Entrepreneurship is an attractive path for many creative thinkers and free spirits, along with anyone who thinks they would do better if they were the head honcho on the block. Some businesses, though, can be incredibly difficult to start. Beyond having an education or the basics of starting up a small business from home, like a computer, there may be tools and assistance you need that simply are not feasible to afford. However, there is a chance that people out there, shockingly enough, may want to help you get started. This is where crowdfunding websites like Kickstarter make their name.
So the question is: should you use Kickstarter to get your business out of the gates? There are a few important decisions in that process, such as whether a better crowdfunding source is better or if you should be looking into this route at all.
What is Crowdfunding/Kickstarter?
The concept of crowdfunding is actually about what it sounds like. You have an idea, but you do not have the money to make it happen. You ask people for money to make it happen, and they give you the money.
Sound too good to be true? Well, there is a bit more to it, but those are the basics. When you use a website like Kickstarter to crowdfund your business beginnings, you will set a deadline on how long you have to receive funding from potential backers. Backers will pledge to donate a certain amount of money, and it will be deposited from their account to the crowdfunding account at the end of the deadline. If the minimum pledge requirement is not achieved, none of the backers will lose a dollar over it, and you will receive no money.
Why would people decide to donate to such things? Generally, they would do it because they truly desire the product you are promising to be produced. However, since they are possibly pledging a donation that exceeds the future purchase price, and such large donations will surely be required for you to hit your minimum pledge requirement, there must be rewards. These pledge rewards can be a huge reason for backers to donate those large amounts of cash. The rewards also likely cost money, so you have to find a way to afford them, likely with the very money that is being donated.
Reward Levels for Crowdfunding Campaigns
This section alone could be a much longer, and indeed, it is! Kickstarter made several of their own articles on how to make good pledge rewards, and if you are just looking for ideas, check out this one.
What makes a good reward? Well, what does your donating audience really want? Surely, they want your product, and that is likely the first reward level you will consider. How about some merchandise to go along with it? It may sound crazy, but if they like what you are creating enough, especially if it is an artistic idea, they would love to wear it on a shirt or a hat.
What about something a little deeper than that? What your supporters really want, often, is you! Try not to get too cocky about it, but they want to see the mind behind this amazing idea. Offer lunch at your favorite diner, or maybe offer a day’s hike through all the places that have inspired you most in your hometown. This will lead to the discussion they want: what makes you tick? What produced this amazing product or idea that they are so enthralled with? How could they become as creative as you?
You can see that some of these options do not actually cost a ton of money as far as rewards go, but they can be gratifying to your customers, dare I say fans in some cases, and they only require your time and energy. A little bit of commitment to farming a community of appreciative customers may do wonders to create your business, and this may be what truly kick starts your business more than any donations ever could.
Does Crowdfunding for Small Businesses even Work?
Yes. Hundreds and thousands of excellent small businesses, and even huge projects both creative and mundane have been sprung from crowdfunding like Kickstarter. If you wish to be prideful and make sure you do everything on your own, feel free. Remember that most of the great businesses you have ever heard of needed a large loan to get started.
You could almost think of these crowdfunding campaigns as investments lor loans in a way because your supporters do expect something in return for helping get your small business off the ground. The return may not equal their investment financially, but the joy they receive for helping someone who needs it may be all the return they need. An important lesson to learn is that asking for and accepting help does not make you weak. It makes you humble. Sometimes the greatest gift you can give is to accept a generous gift.
All that said, this is about whether crowdfunding to start small businesses works at any sort of level of consistency. It certainly is not 100% successful, but it may be worth the chance. This is not to say that a Kickstarter campaign is completely free. There are fees exacted should the campaign be successfully funded, and to have a better shot at success, a bit of investment may be required. A quality video explaining the goal of your campaign would go a long way to show your plans and the chances it will truly be successful. Plans and proof of your ability go a long way in helping people desire to invest in such a campaign.
By the numbers, around 37% of projects started on Kickstarter are successfully funded. That may not seem like a lot until you look at how many projects are not even treated seriously. When you look at genres, comics, theaters, and dance themed projects are funded the most consistently at around 60%. Meanwhile, technology, journalism, and crafts-based projects are funded close to the 20% margin. Does this mean you are more likely to start a business selling comics than computer equipment? Of course not. What it more likely equates to is the amount of money requested per project and the higher number of technology projects began. While comic projects are fully funded more often than technology projects at a high frequency, technology projects have still raised in successful campaigns around $710 million opposed to the $88 million of their comic friends.
What kinds of Small Businesses could Benefit from Kickstarter or Crowdfunding?
The truth is that any business idea you can come up with can almost certainly be funded by one of the many crowdfunding websites out there. The Pirate Pancake Griddle was funded for $18,633 from 200 backers after asking for $13,000. This product literally is designed to put jolly rogers onto pancakes, which sounds super fun right? People ate up this idea, and quirky, simple ideas like this can be successful in all sorts of levels of crowdfunding.
The Paravelo flying bicycle has been funded for over $12,000. Sadly, it is well short of its goal of $65,000, but this idea of a bicycle that can actually fly up to 4,000 feet in the air and take off from any city street seems truly astronomical in its ramifications. If such a thing were to really take off, it would like create a need for bicycle flying licenses before long. The last thing anyone wants to see is someone plummeting out of the sky and crashing under a bicycle and a glorified fan.
People all over have successfully funded the beginnings of video games, children’s books, Bible study aids, charities, shoes made from ocean plastic, and all sorts of projects and small businesses. These humble beginnings for small businesses have occasionally turned into empires, and have often turned into rewarding side businesses for people that keep their day jobs. Is it possible for you to use Kickstarter to begin a small business? Absolutely, it is. You must put in the work for it though, because if people do not believe you can truly produce what you promise, you may not ever get a single donation, and deservedly so most likely.
The question is not really whether people will take your idea seriously usually, but whether you will take the campaign seriously. Can you advertise it to everyone you know? Can you convince them to share it even if they are not able to back your project? These are the questions that will determine whether or not your crowdfunding venture will be successful.
Why doesn’t Everyone use Kickstarter?
Kickstarter and similar crowdfunding platforms work to promote small businesses more than you would ever believe. That said, thousands and thousands more have failed completely. According to Kickstarter themselves, and it is wonderfully convenient that they keep their statistics so readily accessible I must say, 13% of all projects listed so far finished without receiving even a single donation.
How can that happen? How can people be so heartless while at the same time donating $10,000 to a guy who asked for $10 to make a potato salad? Well, some people just think donating to strange things is funny, I have to imagine, and I really do not know how to explain that phenomenon.
Sometimes, these projects may fail so completely due to poor promotion. So many projects get promoted all the time, so it is easy for some to just get buried beneath the sea of links and advertisements and even just similar projects that may not even be better but just showed up first or at a better time. Sadly, some of these opportunities may come down to luck.
However, Kickstarter also shows that 78% of all projects that reach 20% of their funding goal reach the full amount of that funding goal. So once the ball gets rolling, it usually gets to the finish line. The struggle is just getting started really.
How do I get the Money from Crowdfunding and Kickstarter?
It depends which platform you are using, but all of these crowdfunding platforms will have some sort of fee system. These crowdfunding sites are, after all, businesses that someone had an idea for. Their plan is for you to make money successfully with your business, and for them to charge a small fee off your donations that got you started.
Kickstarter charges 5% of the money donated, and Amazon will charge 3-5% more for credit card processing. If you add in costs for advertising such as if you commission a professional to make a video for your campaign, you could be really chunked out of the donations, not to mention your personal savings.
The big threat is if you do not produce on time. When you meet your funding goal, you have made promises on when you will create your content or begin selling your product. If it does not happen on time, you will truly discourage potential consumers from being interested in your project. Suddenly, your donations will be wasted on a product that will not produce sales.
Once your funding deadline is reached, the followup may depend on the site you are using. If you have intermediate goals, then your first goal achieved will ensure that you receive payment. After this, the clock will be on for you to fulfill your promise to create your product or content.
What are the Crowdfunding Alternatives to Kickstarter?
Kickstarter is by far the most famous name in crowdfunding small business and projects great and simple alike. However, there are dozens of other crowdfunding websites that may be more properly suited to what you are trying to do with your industry based on the rules of those sites. Before you start a Kickstarter campaign, consider these other options and whether or not one of these might be more financially sensible.
Quirky is a crowdfunding platform designed to support plans that are still in the beta of their idea process. The basic idea is that you submit an idea, the Quirky community gives a bit of criticism for improvements, and then Quirky decides if they want it. If they do, they take over production of your idea and pay you a percentage based on its production. Obviously do not take this approach if you are looking to start a solo-successful small business, but this is a good approach to earning an income passively with very little relative effort.
Fundable is the most similar crowdfunding source to Kickstarter in that it is rewards-based. However, the unique part is that it charges a flat $179 monthly while fundraising then a mere 3.5% fee on a successful campaign. If the campaign does not run very long, this platform becomes more lucrative than any because of that low success fee.
The most attractive part of FundAnything is, guess what, they will actually help you fund anything that you care about. They charge 9% on anything collected, but gives back 5% of that fee if a funding level is completed. Payment companies will also charge 3% on payments. Basically, if you cannot get funded somewhere else, try FundAnything. You should probably not try it first though because it of those fees.
Indiegogo fundraising is focused on arts, charities, and small businesses. It is free to get started and even donate. A fee of 9% is deducted on all funds raised, but only 4% of funds are deducted should the funding goal be met. Obviously, this is huge motivation to complete a fundable goal. This is a solid option to consider for funding a small business, so look into it thoughtfully.
FundRazr’s main attraction is its included working Facebook app that will help tremendously with advertising. FundRazr is also attractive for having a slight 5% fee on all funds even if the goal is not met though an additional 2.9% charge on all transactions during the campaign. This is good if you expect to have a few large investors rather than many small investors.
There are far too many options for crowdfunding to be all listed in this article, so if you are hoping for something more exactly specialized to your genre or needs as a small business startup, feel free to keep looking. There may be that perfect option out there for you. After all, if you have an idea, chances are someone else has thought of it even if no one else has had the gall to pursue it.
A bit of gumption goes a long way with crowdfunding. Never be afraid to toss an idea out there, even if you think it is just truly crazy. However, only start your Kickstarter journey if you can prove that this product or content is something you are truly capable of creating at the high quality that your backers will surely be expecting. If you fail to prove that you can do so, you will not get funded most likely. And if you do get funded and fail to produce well, the product will not be successful anyways, and future endeavors may be blackmarked. Preparation and confidence are everything in creating a successful crowdfunding venture, so it is time to consider what your small business needs to get started.