Guest author Daniel Daoura is CEO and cofounder of Pebblebee, and a former Boeing engineer with experience running several successful crowdfunding campaigns.
Historically, independent engineers and developers have two options when looking to start a company: bootstrapping with their own funds or approaching angel investors or venture capitalists. Now for the past 6 years, platforms like KickStarter, IndieGoGo, Kiva, Peerbackers, and Fundable have been offering a less risky way for startups and independent developers to break into the market.
Many startups have tapped into the power of the public to fuel their launch or growth. Crowdfunding can be very rewarding, but also fraught with challenges—not just in product development, but also for the personal development of the engineers and other staffers. It’s a natural part of the process.
I’ve run three very successful campaigns and gathered several insights into the journey. Here are a few that crowdfunding hopefuls should be aware of and prepared for.
Guidance Into The Unknown
No one at our company had marketing experience when we started our first crowdfunding campaign. By the end of it, we had all cut our teeth in a wide variety of marketing techniques and learned a great deal on the entire product release cycle.
The reason we approached crowdfunding, aside from generating investment, was to test the market, learn who would be interested in our product, and how much demand there would be. It also gave us more efficient product development. Instead of releasing something we could only hope that consumers would like, we gathered feedback from potential users along the way and created new iterations until we met their expectations.
We also learned how crowdfunding platforms like IndieGoGo operate. Crowdfunding sites are similar to a pre-order shopping cart that takes a fee for helping to generate traffic. To maximize their earnings, crowdfunding sites take the campaigns that they see are generating rapid momentum and push them to the front of the website in hopes that they gain more.
We took into account the “momentum” metric to increase our odds of success, carefully preparing email lists to drive a high volume of initial contributions quickly. The site noticed and gave it a high profile by putting our project on the front page. That valuable real estate allows campaigns to really take off. In our latest campaign, we aimed to raise $30,000 to help pay for tooling and the first round of manufacturing for our new product. We ended up raising $91,000—300% of our goal—from about 1,700 contributors.
Getting Social Validation
Social validation means confirming demand for the product. According to a survey of startup founders by Fortune, the biggest reason that startups fail is due to a lack of real need for the product on the market. Pitching your concept to the general public is a low-risk, but very helpful way of ensuring that you’re building a product that meets a market need.
A successful campaign gives you credibility that is backed up by real numbers. With our latest, we were able to show that 17,000 people with $90,000 believed in our product. This validation has put us on a much better foot in investor negotiations with venture capitalists.
VCs invested a record-breaking $17.5 billion in 1,189 deals in the second quarter of 2015, according to the MoneyTree Report, which sounds promising. But, with 543,000 new businesses opening in the U.S. alone each month, there is plenty of competition out there.
In other words, if you want to stand out, then crowdfund.
Expanding Your Team
By the time you launch your campaign, you’ve probably already put in hours developing your product, perhaps alone in a darkened room straight out of Frankenstein. But with crowdfunding, you don’t have to go it alone anymore. You can easily expand your team by the thousands.
We received loads of feedback about all aspects of the product, particularly for design and functionality. Your crowdfunding team can collect thousands of opinions for free, allowing a drastic reduction in the time spent on research and product design, since you can avoid building out features that won’t get used.
If you’re strategic, you can even enlist your backers to help in other ways—like spreading the word and providing support. (One way to turn big fans into promoters is with a referral system, in which they get some sort of benefit for backers or customers your way.) Generate enough support, and the “team” may even act like a free customer service department, helping each other by answering questions on the forum. These suggestions and answers can have even more value coming from another backer, rather than you.
So without hiring anyone or paying a dime, you have at least grown your marketing, research and design, and customer service departments. That frees you to run the business and offers a good example to emulate, once your project is finished.
The Overall Experience
There a lot of benefits to crowdfunding, but there are also pitfalls. Working within this bubble, you’re allowed to project your unfinished business plan and even make some mistakes. But those aren’t the real standards if you were, for instance, approaching a VC for investment.
Things still aren’t perfect, even in the best-case scenario of meeting or blasting through your campaign goal. A Kickstarter or IndieGoGo hit doesn’t guarantee long-term success. Many companies slide away into obscurity afterward due to lack of visibility, ineffective PR management or other reasons.
However, in my experience, the potential benefits of crowdfunding massively outweigh the negative. Here are some of the top takeaways from our campaigns:
- Preparing a reliable email list is critical. When launching a new product specifically in crowdfunding an extensive, strong email list is critical because the first 24-48 hours are crucial to gaining at least 30% of your overall goal and getting pushed to the crowdfunding site’s front page. For example, if your goal is to raise $30,000, you need to raise $10,000 in 24-48 hours. That means you need to have 8,000 emails with .5 conversion rate (which is on the high end) that give a $25 contribution each on average.
- Press is paramount. Crowdfunding sites are attractive because they generate lots of traffic to your campaign organically, however, they aren’t enough to reach the numbers you need to start a business from the ground up. If you are doing things right you have media attention.
- A successful crowdfunding campaign is only 1% of the battle. Maybe you’ve spent months prepping for the 45 actual days of fundraising. But the next step could take up to the rest of your life, if you’re committed to growing a company.
Whether you meet your financial goals or not, you will never finish a crowdfunding campaign with less than with what you started with. Because the true value of crowdfunding is not just the money raised; it’s the process.
Photo by glasgowbury