Week 5: Crowdfunding

 

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Crowdfunding. You probably heard this word here and there. It is quite a buzz word nowadays. But what is it really ? How does it work ? And should you engage or stay away ?

Let's start the topic by presenting its definition.

The practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet. (c) Google

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In simple words it means:

• You have an idea, but you don't have funds to realize it
• You describe your idea on one of crowdfunding sites 
• Your idea is being viewed by thousands of people 
• Some of them are willing to give you money upfront to see your ideas realized
• You raise enough funds
• You realize idea
• All happy!

 But is  it really so simple ?
Well, like with any work, not quite. And here's why:

Your idea sucks!

When we are talking about crowdfunding - we are talking about a lot of people (crowds, as the word itself suggests). And it is really hard to come up with an idea that will be liked by a lot of people and even harder to come up with such a good idea, that people will be ready to pay you money for. Even if you come up with such a brilliant idea you need to describe it in a way people would like it. Lots of crowdfunding campaigns failed because creators were not able to describe it in the way people would understand it and like it.

Prove me you can realize your idea!

Not only the idea should be good for it to be successfully crowdfunded, but your future customer needs to be able to believe that you are capable of realizing this idea. You will need to prove - you're the right man (group) for the job.  If you're are a group of professional football players who want to build an airspace shuttle - you may have problems crowdfunding your campaign.

I gave you money so where is my product? 

When you ask for money for a product upfront you need to inform you customer quite precisely when he will receive a product he's paid for. When you create a new product, delays are almost unavoidable and therefore you need to plan your campaign and communication with customers very carefully to meet their expectations.

Can't really see what I am buying...

Probably the biggest problem: a customer is paying for a promise, for a nice description, for a promising team, for an early prototype... for all that, but not the final product, which means there is always a chance that a customer will not be satisfied with what he has paid for.


Here are a few more facts about crowdfunding:

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Examples of very successful crowdfunding campaigns:

Most popular crowdfunding sites: 

• Kickstarter 
• Indiegogo
• Crowdfunder
• RocketHub
• Crowdrise

Another way to look at crowdfunding:

There is a recent trend to use crowdfunding: for your idea validation rather than fund raising. In essence it is quite easy and logical: we all have ideas, but how can we know if our idea is interesting for anyone except ourselves ? How can we know if spending our time, work and money to realize this idea will pay off ? Will anybody buy it ? As you can see those questions could be addressed by a crowdfunding campaign. So it becomes a tool to reduce a risk and a platform to receive valuable customer feedback.

Small personal example:

There is a guy, a foreigner who lives in London. He's a successful marketeer and he worked for one of the biggest London's marketing agencies. In his free time, he likes to take his friends for short walking tours around London. He's showing and telling stories to them about London's interesting places: like a collection of street art situated in different parts of the city, old, unused metro stations, hidden buildings, monuments and other less known attractions of the "capital of the Great Britain".  He  thought what if this hobby could become a real business ? But as any responsible person, who has a wife and a young child, he had his doubts. He was asking himself those questions: How many people might be interested in those walks ? How much can I charge for it ? Will it be enough to make a living ? ... and many, many more. What he really needed was validation of his idea. And so he went to a crowdfunding site and started a campaign to raise 5000 pounds in 40 days. His statement was: if I am able to meet this campaign goal - I will quit my current job and start a new business. Getting money was not his main target, he was rather looking for feedback from potential customers with the aim to identify if there are any "customers", 'Will they be ready to pay and what their expectations are going to be?'. He prepared to write one blog post a day about London to convince potential backers that he indeed knows this stuff. Within 2 and a half days his campaign  was complete, 5000 pounds were gathered and a happy new businessman went to submit resignation papers. This small story shows that crowdfunding actually works ! Works not only for companies with a complicated product who needs money to finish it, but it also works for individuals who wants to find other individuals ready to support an idea with their money and feedback.

Few questions to trigger discussion:

• What is your experience with crowdfunding ? Have you ever participated in a crowdfunding campaign as a contributor or a receiver ? 
• Do you think crowdfunding has already become an alternative to classic ways of funding an initiative, like: loans, angels and venture investments, IPOs and so on ? Or it may become in future ? 
• Do you have an idea that you always wanted to validate but didn't know how ? Would you consider doing it through a crowdfunding campaign ?