Five Lessons Learned - How to Do Crowdfunding the Right Way
Crowdfunding is one of those buzzwords that has gained a life of its own and earned its place in the English lexicon of modern terms. In a word, crowdfunding refers to welcoming the public to voluntarily fund your project in exchange for certain perks or rewards. This could be the product you are building when it finally hits production, a personalized copy of the book you are writing and so on. When it comes to startups, crowdfunding is the Holy Grail of proof of concept and product-market fit. The uncertainty of building a product, which has not previously existed in the market you are targeting, offers the very real possibility that you could invest your life savings in producing it only for it to be a market flop. Crowdfunding solves this dilemma. But there’s a method to this. Fresh from running and successfully completing our own crowdfunding campaign, here are some lessons we have learnt of how to run a crowdfunding campaign the right way.
#1. Think through your concept thoroughly
Ideas pop up all the time and for those with an entrepreneurial knack, this means a few ideas every day. They may be great sounding but most of them have no business case. For your idea to move from your head to paper, it has to first make sense to you and a few people around you. But not as an idea, as a business. There’s a world of a difference between an idea and a business and you need to distinguish these two before anything. If people will pay money for your idea, then it has a business case. If people just like your idea but will not cop over some cash for it, then it’s just a great idea and should remain as such. I’ve started this far out because killing non-business ideas at this step will save you a lot of heartache and lost money.
#2. Have a working prototype in place
A brilliant idea or concept does not equal to a working prototype, even if it has a business case. In this case I’m referring to products that have to be built, not services. Before even applying to run a campaign on Kickstarter or Indiegogo, first do the legwork and get a working prototype out of the door. For us, this meant building a minimum viable product and distributing it among our staff, friends and family. It also meant approaching students and teachers at a local university to test and prove our concept. This stage was perhaps the most critical because it gave us the basis for the next step, alpha and beta testing.
#3. Test, test, test
The testing phase is akin to a soft launch. You are sending your product to a bunch of people you don’t know and hoping they will like what you send them. It’s another step in the product-market fit journey. Testers will first tell you whether your product works but more importantly, they’ll be your litmus test in whether the product will have a ready market when it goes on sale or not. Squash any bugs identified, correspond with testers and get the product as near to market ready as possible. As an example, over 100 people tested ICLOAK during the alpha and beta testing phases.
#4. Launch your campaign and publicize it like crazy
One big mistake people make when they launch a crowdfunding campaign is to sit back and wait for the cash to roll in. It doesn’t work this way. First we had to create all the content that was needed for the Kickstarter page. This had to describe the product as accurately and as descriptively as possible. We then hired a PR company, a marketing executive and sales reps for the campaign. As CEO, I did a bunch of media interviews and we hardly turned down requests for comments from smaller news outlets and bloggers. We had to really sell the campaign for it to gain traction. Also, we were very personal and candid with our backers and other interested parties. A picture of the team posted on Kickstarter was the cherry atop the icing because we knew people funded teams, not ideas or products. The more real and capable the team was, the greater the chance of getting funding.
#5. Keep your promises
Stories abound of crowdfunding campaigns that raised thousands of dollars, this one raised $1.5 million, and to date the campaign owners have not lived up to their promises. The lure of money and poor resource management sees these campaign owners misappropriating funds and then realizing they don’t have enough left to fulfil their pledge promises. Avid this like the plague! If you are building a company on the foundation of your products, this is the worst possible thing you could do. Not only does this tarnish the image of your company, it ruins your reputation as a person. With our campaign over, this is the one thing we are obsessively focused on at the moment, fulfilling all perks and ensuring everyone we promised something has gotten it. This before we even think of releasing a commercial version of ICLOAK and starting to sell it.
Crowdfunding, when done right, can create a market for your product even before you ship out a single unit. It also creates a wonderful narrative for potential investors as they are able to see the success of your campaign as a sign of things to come when you enter the market. But when done wrong, the process can snowball into a PR nightmare with ramifications that could potentially last your whole career.