28 August 2014 | 20 Comments
A few days ago someone contacted me with the fundamental question: “Why should I crowdfund my product?” (opposed to traditional means of launching a product, most of which are financially driven–loans, angel investors, dipping into savings, maxing out credit cards, etc).
I searched through my Kickstarter Lessons to find the one about the pros and cons of crowdfunding…and I couldn’t find one. Unless I’m forgetting something, I’ve never written it.
Granted, if you read this blog, you’ve probably already decided to crowdfund your project. But it was really helpful for me to take a step back to look at why I’ve consistently chosen to crowdfund our products.
Below I’ve included both a “top 10” list and a shorter list of reasons why you might not want to crowdfund your product.
Top 10 Reasons to Launch a Product via Crowdfunding
- Build community: Crowdfunding allows creative people to build a community around their creations. This can lead to much greater success in the long run if you’re launching or expanding through the crowdfunded project, as you have a passionate group of fans supporting you (and holding you accountable).
- Gauge demand: You might have an idea that you think is really cool, but you don’t know how the general public will receive it. There’s no better way to find out (again, with very low risk) than asking people to pay for something that doesn’t exist yet.
- Raise Funds: If you need to raise a lot of money to create something new, rather than taking a loan or putting your own money at risk, crowdfunding provides a way to raise the funds without giving up equity in your endeavor. Plus, the whole idea of the “funding goal” helps creators avoid situations where they raise some money but not enough (if they budget correctly).
- Improve the Product: Stretch goals have allowed products to get better from inception. Instead of making the most basic version of a board game due to lack of up-front funding, if you receive enough interest on Kickstarter and can produce more games, you drive down the cost per unit and can add in more cool stuff, making it better for everyone.
- Business training wheels. Starting a business is hard, but a crowdfunding campaign gives you the opportunity to learn how to launch a company with the “training wheels” still on. You have a big group of people there to point you in the right direction, and you usually have plenty of time to figure things out. Plus, if your original campaign doesn’t fund, you can try again.
- Direct access to customers: Say you create a new product and sell it to Walmart. You know nothing about the people who buy the product. But with crowdfunding, you know tons of information about every single customer. That data is incredibly helpful, and also allows you to build a shipping strategy for each individual customer that could save both of you a lot of money.
- Generate Awareness: Kickstarter is a platform, not a promoter of products. But a lot of people browse Kickstarter to discover new stuff, so you have access to a broad range of people who wouldn’t otherwise have heard of you.
- Urgency: The limited-time aspect of a crowdfunding campaign creates a level of urgency that pre-orders cannot replicate.
- Trust in the platform: Remember 10 years ago when people were really hesitant to enter their credit card information online? Now we don’t even think twice about it. Kickstarter (and other crowdfunding platforms) have created a similar level of trust. The platform is polished and professional looking, and people trust that when they press the “pledge” button, they’re in good hands.
- It’s a lot of fun. Running a Kickstarter campaign is thrilling. I don’t think there’s anything else out there quite like it. Don’t get me wrong–it’s extremely stressful too–but it’s a lot of fun.
Reasons Not to Launch a Product via Crowdfunding
- You haven’t prepared (or don’t want to): People really have to do their research. There are no shortcuts on Kickstarter, and if you take shortcuts and end up losing your backers’ trust, it’s going to be really tough for you to run another campaign in the future.
- You only have an idea or concept: Crowdfunding really isn’t the place for bare-bones ideas or concepts. Backers want to see a working prototype, something you’ve spent months and months designing, testing, budgeting for, etc.
- You’re just trying to sell a product you already have in stock: This goes against Kickstarter’s guidelines.
- You don’t already have some sort of community or crowd: You need the support of people who believe in you from day 1 on Kickstarter. This is distinctly different than angel investing, for example, in which case you really only need a few people to believe in you. How do you build a crowd? I’m glad you asked.
- You don’t have much free time: This probably applies to any type of product, but at least with other ways of launching something new, you can work on it on your own schedule. That’s not the case with Kickstarter–it’s going to take a ton of time before, during, and after the campaign, and if you’re not available during those times, you’re quickly going to lose backers.
- Your primary motivator is to make money: If you don’t care about any of those 10 reasons I listed above and you’re just trying to make a quick buck, you’ve come to the wrong place. There’s nothing wrong with making money via crowdfunding, but if that’s your primary motivator, not only will you probably not fund, but you’ll probably barely break even after fulfilling your rewards (at best).
Note that I didn’t include “you need the money.” Granted, I think backers respond better if they feel like their hard-earned dollars are creating something that could not otherwise exist without them. But I don’t think it’s a prerequisite. So what if you don’t need the money? If you like building a community around something new, making something better than it could be without crowdfunding, and all the other reasons listed above, crowdfunding is perfect for you.
What would you add to either of these lists? Are there some situations in which you think that traditional methods of launching a product–or even something new like Shark Tank–are better than crowdfunding?
Also read: 7 Questions That Will Help Tell You If Crowdfunding Is Right for You (Inc Magazine)