Planning to launch a new product or business and wondering if you should use crowdfunding to finance it? Crowdfunding has generated amazing success stories from Pono to Pebble, but that doesn't mean it's necessarily right for everyone. That's the word from Jamey Stegmaier, co-founder of Stonemaier games and author of the new book A Crowdfunder's Strategy Guide. He would know: He's raised more than $1.4 million by crowdfunding his own projects.
"Crowdfunding isn't all about the money," Stegmaier explains. "Usually, most of the attention is on the money, but there are several more important and effective motivators for selecting crowdfunding as the way to launch a new creation."
What are these motivators, and how can you tell if crowdfunding is a good choice? Answering these questions should help:
1. Do you want to build a community around your product or company?
"Crowdfunding allows creative people to build a community around their creations," Stegmaier says. "This can lead to much greater success in the long run, as you have a passionate group of fans supporting you, and holding you accountable."
For some types of products, having a community of customers is a key to success. Examples include the board games Stonemaier sells, or a product like the Pebble smartwatch, which owes at least some of its success to its user-and developer-communities. Not all products are right for this approach, though. For most B2B products, as well as many types of consumer products, building a community may not be possible, or relevant. Deciding whether your product can and should have a community around it will help you determine if crowdfunding is the right choice.
2. Do you want to gauge market interest?
If you want a clue as to how consumers will react to your product, creating a crowdfunding campaign is an easy and very inexpensive way to conduct market research. "You might have an idea that you think is really cool, but you don't know how the general public will receive it," Stegmaier says. "There's no better way to find out than asking people to pay for something that doesn't exist yet."
3. Will extra funds allow you to build a better product?
With traditional funding sources you might ask for the minimum you think you'll need to create a viable product, perhaps with a little extra built in in case of unforeseen problems. With crowdfunding you have more options-and you never really know going in how much funding you might wind up with. If you receive more than your minimum goal, you might use the extra money to go beyond the minimally viable product and add features or upgraded materials as you can afford them. You might also offer different versions of the product, a basic one for a minimum funding level and a fancier version for those who pay more. That should give you some insight into which version of the product is likely to sell better when it gets to market.
4. Do you want to protect your own assets?
Traditional funding methods may require you to take out a loan, using your assets as collateral, or else give the funding source a stake in your company. Crowdfunding lets you avoid both, taking in funds in exchange for the product itself once it's ready. Plus, Stegmaier says, so long as you budget correctly, setting a minimum funding goal on a service like Kickstarter allows you to avoid the dilemma of raising some funds but not enough.
5. Are you beyond the concept stage?
If not, Stegmaier says, crowdfunding is likely the wrong option. "Most crowdfunding platforms aren't the place for bare-bones ideas or concepts," he says. "Backers want to see a working prototype, something you've spent months and months designing, testing, etc." Investor pitching events or seed-stage investors might be a better bet.
6. Do you already have lots of fans?
Contrary to what some believe, success doesn't come from just posting a great product on Kickstarter or Indiegogo and then waiting for the money to roll in. Your crowdfunding effort will succeed or fail depending on how many friends, family, and fans you can call out to put up funds. In fact, you should arrange in advance to seed the campaign with funds from family members and friends because people are much likelier to contribute to a campaign if they see it's already raised a meaningful amount toward its goal.
Ideally, you already have a substantial mailing list, a lot of social media followers and friends, and some visibility in relevant media and websites, all of which you'll need to draw on in order to drive people to your campaign. If none of that is in place, you should consider building up your visibility and social media presence before you start your crowdfunding campaign. Or else seeking a different source of funding.
7. How much time do you have to devote to your campaign?
Of course, if you don't have a lot of time to put in, you shouldn't be trying to launch a company or product at all. That said, a crowdfunding campaign takes quite a lot of time and attention, first as you're building up your reputation to support the campaign, then while preparing the campaign itself, and finally after launch, when backers will expect you to respond to their questions and problems promptly. As Stegmaier points out, "If you're not available to backers, you're going to lose their support."