For anyone who spends time on social media, it won't be long before you will be asked to support a Kickstarter, IndieGOGO, GoFundMe or other crowdfunding campaign. The new and nebulous world of crowdfunding is rapidly becoming a tool entrepreneurs are using to help fund their startup businesses, product idea or artistic endeavors. Understanding crowdfunding tools and how to use them can mean the difference between successful campaigns that earn you money, or flat out failure to fund.
Crowdfunding is simply raising small amounts of money from a large number of people. Sites like those mentioned above and no less than about 2000 others allow individuals to raise funds for everything from publishing a book to earning enough for a first production run of a new product. Eventually, small investors will be able to purchase equity in new start-ups. Imagine if Facebook had crowdfunded for equity and you had the opportunity to donate $10 early on for a share of that company, would you have done it?
Knowing which crowdfunding site to use for your project/business depends on what you are doing. Every site has different requirements and rules, and the target donors for each site are different. Even after you have chosen the site you want to use, there is still a lot of work ahead in running a successful campaign. I sat down with Maria McLeod, an assistant professor of public relations at Western Washington University who has studied and analyzed what creates successful crowdfunding campaigns.
To run a successful campaign Maria says there are at least three things you need: "First is popularity. A good fan base and following is essential for success. If you have at least 1,000 people in your network, you have a 40 percent chance of success. Second, you need quality PR/marketing materials. Typical campaigns will need more than half their money from outside their network. Will you be able to attract people outside of your network to pay attention to the newsworthy nature of your campaign? Third is communication. A successful campaign requires you to be responsive to your backers, network with others and being prepared to cultivate a new fan base."
We always hear about the campaigns that go viral, like the recent Kickstarters for Reading Rainbow that reached more than $5 million in funding or the potato salad guy who asked for $10 and got more than $50,000. I asked Maria how you can be so successful that your campaign goes viral. "Unfortunately there is no formula for viral success. Sometimes it's the result of the comedic tone or unique nature of the campaign, which may get picked up by the media, and the campaign gains momentum that way - but why one over another isn't easy to predict. Viral success could be related to nostalgia or celebrity. But trying to build a campaign with the goal of going viral could backfire."
If viral is not easily attained, then preparation is key. Maria emphasized that, "It's not as simple as click, launch and watch the money role in. It realistically takes no less than four months of planning to make it happen. I tell people to think about crowdfunding as if they are setting up a farmers' market booth. To attract customers you'll need an attractive booth, compelling PR and marketing materials and advance promotion to let people know where to find you. And you'll have to man your booth for the duration."
As our conversation moves to how crowdfunding has knocked down one of the biggest barriers to starting a new business or launching a product, Maria starts nodding enthusiastically. "I can't help but see the advantages of this platform. I think of it as impulse investing because crowdfunding makes it so easy and seductive to give to people. It's only a click away."
No matter what project, product or business you are thinking about starting, there is a crowdfunding platform to support you. To find out more about how you can run a successful campaign, Maria will be presenting at the Inventor Insights event, sponsored by the Northwest Innovation Resource Center Wednesday, Aug. 6, from noon to 1:30 p.m. The event is free but seating is limited. RSVP at nwird.com/events or by calling 360-755-2820. The event is located at 2211 Rimland Drive, Room 106.
ABOUT THIS COLUMN
This is the first in a monthly series about topics of interest to entrepreneurs. Lara Merriam-Smith is the program manager for NW Innovation Resource Center, a Bellingham-based organization that supports economic opportunities through entrepreneurial innovation in NW Washington. They help inventors looking to take products to market and connect new start-up businesses with resources to help them grow. For more information go to nwirc.com.
Crowdfunding is this month's topic at a brown-bag lunch series of topics important to inventors and entrepreneurs.
WWU assistant professor Maria McLeod will discuss crowdfunding preparation and platforms from noon to 1:30 p.m., Wednesday, Aug. 6 at 211 Rimland Drive, Room 106. The event is free with registration online at nwirc.com/events.