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Starting a Business With Crowdfunding
A New Way to Start a New Business
Back in the day, an entrepreneur with an idea would need to put up capital to develop his thought into a tangible product or deliverable service, start marketing it and hope his fledgling new business flies. All of the risk was on the entrepreneur's shoulders and every dollar invested may never be seen again.
If that wasn't bad enough, anybody starting said business would have to come up with the cash. Options back then included:
- Tapping into one's 401K or IRA which could make retirement an interesting existence of hot dogs for dinner every night if the business fails not to mention some very startling tax implications.
- Applying for an SBA loan which to this day is insanely difficult to get. Finding, taming and training a unicorn would be easier and far more realistic.
- Racking up credit card debt which gets you working capital really fast with interest rates that could be really high.
- Hitting up friends and family to either loan you the money or become partners. This often puts a huge strain on relationships and makes the business harder to run. Trying to run a business with partners is harder than herding cats.
Assuming the best at this point, what happens with all of those widgets you paid to produce but nobody wants? They sit in your garage or basement or storage unit. You didn't sell them but you can't bear to part with them.
As many people would end up saying "There's gotta be a better way!"
And now there is - crowdfunding.
Launch a Business with the Crowd
If you have a brilliant idea you can take your concept to the public and let them decide if your new product or service or worthy cause makes the cut.
Simply put, you can put together a crowdfunding campaign to raise the funds you need to start your business, build your product, shoot your film, start your soup kitchen... whatever.
You publicize your campaign on a crowdfunding platform like Kickstarter or Indiegogo and the public reviews your offer and decides if they want to participate. Participation is when somebody gives money to your campaign in exchange for a "perk". Typically this is the product or service you want to sell. This is called reward crowdfunding.
Equity crowdfunding works similarly but instead of providing a product or a service you're giving your backer (investor) partial ownership of your new operation.
The difference is -- you're not starting your new venture until AFTER you've raised the funds you need.
This new method of generating pre-sales takes a lot of the risk off the entrepreneur, sure, but there are many other benefits to crowdfunding:
- Access to a vast pool of consumers or investors who can give you market validation. Product testing has never been faster, easier or cheaper
- Grow your customer base right on day one.
- Build or reinforce your brand.
What will it cost you to start a business with crowdfunding? It's not free but it's not expensive. Let's run the numbers.
How to Start a Crowdfunding Campaign
While bootstrapping a business with crowdfunding is much, much cheaper than doing it any other way, it's not free. There are some startup costs that need to be considered:
Production of a crowdfunding pitch video. This is essentially a commercial for your idea. It should be of the highest quality possible so spend as much as you can afford on production with item 4 below foremost in your mind. Your video will be one of the first things people see when they visit your project page.
Crowdfunding copywriter. The story you tell in your crowdfunding campaign can make all the difference. A boring story that's flat or drab isn't going to be very persuasive in convincing people to back your project. Remember - when someone backs your product they are giving you their money in exchange for what you're offering. In other words, you're selling. As such, make the writing the best it can be. Good writing makes good sales much more possible.
Graphics. A picture is worth a thousands words for sure so make sure high-quality imagery is peppered throughout your project story underscore key points and accentuate your message. Graphic designers and photographers are really not that expensive and will give you professional quality that you could never achieve on your own.
Promotion. This is the most critical element to crowdfunding success. You can get all of the above perfect but if you don't promote a crowdfunding campaign it's dead on arrival. Why? How can anyone review your offer and back your campaign if they don't know it exists? When you're launching a crowdfunding campaign you're starting a business. Like any new business, advertising, marketing and public relations are critical. If your funds are very limited, allocate more of the money in your tight budget to promotion than anything else.
On the low end, you can launch a crowdfunding campaign for as little as $1,000. However, if you can afford to put in more you will likely have a higher probability of success and raise more funds.
With proper planning, execution and promotion your new business can have all of the startup capital you need to. Good luck and get to it!