Crowdfunding requires more than a good idea and this is why

Over the years, crowdfunding campaigns have been the source of some controversy. A number of projects have failed and projects have disappeared with funders’ money, causing consternation among users. Even well-intentioned teams and companies can fall prey to unexpected challenges in the hardware ecosystem.

For better or worse, though, crowdfunding has become an important way of launching a product. Though crowdfunding was initially proposed as a means for startups to get revenue to make a product a reality, things have changed. A company that doesn’t have the funds to bring a product to market without crowdfunding is probably destined for failure.

Instead, crowdfunding has become a powerful means of getting fans excited about a product and raising some cash along the way. Crowdfunding campaigns usually offer some steep discounts on products, though, so this is much more about generating buzz for a product than it is about sustainable cash flow.

(Source: Statista)

Things are already starting to cool off in crowdfunding. The total value of crowdfunding in 2016 was more than $40 million lower than in 2015, according to the Crowdfunding Center. It’s still considerably higher than in 2014, but startups might be realizing the limits of crowdfunding. It’s not the right route for everyone.

Fortunately, fewer newcomers looking for fast cash in crowdfunding means better quality campaigns in general. The amount of money raised per campaign increased by nearly 18 percent in 2016.

(Source: Statista)

Pulling off a successful crowdfunding campaign still requires a lot of work, though. Only about 36 percent of Kickstarter campaigns are successful. Among technology campaigns, that number drops to 20 percent.

Also, while crowdfunding can contribute to market research for a startup, it also requires research beforehand. Startups will benefit the most from a crowdfunding campaign if they’re able to figure out who might be interested in a product and start targeting them through ads or other online campaigns. If people are excited about the launch of the product, the campaign is more likely to get funded quickly.

Another critical component to getting people to handover their money is building trust. This has a lot to do with how a startup presents itself on a crowdfunding page. Startups have to tell a compelling story around the company and the product. They also have to be highly responsive to inquiries and, later, possible defects and quality control issues.

Sandy Diao, director of strategic programs at Indiegogo, explained this at the Startup Launchpad conference in October. “When a backer is interacting with a new brand for the first time, they really care about the team,” she said. “Both the name of the team as well as the location.”

It’s common for users to search for the team name listed on the page, Diao explained. So a company should have a web presence that conveys the organization is reliable.

A responsive team on the questions page of a campaign and possibly on other forums as well also conveys reliability. It can be easy to overlook a question if it seems obvious or irrelevant, but interactions online show a company is active and engaged. Those are the campaigns funders will feel most confident about, easing fears of never seeing the product they’re promised.

A company’s post-crowdfunding success relies on the trust the company built during the campaign. There are many other factors to consider, too, of course. Diao’s speech at the conference (embedded above) takes people through all the best practices of a successful crowdfunding campaign. Peter Xie has also discussed on the best route for finding product distribution after the campaign has ended, which is a challenging time for new startups.

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