I have often been heard saying, “You can sell your way out of this.” And many times it’s true.
Companies often want to get funding when sales are down when in reality, some focused effort on sales can many times bring in the needed revenue to fix the problem or fund expansion and new product development.
But what about the times when it can’t? Most companies use debt to finance expansion and new products. There are alternatives.
There are many sources of financing available for a company; friends and family, traditional bank loans, SBA loans, microloans, venture capital, and angel investors. Each has its own merits and is appropriate in different situations. There is one type of funding that can be far superior when it comes to getting the financial backing needed while simultaneously growing mind share and even market share. That source is crowdfunding.
What is Crowdfunding?
photo provided by Lance Fuller, from his Blog, Voices of a Lost Generation
Before I go any further, let’s be sure we are all on the same page as to what crowdfunding is and is not.
According to Wikipedia:
“Crowd funding or crowdfunding (alternately crowd financing, equity crowdfunding, or hyper funding) explains the collective effort of individuals who network and pool their money, usually via the Internet, to support efforts initiated by other people or organizations.”
According to www.crowdsourcing.org:
“Financial contributions from online investors, sponsors or donors to fund for-profit or non-profit initiatives or enterprises. Crowdfunding is an approach to raising capital for new projects and businesses by soliciting contributions from a large number of stakeholders following three types of crowdfunding models: (1) Donations, Philanthropy and Sponsorship where there is no expected financial return, (2) Lending and (3) Investment in exchange for equity, profit or revenue sharing.”
Crowdfunding can be equity or debt financing but the most popular kind is what I call “pre-selling” or “donation.” Most crowdfunding is done to finance a new product, project or service. It’s not to promote a product that has been around and just isn’t selling. The vast majority of crowdfunding is done via the internet on specialized crowdfunding sites like Kickstarter and Indiegogo, although I have a friend who crowdfunded her book on her own website and a friend who funded the opening of a 4th location of her restaurant through soliciting her current customers via a special letter.
What I love about crowdfunding for launching something new is that it does double duty. It’s a campaign to raise money but it doubles as a marketing campaign. This helps when a company is ready to launch the product full force.
Many of you are probably wondering how to decide if crowdfunding is right for your project or product. Here are some things I recommend you do.
- Research crowdfunding on www.crowdfunding.org. Learn about the different uses and types.
- Go to the most popular crowdfunding sites and spend some time looking at the types of projects and products that are posted and how well they are doing.
- Take a look at the format for posting, the average amount of money being raised and the types of rewards being offered or if it is debt or equity, and how it is structured
- Make a list of what you would need to do to get ready to launch a crowdfunding campaign.
A Plan and A Network
It’s important to note that in order to do a successful crowdfunding campaign there are two important things to consider. First, you need a solid business plan, and second, a strong network. Having a great idea is one thing but having a strong network to help you promote your crowdfunding campaign is critical. Take a look at your network and start building it now. In the event that you do decide to run a crowdfunding campaign, you’ll be ready.
Originally published in the June 17, 2013 issue of the Northern Nevada Business Weekly.
For more information about whether crowdfunding is right for you, please call 775-852-5020 to schedule a 30-minute complimentary consultation.