Should You Crowdfund Your Next Business Idea?

Written by: Tony Lin

Crowdfunding has been all the rage as of late.  It has produced physical goods that are appearing on store shelves, a more realistic vision for alternate reality, and countless others things that would have not seen the light of day.  If you try to crowdfund your product, you could very well have sales before a final version of the product is even finished.  However, is it really that easy and it is advisable for you to crowdfund your next idea?

As easy as crowdfunding may sound (you put up your “for sale” sign and see who decides to give you money), it is invariably a more complex thing that simply offering a product for sale. It is not as simple as that.  First of all, you may not have the name recognition of a Zach Braff, whose Kickstarter campaign netted him over $5 million on his first try.  Secondly, the market for the product you’re selling out there may not be that large.  Finally, you have to be prepared for disappointment as not all crowdfunded projects get successfully funded.

The challenge with trying to crowdfund your product is similar to promoting a product on the street.  Imagine you’re in Time Square and there are hundred, thousands of people milling around there.  Now, what you are doing is promoting a product and trying to get someone to buy it.  Hundreds of people will take one look at you and walk away.  Others may stop for a bit, but leave once you inform them that its not free.  So, your challenge is with making that initial pitch great as well as attracting people to come and consider buying your product.  This, to say the least, is not an easy task.

With trying to crowdfund a product, you have those very same challenge (people will look at the site and cursorily decided whether or not to support it.  However, there are even greater challenges.  Unlike a business where you promote and sell an item, there is a longer term relationship when it comes to crowdfunded projects.  There is the initial fundraising period (usually around a month along) where it becomes more than a full-time job to engage and reach potential investors/buyers.  There’s an excellent article from GameSpot that highlights the challenges with trying to crowdfund a project.

These challenges exist because you’re trying to sell people on an idea or a prototype of a product that isn’t completely finished.  Even if your idea is fantastic, there are the concerns of reliability, potential product quality, and whether or not you will actually deliver the product.  There are no guarantees on your end, thus, if you don’t have the name recognition, it might just be a full-time job answering questions about the final product.  However, the problem with crowdfunding a project is if your proposal doesn’t succeed.  On Kickstarter, and many other sites, if you don’t succeed in your pitch, the money gets refunded back to the backers.

Kickstarter and other crowdfunding websites are no walk in the park for backers and project proposers.  From the consumer side, there is no guarantee that they may be scammed out of their money by a simple bait and switch or even defrauded.  For the project proposer, your idea may not get funded and you might find yourself severely behind schedule, drawing the ire of your backers (and bringing bad press upon your nascent product).  Crowdfunding your product is best for ideas which have a niche market that doesn’t draw the interest of larger producers. However, you shouldn’t expect to succeed.  Even on Kickstarter, 56% of projects fail.


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Should You Crowdfund Your Next Business Idea?

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