Crowdfunding is a great way to raise funds, but it is not “free” money. Make sure it is right for you before diving in.

By Holly Sharp

Crowdfunding Isn’t For Everyone

What are you talking about? Why wouldn’t it be? Teams show up with a dream and a video and walk away with hundreds and thousands of dollars – if not millions! Who would that not be for? We get why teams want to crowdfund. We love it ourselves. However, we love it the most when teams get out of it, what they put in. With a 64% failure rate, it is worth spending a little time asking yourself if it is actually right for your team. What you get out of crowdfunding is funding without having to sacrifice equity. However, what you trade is time and money. You can balance one for the other, but you will certainly need to be prepared to sacrifice both. In order to determine if crowdfunding is right for you, we believe you need to ask yourself (and your team) three critical questions:

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What Is Your Motivation For Crowdfunding?

The simple answer seems like – duh- to get money for our team, however, we believe it is more nuanced than this and the more clearly you can define what you truly want to get out of a crowdfunding campaign, the more likely you are to look at your idea and budget and truly make the right call for moving forward. Every campaign will want to accomplish all 3, but really ask yourself, what would you be okay to live without. What if you hit your $300,000 goal but never really got much media coverage – would you still be happy with the outcome? What if you had a $300,000 campaign and barely broke even, but were featured in every major news magazine for your industry? What if you had a $300,000 campaign that failed, but you were able to correct a major assumption you had about your design or marketing before you launched?

Reason #1 – We need money

This is at the heart of how crowdfunding started in the first place. I have an idea, but I need money to take the next step. For teams that are truly focused on that infusion of cash to get off the ground or to keep moving, you will want to consider:

– How can I trade time on my team for what I might otherwise outsource

– How much do I care about media coverage, if I can’t directly measure the impact to my campaign?

– How much money do you have to invest regardless of whether or not you fund? This type of team can be just as successful, but will need to have more time and talent resources in house to help drive the activities required to be successful.

Reason #2 – We want to bring attention to our brand

These teams are often the ones you hear of and know about because they are willing to sacrifice profits for lots of marketing and PR. This team is more focused on the potential future funding or relationships that a large high-profile campaign can bring.

To consider:

– What type of marketing and PR agencies will you hire to help you get word out?

– What are your minimum profits you have to be sure to keep in order to still deliver the product. (insert tale of coolest cooler here…..sigh)

Reason #3 – We want to validate an idea we have

These teams can be a blend of the other two, but truly are focused on knowing if they have an idea worth spending time and money on after the campaign. For teams that are truly focused on validation, your focus should be on making sure you have a system in place to easily get feedback from both influencers and your backers. The focus for these types of teams should be on putting resources into their prototype, sampling and team resources that can personally interact with people on social media and in the comments section.

To consider:

– What is the amount that you would need to raise for the team to want to keep moving after the campaign. Yeah, you may deliver the product after a $300,000 campaign, but would you actually quit your job and give it a go?

Does Your Budget Match Your Motivation?

This part can take a few weeks, or depending on where you are in the process, a few months to actually get together, so spend the time. This step matters a lot and so many teams skip it and find that they did not walk away with what they expected. Here is the basic budget we encourage teams to fill out using their primary perk. Further into the process you will want to add in your other perks to understand the variation around this number, but for now this will give you an idea of what is possible.

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A note about variable and fixed costs: In this budget the variable cost is simply a % that is calculated off the stated goal. The most common variable costs are platform costs (like Kickstarter 8-10%) and pay later” agency costs (like FundedToday). As you can see in this example, we assumed we would use a “pay later” agency and their share can be a significant portion of your budget. Fixed costs are more straightforward, but you pay them regardless of whether you fund or not. These include, but are not limited to videography, editing, design copywriting, influencers, samples and media buys.

Do You Have The Right Resources?

Now that you have an idea of your approach and goals, do you have the two most critical resources to get started?

1) Team Resources – If you have decided to take the profit driven approach, do you have the right resources on your team to dedicate to all the different jobs to be done?

2) Prototype – Is it where you want it to be able to use it in your video, take pictures and possibly send it to influencers to review?

More about Team Resources:

We believe that there are 4 functions: Project manager (Full time), Designer (pre-launch), Web developer (pre-launch), Copywriter (pre-launch).

Project Manager

The most important point we can express here is that the person managing your project is a full time job. They should be able to step out of the responsibilities they have for the minimum 4 months that it takes to run a good campaign – from the planning stage through the distribution phase. In addition to overseeing the budget and making sure the timeline is executed properly , (unless replaced by another resource) they are also responsible for maintaining daily correspondence with your media contacts and responding to comments on your page and social media platforms. For the next three – there roles are more limited to the upfront content planning and execution phase.

Designer

The designer on your team will be responsible for making sure that all of the content you decided you needed during the planning phase is executed with the same brand character and voice. This is everything from your campaign page to the free rewards you offer people to join your fan club. The look and feel of the campaign rest in their hands. This person may even lead your video creation.

Web Developer

This person is responsible for making sure that your landing page, social media and email marketing software are all working flawlessly in tandem with each other AND that all URL tracking has been properly placed within your website and emails.

Copywriter

This person is responsible for the voice of the campaign and should be working closely with the designer. They are responsible for the first draft of almost all of the creative content that is developed during the planning phase. They should create the voice and structure of the content and the designer then steps in to bring the content to life visually. This could be the same person, but it does not need to be.

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Holly Sharp is a co-founder of Purple Spread, a crowdfunding agency focused on training and education. She has helped consult with hundreds of teams in the Shanghai area on how to manage crowdfunding. Her team is focused on bringing quality crowdfunding education to makers that are highly motivated to take their ideas to the next level. You can find more crowdfunding tools at www.purplespread.com

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