With the recent passage of the JOBS Act, crowdfunding is about to get even hotter. Serial tech entrepreneur, speaker and consultant Scott Steinberg, author of The Crowdfunding Bible, explains how to make crowdfunding work for your startup.
Steinberg, CEO of TechSavvy Global, answered ReadWriteWeb’s most pressing questions with these 10 insights into successful crowdsourcing:
ReadWriteWeb: Are particular types of tech startups better suited for crowdfunding than others, and why is that so?
Scott Steinberg: It’s best for [startups] with a strong consumer focus that can easily communicate their value proposition. Crowdfunding works for creative projects – apps, consumer products, software – that resonate with average, everyday people.
What crowdfunding is not typically best for is something very technological in nature or B-to-B oriented. The biggest successes have been galvanized around consumer-facing products like [the Pebble smartwatch] or the [Double Fine] Adventure game… something there’s tremendous demand for. Ultimately, you’re trying to reach either as broad an audience as possible, or a very loyal and passionate [niche] audience of fans.
RWW: How do you know whether crowdfunding is a better approach for your startup than seeking traditional forms of financing?
SS: You have to be strategic because there’s no stealth mode. If you fail with a crowdfunding campaign, your brand and reputation will take a hit and you’re going to have a hell of a time going back to investors after that to convince them there’s a market for your service or product.
[Crowdfunding works best] if you’re not looking for a tremendous amount of capital, and that’s relative to your industry. $200K or $300K may be peanuts for an app or game maker. It’s good for projects that can be done affordably, that need to be done nimbly and for which it’s important that you retain creative control.
Often you only have a few seconds to clearly communicate your value proposition, so if you’re selling innovative tablet PCs or a revolutionary app, crowdfunding might work. If you’re selling a revolutionary inventory management system – well, that’s a hell of a lot drier. It comes down to a sales pitch. [Crowdfunding] investors are not as sophisticated as professional venture and angel investors. A product that can be easily and clearly communicated to a consumer stands a better chance.
RWW: What makes for a good crowdfunding pitch?
SS: You’re getting backers to buy into the vision that what you’re doing is part of a larger movement. For example, with Double Fine Adventure, which raised $300K, the pitch wasn’t, “Hey, we’re making an adventure game.” The pitch was, “Adventure games are not dead. We’ve got legendary game designer Tim Schafer to create one. Let’s give the publishers a kick in the ass and show them the genre is alive and well.” For the cost of a latte, people could buy into a historic movement.
That sense of participation is what you’re looking to convey. Convince people there’s a reason your project deserves to be birthed into the world, what the benefits to them are, why the time to act is now or never, and how by doing so, they’ll directly play a part in making the world a better place.
RWW: What are the most common misconceptions startup entrepreneurs have about crowdfunding?
SS: One is, “Hey, I’ll launch [the crowdfunding campaign] and that’s when the work stops.” Time and time again, I’ve seen campaigns launch to great fanfare and then fall off a cliff 48 hours later. It’s imperative prior to hitting the launch button that you’ve done your research, you’ve plotted a marketing campaign, you’ve got your social media tools lined up, you know who your audience is and how to reach them, and you have a working promotional plan for the entire duration of the campaign.
Brian Fargo, who created Wasteland 2 and [crowdfunded] nearly $3 million, said, “Our software development company all but stopped for three weeks so we could get our ducks in a row.” That’s what you’re competing with.
Do your homework and plan for as many eventualities as you can upfront. Study campaigns that have succeeded and campaigns that have failed. Know what resources you’re going to activate, and when and how you’re going to activate them. This could be video testimonials from noted industry personalities, or other brands, creators or influencers you can get a shout-out from on social media. Budget carefully and leave a 30% cushion. Set your funding goals carefully – ask for just what you need, because the more realistic the funding goal, the more attainable it seems to everyday users and the more likely they are to contribute.
Crowdfunding is a marathon, not a sprint. Often [entrepreneurs] don’t understand the time commitment involved. Every day you’re going to be working the phones, working Twitter, doing outreach, talking to media. It’s incredibly taxing, but at the end it may be incredibly rewarding as well.
RWW: What’s the ideal time frame for a crowdfunding campaign?
SS: Thirty days seems to be the magic number. You need time to see what’s resonating and fix what’s broken. Maybe your rewards or your creative campaign aren’t resonating. You need to be able to adapt on a dime. You need a game plan, but you also need to realize that no good plan survives first contact with the enemy.
RWW: Let’s say you launch your campaign, and it falls flat. What should you do?
SS: Talk to your backers. Get their impressions. Nobody wants to see you succeed more than they do. Remember, you have the ability to change much of it on the fly. If your messaging doesn’t connect or your rewards don’t connect, you can always tweak it. If your video isn’t resonating or people keep asking questions about your pitch, post updates to answer the questions, or do outreach through email newsletters.
Think of your campaign as a series of battles in an ongoing war. It’s important to know upfront who you can call on for support, because you’re going to need to lean on your backers, partners, and friends and family.
RWW: What types of rewards work best to galvanize contributors?
SS: You need a combination of physical merchandise or preorders and personalized, one-of-a-kind rewards, such as advance access to a beta program. It’s important to offer value at every level. This isn’t a charity fundraiser; people expect something in return for their money. Start at the impulse buy level – $5 or so – and go up to high-end, exclusive prizes. Have reasonably spaced-out [reward] tiers – don’t jump from $5 to $500 – so everyone has a chance to contribute. Have a mix of rewards, some designed to draw attention to your campaign or attract the big fish, and some designed to monetize. It’s also a good idea to introduce new rewards throughout your campaign.
RWW: Once you’ve gotten your funds, the job isn’t over. What do entrepreneurs need to do at this stage?
SS: You need to thank [your contributors] profusely. These people are engaged customers and your most ardent supporters and brand evangelists. Embrace them and stay in constant contact. Not only are they likely to help you spread the word, but many times they’ll also offer to contribute [to your business in other ways].
The beauty of crowdfunding is it allows you to connect with your target audience from Day One, better engage them and create empathy. In many ways this is the holy grail of marketing – [customers are] emotionally invested in the outcome, personally interested and want to see you succeed. So half your branding and awareness battle has already been fought.
RWW: How do you think the JOBS Act will affect crowdfunding?
SS: I think it’s going to catalyze even more interest, and we’ll see more small and midsized businesses in the traditional space turning to crowdfunding as a viable alternative.
On sites like Kickstarter, IndieGoGo and RocketHub, not everything is designed to be a money-making enterprise. [Thanks to the JOBS Act, crowdfunding will attract] sophisticated startups looking to pitch more viable business strategies. And everyday individuals, instead of putting their money in the stock market, will be looking for [startups] that will deliver sustainable business models and maximum ROI.
RWW: What are some of your favorite examples of tech startups using crowdfunding creatively?
SS:gTar is a new and novel startup with an iPhone-powered digital guitar. [It shows] how effective crowdfunding can be when you have an eye-catching, unique offering that makes an impression very quickly.
But by far the best crowdfunding campaign I’ve seen so far is not a tech startup. Amanda Palmer is a musician who wanted to raise $100K for a new CD, tour and book. She has a three-minute video where she doesn’t say a word, just holds up poster board with writing on it, smiles and waves and utterly charms you. She’s already raised $800K.