Do you have an idea for a new product or service offering for your small business but need funding to get it off the ground. A bank loan is an option but getting one has become challenging for small businesses. Since the recession, banks have tightened the requirements to qualify for a loan, and according to the New York Times, consolidation among banks has reduced the number of banks focused on small business lending. Angel or venture capital investing is another avenue but finding the right person or group who would be interested in your particular project or business venture can be difficult.
For these reasons, many established small business owners and entrepreneurs are turning to crowdfunding as a means of financing projects, such as developing a new mobile app. Crowdfunding, which is generally conducted over an Internet site, involves raising money by soliciting contributions from individuals to support your project. Contributions can be very small – even $5 – or large depending on your funding needs. Crowdfunding projects have a financial goal and deadline. At most crowdfunding sites, if the goal isn’t met, the funds are returned.
The National Federation of Independent Business (NFIB) describes the four steps to the crowdfunding process as: find a crowdfunding website that is appropriate for your particular project (some are geared more to nonprofits or the arts while sites like Crowdfunder and WeFunder support small business and startups); become familiar with the site’s criteria; create a profile, which includes how much money you need to raise and how you plan to use it; and set a timeframe to run your campaign.
Increase your chances of success
The crowdfunding process may be straightforward, but there still is considerable work involved to make sure that you reach enough of the right people to get behind your project and that they respond within the deadline you’ve set. Here are some suggestions to increase your chances of success:
Make your case compelling: You may have a great idea but lack the skills to communicate it to build investor enthusiasm. If necessary hire a communications professional for firm to help you clarify your vision and messaging.
Line up commitments: Out the gate have commitments already lined up from associates, friends and family. You gain credibility among potential investors when you can show you already have support for your campaign.
Incorporate video: Don’t just tell people what you want to achieve; show them with a video introduction. Your video doesn’t have to be elaborate. A simple and direct video can help showcase your product concept or idea for a new business and explain how it will benefit customers and change a market.
Promote your campaign: You’ll want to leverage a number of channels to promote your campaign. Use social media networks – Facebook, Twitter, LinkedIn and your blog – to spread the word about your project. Don’t limit your marketing to social media. Build an email database to reach more potential contributors. Also contact relevant press and bloggers that cover your market with information about your project.
Communicate frequently: Throughout your campaign, regularly update contributors through your social media channels and email marketing. Answer questions and respond to comments quickly to show contributors that they matter to your success.
Provide perks: In addition to regular communication, you can offer contributors perks or rewards – some type of non-monetary incentive for contributing to your campaign. If your crowdfunding effort is to support a new product, offer a discount once the product becomes available. Consider other promotional items that tie in with your campaign. Have different rewards for different levels of funding.
Crowdfunding can be your path to expand your business or take it in an entirely new direction. Do your homework, learn about the different platforms appropriate for your project and be clear about your goal. Then communicate frequently to inspire others with your vision and passion.