Crowdfunding is a relatively new phenomenon, but it has led to remarkable stories of new products and new services. Especially for people who are starting up, or businesses searching for new strategies to reach potential customers, crowdfunding offers a unique way to establish relationships and a sense of ownership that were previously untapped.
But crowdfunding isn’t a simple, do-it-in-an-afternoon project. It takes time and thoughtfulness—otherwise the only thing that it guarantees is failure. That’s why it’s helpful to understand the limitations and the potential of crowdsourcing.
For starters, there are five common pitfalls related to crowdfunding. Many people assume that crowdfunding isn’t a good match for them—but that’s just because they’re not used to the approach that it demands. What they need to know is that crowdfunding is intensely personal—it takes aggression and team building.
They also assume they need many, many people—when in fact all they need is a community. But they also need research and contacts, people who will help to generate enthusiasm and discussion about the crowdfunding possibilities.
Strategy is always better than bravado. (Some people compare that to thinking like Napoleon instead of Custer.) This means asking for a low goal and quick support; that helps to build trust, which in turn gets people to comment and share. It’s helpful not to think of crowdfunding as a one-and-done approach—but you also can’t think of it as a way to pay for everything. It’s a spark, a way to build the future, to raise more money, to improve and build on great ideas.
And although crowdfunding feels less formal than many other approaches, it still demands legal protections and counsel. You must protect your intellectual property—patents, copyrights—and keep secrets that you’ve developed to yourself. The reverse is true, too—if you plagiarize or infringe on other people you will be held liable too.
Businesses and individuals looking to crowdfund a project or service can turn to a variety of websites to launch their project. One of the better known sites is Kickstarter. Many people assume that crowdfunding projects are tens or hundreds of thousands of dollars—or more. But they’d be wrong. In fact, the vast majority of crowdfunded projects are well under $20,000. Even more illuminating: Over half of all crowdfunded projects are only valued between $1,000 and $9,999.
Crowdfunding is an interesting financial medium to study, especially when you start to look at repeat project creators. Both success rate and number of backers are directly related to number of times a person attempts a crowdfunded project—when the numbers and people committed rise, so too does the number of times a person creates a crowdfunded project.