The Myth Of Magical Crowdfunding — And What Actually Works

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Forbes | Carol Tice  | October 20, 2014

Crowdfunding mythI’ve been reporting on crowdfunding since it first started to take off in the U.S., around the time crowd-lending site Prosper.com debuted here in 2006. Now, it seems every startup owner and creative artist I meet has a Kickstarter or Indiegogo campaign going on.

Unfortunately, most of these crowdfunding campaigns are doomed to fail. Why? Because the people who created them have no idea how crowdfunding works.

I know this because many of them email me, with one of two requests: They either want me to give them free consulting about how good their campaign is, or they want me to write about, tweet about, or otherwise promote their crowdfunding campaign.

None of those things are going to happen. I’m not part of your PR team. The days when sending out a press release that breathlessly announces, “I have a Kickstarter campaign!” would get you media coverage and free exposure to potential backers are long gone.

But thousands of startup entrepreneurs continue to entertain the fantasy that if they slap something up on Kickstarter, they can alert the media, quickly raise hundreds of thousands of dollars, and presto! Instant company. Or, in the case of creative artists, instant funding for their dreamed-of movie, online TV series, CD, comic, or book of photography.

Here are the mistakes I see many entrepreneurs and creative artists making, and my tips on how to save yourself a lot of wasted time and effort if you want to try crowdfunding:

Share the fantasy

For example, I got an email this morning from a would-be rapper in India who’s decided to try to raise $7,000 on Indiegogo to record an “album” about his “life, pain, and struggle.”

He knows no one. I don’t want to be the one to have to break the news to him, but his campaign is going nowhere. Guaranteed.

View:  5 Tips for running a Successful Crowdfunding Campaign

I know what he’s hoping — that somehow, being on Indiegogo or Kickstarter will mean thousands of moneyed people will find his project because they’re browsing the platform, and they’ll decide to give him money. Randomly. He has no portfolio, no track record, no email subscribers, no popular mentors who might tell their crowd about it.

But somehow, lightning will strike. He’s hoping to just get lucky. Him and thousands of others.

Why most crowdfunding fails

Here’s the problem: Crowdfunding platforms are not magical cash machines. They’re simply a more efficient way for you to reach many potential backers than calling them on the phone or meeting them in person, one at a time. You still have to know some people you can pitch.

Nearly 20,000 projects were funded on Kickstarter last year. Which sounds exciting! Like it’s easy to get funded.

But in reality, less than 41% of approved Kickstarter campaigns get funded — and Kickstarter tells me another 20% of projects submitted are rejected, and never see the light of day. So really, it’s closer to one-third of all attempted campaigns that get funded.

View:  Crowdfunding Insights from 400K Kickstarter and Indiegogo campaigns

Also, most successful campaigns don’t get much. Kickstarter’s stats are thatl most funded campaigns raise less than $10,000. Out of the over 72,000 projects funded on Kickstarter since its inception, only about 1,600 raised more than $100,000.

In general, it’s a platform for small artistic projects, not launching a major company.

But entrepreneurs get all starry-eyed over the moonshot success stories. They read about a mega-hit Kickstarter campaign, and think they’ve discovered an easy route to massive cash. Mostly, they will be wrong.

How to succeed in crowdfunding

Having covered many of the most successful crowdfunded startups over the course of eight years, I’ve noticed a pattern. All the startups that get big money from crowdfunding have five things in common:

1. You have an audience

Nearly every successful project I’ve ever seen was from an artist or startup that already had customers, fans, followers…a list of people to whom they could announce their crowdfunding campaign. Or you have mentors who have big lists they’re willing to mention it to.

Primarily, these are the people who’re going to go to the crowdfunding site and give you money.

If you have no built-in audience for your campaign, it’s not going to matter how sexy your video is, or that your idea is amazing. You are unlikely to raise the money to fund your campaign.

Or, to quote Kickstarter’s own FAQs, “In most cases, the majority of funding initially comes from the fans and friends of each project.”

For some reason, every entrepreneur thinks they will be the exception to this rule — that their project is so mind-blowing that random strangers will hop on board. But that rarely happens.

View:  How to respect your audience to build results

Instead, companies with an established customer base often do well funding a new product on Kickstarter or even their own site. The latter happened when hot nail-polish startup Julep recently crowdfunded a new nail-polish applicator they wanted to introduce.

Before you get excited about using crowdfunding, ask yourself how you would drive visitors to your campaign page. If the answer is, “No idea,” work on that first.

2. You offer something truly groundbreaking

Many of the most successful campaigns on Kickstarter have involve a breakthrough technology, or a breakthrough use of an existing technology. Case in point: The 3Doodler, the first pen that allows you to draw in three dimensions.

Though the founders of the company, Wobble Works, weren’t very high-profile entrepreneurs — one was an MIT inventor and the other had experience in toy manufacturing — they were able to raise $2.3 million in 2013 for the unique product, which is now for sale on Amazon and elsewhere.

3. You market the heck out of your campaign

Crowdfunding is not a build-it-and-they-will-come situation. Before your launch day, you should have a marketing plan in place for how you will get the word out. You should have also been preselling this — talking for months prior to your audience about what you’ll be offering and giving them updates on the progress to launch day, so that they’re already primed for interest.

Related:  How to make your startups Crowdfunding a hit

Ideally, you won’t be marketing alone. You’ll create a launch team of influencers with big audiences of their own who’re willing to help you during this time. You’ll be scheduling tweets, doing guest blogging, sending out emails…anything and everything you can think of to get eyeballs to your page.

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