Crowdfunding: Getting other people to fund your new product development
“I gotta admit, when you’ve been doing this a long time, going out to the audience and asking for them to help out with crowdfunding, it’s a gut check. You never know how that’s gonna turn out.” – Burnie Burns
Your friends will often tell it is a great idea but that is not the same as giving you money to actually buy it. Others may be sceptical “it’ll never work”. But who do you believe?
Well crowdfunding allows you to see if real people will pay for your service or product before you even launch it.
Crowdfunding: How it can work
Once you have identified what new product or service you want to launch, you then do everything that you would do if you were going to launch it now.
Develop your pricing strategy, think of a name and a marketing strategy, why people will want it, who you will target, how you will promote it, including logo and visuals and a video to explain or illustrate how wonderful your new product or service is.
Test these ideas with friends and trusted contacts, see what they think.
Now instead of spending money on actually launching it, buying or creating stock, look at Crowdfunding sites.
Download our business plan template
There are lots, so review a few to find ones that include your type of product or service. Many, such as Kickstarter, are American but have a worldwide reach. Fees and how they work vary, so also think about that. But initially look at some successful projects that they have on their site to see how they work and if they are getting support.
They will be encouraging people to donate/invest in return for rewards – these rewards are the services/products you want to test. Most insist you have a goal of a total amount of money you want to raise. Generally, you only get the money once the goal has been reached. This allows you to see if people will commit real money for your product or service before you launch it. If you get limited response then this can be an indication that either the product or the promotion or targeting is wrong so before you go live you can adjust it. Worst case you decide it will not work but you haven’t wasted money buying/creating the product or service and the donors get their money back – you will have some limited costs to the crowdfunding site.
Crowdfunding only works if you do some promotional work and have a network you can promote to, to encourage them to the site. You need to get people to the site and preferably get some initial commitments so that the project looks attractive, some donations will encourage others. If you get 20% of your target committed then you have a good chance of getting to your total.
While crowdfunding has raised millions for some projects like a snazzy smart watch, on average Kickstarter says the average amount raised is less than $10,000.
Examples where Crowdfunding could be used:
Imagine you want to test a pop up restaurant concept – your rewards could be meals for two, four or hold a party at the venue depending on how much people pay.
Or imagine you have an idea for a new Paddington Bear plant pot. Mock up one, but you can test demand before you go to production of the real thing.
When you’re looking for finance, make sure your business plan has the clarity and ‘sparkle’ that investors are looking for. Seek our expert help to ensure your ‘pitch’ is as compelling as possible.