-driven initiative is now being taken over by well funded VCs and existing companies. These campaigns pump tons of cash into digital advertising and PR to reach insane goal multiples. What appears to be a campaign gone viral may just be a well-advertised effort with six-figure budgets. So entrepreneurs must do their research to know what they are up against, or what it will take to hit specific goals in their vertical.
Use web searches to get a sense of the advertising budgets of comparable crowd funding campaigns. Google the product name to see if they have already been featured at CES or other large events. Visit the official website of these campaigns, then go to news websites, social networks and blogs to see if their advertisements follow you around through re-targeting. This will give you a sense of the advertising dollars being spent and you can be realistic about your expectations with your advertising budget.
5) Act like a high-powered marketing team
Replicating the productivity of a $250,000 marketing budget may sound impossible, but there are steps you can take to generate results in advertising by doing what these high-paid teams do best--experimentation to find the right advertisement that generates big returns.
Here are a few ground rules that solo entrepreneurs should follow when considering digital advertising:
Rule #1--Don't risk money that you don't have. Garage entrepreneurs should wait until they have surpassed their fundraising goal to consider pumping money into advertising.
Rule #2--Know your pricing margins. Don't overspend on advertising, thus reducing what you'll be able to deliver to your backers. If you have zero margin to play with on your product pricing, then you've already eliminated yourself from the advertising game.
Rule #3--Use social media advertising platforms to test advertising messages. This will help you to find an ad that works. Sood claims that spending just $500 on ad testing can give you an idea of what works and what doesn't.
Rule #4--Aim for at least a 6:1 return on ad spend (ROAS). This means that if you spend $100 on advertising then you should add $600 or more to your campaign. Your ROAS should not exceed your product pricing margins.
Rule #5--Shoot for the moon. If you have an ad that generates a ROAS that allows you to still deliver product, then spend big since it is reasonable to have unlimited budget for marketing that works. Get a loan if you have to, but make sure that you get the most out of the hard work that you put into finding the right advertisement.
Develop your plan
Ok, so at this point the garage entrepreneur might be feeling a bit down since crowd funding is actually much more involved than most success stories suggest. However, a solo entrepreneur can succeed with the right planning and execution of crowd funding best practices. Do as much research as possible and dedicate a planning period of at least 3 to 4 months prior to launch.
Use these best practices and advice from experts and crowd funding veterans to plan and launch a winning campaign.