Is Crowdfunding Right For Your Small Business?

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What is Crowdfunding?

Over the past eight years, crowdfunding has emerged as a popular tool for individuals to raise financing for business ventures.

Entrepreneurs typically raise small amounts of money from a large number of backers, or “the crowd,” usually via the Internet. Backers receive some sort of reward or, less commonly, an equity- or royalty-based financial return. Crowdfunding platforms – including Kickstarter, Indiegogo, and GoFundMe – have raised billions of dollars, and the industry is still growing with niche service providers such as 40Billion which focuses on crowdfunding promotion for small businesses.

For small and new business owners looking to raise capital, crowdfunding is an increasingly popular option. Unlike with debt financing, entrepreneurs are not evaluated based on the 4 C’s: Cash flow, Credit, Customers and Collateral. Rather, your access to capital is based on your existing reputation and your ability to effectively market the crowdfunding campaign. Backers decide whether to fund the campaign based on their interest in and support for the cause, for the individual business leader or because they want to buy the product/service being offered. For startups or businesses launching new products or entering new markets, crowdfunding may be more accessible than other forms of financing. It is also a great way to test the market for your product because many funders are also generally interested consumers.

2 Strategies for Success

The following are some insights about what makes a crowdfunding campaign successful.

  1. Planning. The typical crowdfunding campaign lasts for 30-45 days, but planning should start several weeks in advance so that everything is in place during the crucial fundraising stage. Spend a lot of time researching other campaigns on various platforms to get ideas. Then, create a strategy for raising the visibility of your campaign, reaching out to the press and potential backers, and handling customer requests.
  2. Promotion. The 30-45 days of the actual campaign are a wild ride. It’s really a numbers game. The more people you reach out to, the more money you’re going to get. It’s all about constant outreach. Sites like 40Billion.com make this easy by broadcasting and promoting your crowdfunding page to its large network of several million users across the most popular social networking sites for businesses — including Twitter, LinkedIn, 40Billion, and even Facebook. Innovative services like tweet ads and promoted company listings were created for crowdfunding entrepreneurs to tap into a growing, active network online without spending thousands on pay-per-click ads or traditional advertising.

Is Crowdfunding Right for You?

For small businesses, crowdfunding is just one of many different financing strategies. For every success story, there are dozens of crowdfunding campaigns that do not meet their goals. Having a physical product makes a campaign more enticing to backers. More generally, you need to have a compelling story. Focus more on the “why” rather than just getting the money fast, as this creates more buzz and more loyalty from your customers and backers.

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