With a number of active crowdfunding platforms, some wonderful business success stories, and a few glorious crash-and-burns, we have enough information to detail some best practices for crowdfunding campaigns. While business recommendations can be industry specific, best practices can be implemented across industry. Crowdfunding on the current platforms is a unique funding opportunity for a business, but it is at the core a funding opportunity–meaning the financial planning and books need to be the first step. Preparation for a crowdfunding campaign should need at least the degree of preparation and planning of any business going to the bank to request a loan, including a functional business model and a business plan with projections. In addition, there is some planning and work that is unique to the crowdfunding platform.
Best practice: have your financial and business planning done before beginning the campaign.
Crowdfunding can be successfully used to fund either research and development for a startup idea, manufacturing of a working prototype for a new company, or expansion and product development for an established company. While crowdfunding research and development of a good idea is possible, inventors know there are many more failures than successes when trying to take an idea from the brain to the workbench.
Best practices: the R and D should be done before a decision to monetize the product. Have a working prototype on hand.
Social justice roots allow a new startup to tap into a market of interested people. By developing a product or service that has appeal across populations, and can do some good in the world, a ready group will already be interested in your product or service. Tell the story of your business or idea through the lens of a cause, or social justice, or a problem in the world your product will solve. Use video and other current storytelling methods to get your ideas out in the world. If you feel particularly inarticulate, and are not sure you can explain yourself well, consider professional writers and filmmakers to help with the direction. Telling the story of what you hope your business will do to change the world is a critical best practice.
Best practice: tell the story of how your business will change the world.
Successful crowdfunding campaigns, in addition to the financial planning for the business, plan marketing and outreach for several months before the launch of the campaign. Boldfoot Socks, a small sock making company started by a military veteran in the US, is using a crowdfunding campaign to introduce a new product, athletic socks, into the business. Their campaign is using a number of best practices for crowdfunding success. They already have an established business and know the sock-making world; they are introducing a new product line into an already successful sock line. They are also doing two things that are positioning them for success: they started the buzz about the new project through their newsletter and through group and individual marketing campaigns; they are offering discount coupons to subscribers to the newsletter and will for backers to the crowdfunding campaign, converting their backers to customers; they have a strong social justice cause, support for veterans, which is the backbone of their company. Their company values support social justice in every business decision, and this commitment comes across clearly to backers and customers.
Best practices: start the buzz early about the campaign; showcase your social justice roots; convert backers to customers with discounts, information, and shared goals.
Clear communication with backers about the state of the project is another best practice. The company Yirego is making the Drumi, a foot-powered washing machine that uses a very small amount of water. They started their crowdfunding campaign with a working prototype and a product with a clear social mission that also had cross-over appeal in the developed world. After a successful crowdfunding campaign, they began production, and with a first production run, did beta testing on the machine. With the results of the beta testing, the design was changed in small ways, such as the position of the carrying handle and measuring marks on the machine for water, and the company went back to the manufacturing partner with the new design. The entire process has taken several years, and backers might have gotten impatient with the slow pace–the Drumi is still not in homes, doing laundry. But the company has described the progress and changes through frequent updates to backers and customers, frequently posts videos about progress, and continues to offer a below retail price for people who want to order their Drumi before the first manufacturing run is shipped. While many people are more than ready for their Drumi to arrive, they are fairly sure that the machine they get is going to be well made, tested, and both functional and beautiful.
Best practices: keep backers informed about progress, and convert backers to customers with financial incentives, information, and shared goals.
For more information about crowdfunding, please contact us.
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