Is Crowdfunding Right For Your Small Business?

During the past few years, crowdfunded projects have gained more attention. The alternative way to fund a business venture is aimed at including the community and drumming up interest in projects – rather than confining it to the boardroom.

Although crowdfunding can be a great way to begin marketing a project before you’ve even started, it’s actually only successful for a select few businesses. The popular crowdfunding website Kickstarter has raised $2.2 billion for projects since it began in 2009. However, three out of five Kickstarter projects fail to launch.

So who is it right for?

How It Works

Crowdfunded projects gain money through funding by backers who can usually invest a minimum of £10 in the business. Once a certain number of pledges has been reached, the product or project can begin.

This type of funding acts as an alternative to bank or business loans, which might not be available to everyone with a small business idea. This makes crowdfunding attractive to those with no access to loans, as well as those whose projects are marketable to individuals rather than to a bank.

Crowdfunding can be a more honest form of funding – as the more pledges gained from different backers, the more people you know are interested in the concept and would be interested in purchasing it once complete.

Community

For the pledged money, the backer might get a on the product once created, or small incentives such as free merchandise. The main gain from a pledge is the ability to create a project based on likeability and interest.

To make a successful crowdfunded project you cannot expect to be able to rely on pledges from strangers. Marketing is crucial, and the more cold hard advertising you do the more real pledges you will gain.

Surprisingly, online advertising does not work as well with online crowdfunded projects, as before you build an online community you should start with a physical one. This tends to be because building a solid platform with a number of certain pledges before you begin on Kickstarter will encourage others to pledge.

Successful Projects

Despite the unfortunate figures that suggest Kickstarter doesn’t work for everyone, there are some projects that do particularly well from it. The most successful Kickstarter project to date is the Pebble Time smartwatch. These smartwatches were propelled off the back of the Apple Watch and gained $20,338,986 in pledges.

Pebble Time is followed by the Coolest Cooler travel cooler. The cooler had integrated Bluetooth speakers, an optional blender add-on and space to tuck away plates and other picnic paraphernalia. The next generation cooler earned $13,285,226 in pledges.

Even film companies have seen the advantage of crowdfunding websites, with the Veronica Mars Movie earning $5,702,153 in pledges from devoted fans to the cult TV series.

Is It Right For You?

Despite the success stories, there isn’t a place for every business venture in the crowdfunding community. The projects that benefit most from this kind of funding are ones that are original and interesting and easily marketable.

Creative projects such as music, art projects and film are generate the most interest from backers, so if your business idea fits into one of these categories, you should consider crowdfunding.

If you are able to get a small business loan from the bank, then crowdfunding should be a last resort, or something you consider because the community base would change the entire set up for the company. Although they are a good alternative in some ways, the interest rates can be much higher than a regular bank loan.

Have you got a crowdfunded project? We’d love to hear about it! Please leave a comment below to share your experience!

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