Think HBR

Is crowd funding right for your business

crowd funding
Crowdfunding is a relatively "attractive" business finance option that involves donations from the public funding the development and commercialisation of a business or product. This is usually facilitated through a website, often sites specifically set up for crowdfunding.
Backers in turn receive some form of reward. The rewards offered in return for donations are varied but can include acknowledgement, merchandise, discounts on the product being developed and more.
As with all finance alternatives, crowdfunding is not for everyone. It offers a range of advantages and disadvantages that should be carefully weighed up by anyone considering going down this route.
The advantages include:
• You maintain full ownership of the business
• Low cost of promoting the project through dedicated websites, social media and word of mouth
• Low risk. If the goal isn’t reached, you don’t need to commit to proceeding further
• The growth of a potential customer based before the product is even developed
• Access to valuable feedback as the product develops.
Disadvantages include:
• No certainty that your goal will be reached
• An investment in time, particularly in attracting backers and then keeping a potentially very large number of backers informed throughout the development project.
• Alerting competitors that you are developing the product, giving them time to consider how to react or even fast track an alternative product.
• Cost and time associated with providing rewards for backers.
• An increasing array of other business ideas competing for backing
If after deliberation you are interested in crowdfunding as a means of funding, it is wise to discuss the option with an advisor.
If possible, it is great to consider feedback from others who have tried crowdfunding, both successfully and unsuccessfully.
If you decide to prepare then the key thing to remember is to prepare carefully. You may well have only one shot.
Firstly, you must have a realistic goal of how much funding you need, when you require it by and how long development should take.
You should have a strong case as to why backers should support you. They will need to know what the product is, why it would be a success in the market, how long it would be before it hits the market and of course what rewards they receive. There may also be some legal requirements that need to be considered regarding your particular product.
The next step is to select the crowdfunding website you wish to use. You need to consider the demographic of their visitors, the past success of the website, their fee structure and any other requirements they may have.
When posting your campaign you should consider how you can make it stand out. Obviously the case needs to be strong, but you also need to attract potential backers to even consider your idea.
A social media campaign can be useful, particularly if you can motivate others to spread the word.