Crowdfunding – Is it as easy as it seems?
In today’s Doonesbury cartoon, two young people in a recording studio need some money to produce a record. They decide to put their project up on Kickstarter, and after what seems like minimal effort, they proclaim it to be live. While the older recording studio owner looks on with doubt, he says, “The industry hasn’t changed that much. You still gotta make your demos, work your label contacts, and get out and do gigs, man!” But just as the voice of age and wisdom finishes his speech, the young hipsters proclaim, “We just raised $2,000! … Make that $3,000!”
Would that it were so.
There is a popular conception out there, that all you have to do is put your project out into the crowd, and if it is worthy, you will get funded. It’s simply not true, and this perception is causing many people to get the wrong idea about what crowdfunding is, and how it works. It’s not an easy fix, as Doonesbury would seem to portray, and in many respects, it’s not that much different from other more traditional types of fundraising.
We speak of “the crowd” now as if it is a discrete entity, waiting to be tapped. We think of it as an entity that is eager to fund new, creative projects and startups, an entity that constantly reviews the new offerings. But instead of thinking of “the crowd” as a friendly and somewhat dotty grandmother with a fat checkbook, it is more appropriate to think of it as just another somewhat skeptical and tightfisted venture capitalist that doesn’t know you exist.
Here’s the difference between myth and reality. The crowd is not out there waiting for you. In reality, “the crowd” in that sense doesn’t even exist, and you have to use the same tactics to gather your own crowd, as you would if you were trying to gather a group of private investors, angels, or VCs.
Those that have sought the more traditional venture capital route have found it to be an excruciating process, usually starting with a long and frustrating path of first proving oneself, and then, getting the VC’s attention. It’s not easy, especially if you don’t hang out in the same Menlo Park coffee house with them. Most of the time, when reaching out to VCs, you’ll be soundly ignored.
The crowd is the same way. So how do you avoid being ignored by the crowd? First of all, you have to define your crowd. Kickstarter is not the crowd. It is a platform, and it’s a platform to which you have to bring your own crowd. People just don’t say to themselves, “I think I’ll go on Kickstarter today and see who I can give money to!” They do however, occasionally say to themselves, “I think I’ll go on Kickstarter today and support this great project I heard about because I want to be a part of it.”
As most startup entrepreneurs and creatives in need of money don’t have a crowd, this is the biggest challenge. Fortunately, it’s one that can be overcome, but it does take time, effort, and contrary to popular belief, money to get started. There’s a three-step process involved. First, you have to have something great that people will very probably want, whether it’s an innovative new product, a creative work of art, or being a part of something about which they are passionate. And it has to be more than just an idea or a concept, you need to have something concrete to show before you start crowdfunding, even if it’s just a beta or proof of concept.
Once you have that in place, then it’s time to get the word out. This is where you build your crowd, and you do this through a combination of traditional public relations (parties, press releases, connections), and new media public relations (social media, search engine optimization, web video).
But after people have heard about you, so what? This is where the third and most crucial step comes in. Just because there are a crowd of people who know about your project, doesn’t mean anybody will care. Why should they care, and what do they get in return? Incentivizing the crowd is where you get the real traction. In some cases, where the product may be a social good, something simple such as a sticker or a listing on a supporters page, may suffice, but in most cases those sorts of incentives are just too weak. Try launching a startup, and telling people that if they give you fifty dollars, they’ll get a sticker, and see what happens. They’re not going to support you because they think your idea is great. Yes, you do have to tell them about your great idea, but the pitch has to focus around what you’re doing for them. What do they get in return? Do they get to preorder a product before it goes public? Attend a fabulous party? Be guest of honor at a dinner party with the Mayor? Have some input on the final design? A crowd isn’t going to do you any good unless you can motivate it. If not, it’s just a bunch of random people.