How to Use Crowdfunding to Kick-Start your Business
For every web professional it’s a competitive world out there and even if you have an awesome idea for an app, or design project, there’s often one thing that holds back even the most talented.
That is, of course, cold hard cash.
Setting out in business isn’t easy and doing so without backing is even more difficult. However, it’s not impossible and crowdfunding has given many a fledgling start-up the boost they need to really get going on a project. With that in mind, today we’re going to look at the best ways to go about this, how to go about it, available resources and getting started.
A Note for US Readers
Last spring, President Obama passed the JOBS Act (Jumpstart Our Business Start-ups). Prior to this, only a select amount of crowdsourcing sites were allowed to operate using reward systems. This meant that potential investors could be offered a discount on the product/service that was eventually funded in exchange for their investment or donation.
However, the JOBS Act is intended to change that so that investors can also receive equity in the company. Whilst this isn’t as yet complete as it’s awaiting regulatory approvals, it should help start-ups to find funding even more through crowdfunding in the long term.
Hard Times for Creative Entrepreneurs
It’s not just in the States and the UK that many in start-ups or projects find it difficult to access traditional business funding, such as bank loans, it’s a problem that’s felt in many parts of the world. Crowdfunding gives an opportunity for this to be overcome and for those with great ideas and products, it’s often the only opportunity open to them.
What is Crowdfunding?
For those that don’t know, crowdfunding allows entrepreneurs to get their idea ‘out there’ and uses the power of social media and other online marketing platforms to raise funds. The funding target must be set at the start of the project and if this isn’t met, then no cash will be released.
According to data produced by massolution, in 2011 more than one million projects were funded and they indicated that the growth rate for the funding gained through the reward/donation model is growing at a massive 524%, with sums raised in 2011 reaching not quite $1.5bn. This is backed up by Crowdsourcing.org, which created an industry report based on a survey carried out in the first quarter of 2012.
Choosing the Best Platform for Your Industry
There are a growing number of crowdfunding sites available and as interest has grown, so too have sites that offer a platform. This means that it’s necessary to do your research and find the best one for you that offers you the best chance of finding the right kind of investors. No doubt you’ve heard of Kickstarter and this is one of the biggest platforms out there. It’s also focused on creative projects, so it’s suitable for designers and developers, but also for books and art. Its sheer size may not make it the best choice, but it’s highly visible, so that’s something to weigh up at the planning stage.
Indiegogo is probably one of Kickstarter’s major competitors and this site does allow you to keep any money that’s been invested but works on a percentage basis. It takes 4% if you reach your target and 9% if you don’t.
If you’re into app development, then it’s worth taking a look at appbackr, although it’s not 100% clear that it’s a crowdfunding platform, as such. This allows you to find backers for an app that’s complete or still in development and it’s all about return on investment for those that back your app.
So, if someone buys the app whilst it’s in development for say £2.99, depending on how it’s set up, then they will get more cash back when the app goes on sale. It looks quite complicated on the surface, but it’s a marketplace with special features that are certainly worth looking into.
Things to Look Out For
With money and investment related projects, comes risk. It’s a fact and one that you should pay attention to when choosing which platform to place your project on. Risks could involve you losing some of the control when it comes to the project and your company and the possibility of investors getting involved who are less than savoury characters.
This means that when choosing a platform, make sure that you have read the T&Cs and know exactly how the process works, what your obligations are to potential investors and how you can protect yourself.
Like many things in life and business, the best approach is to do lots of research and come up with a solid business plan in order to take it forward, covering all possible bases. Make sure you set the terms when it comes to what investors get for their money so that you can stay in control.
Don’t assume that because crowdfunding has become popular that it’s easy money, that’s not what it’s there for, so the more prepared you are, and the better you can present your project, then the more likely you are to be onto a winner.
Crowdfunding vs. Crowdsourcing
Taking a good look at what’s available to you in terms of funding, it’s easy to get confused between crowdfunding and crowdsourcing. The latter is based more on a competitive race to see who can win clients based on designs that they have already made – or can prove skill in the desired areas.
However, whilst crowdsourcing sites can be a good resource for finding clients, especially in the early stages of your design career, it’s very easy to undersell yourself and that can then become a pattern. Once you’ve established this pattern as a business, it will be difficult to move away from, as your clients will expect the same quality for the same price, even when you do get to the point where you can command a good price due to an amazing portfolio.
Crowdsourcing is Risky for the Quality Creative
Crowdsourcing is not the place to go if you’re looking for funding to develop your business idea or development project, but it is the place to go to sell your work. Just remember how much you’re worth and don’t be beaten down by cynical buyers that naturally want to get something for as little as possible.
For funding, check out Crowdsourcing.org’s funding directory, taking care to ensure you pick funding sites from the navigation list to the left of the page. Also take a look at Entrepreneur’s top ten list for further inspiration.
Popular crowdsourcing sites include Elance and with design in particular in mind, there’s sites such as Design Crowd, or MicroBurst which work on much the same principle. The buyer places a brief on the site and can browse designs and choose from the many that are already on the site. Setting your price from the start is the key to making this work for you; it’s not an approach I would particularly recommend, but it’s important to recognise the difference between this and crowdfunding or you could make a fatal mistake in the early stages of your business.
Crowdsourcing can kick start your business, but as I said, take care, it’s a competitive way to find clients and many of them don’t want to pay the kind of prices that you deserve. This is due to many people that work outside of the professional arena (such as ‘hobbyists’) offering to take on jobs for very little money. For the buyer, it’s an equally bad idea when it comes to paying less, especially in light of Google’s updates which are designed to ensure the web becomes a useful resource and so requires decent design and content.
Crowdfunding requires good planning and sound business ideas if you want to be successful in raising the funding you need. With that in mind, take your time and don’t rush into posting a project before you’re ready. Once you are, it’s all about the marketing, so enlist the help of a good digital marketer to help you out on this score if necessary.
Continue reading here: How To Build A Super-engaged Instagram Following
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