Raising capital for start apps can be crucial for the survival and growth of a new business. Traditionally, entrepreneurs would look to investors or business partners to help boost the seed capital or to make the start up financially secure. However, finding a business partner or investor has no guarantees and can take a long time. Investment often requires entrepreneurs to hand over a percentage of ownership of their business to the new investor or business partner. Social media has seen the introduction of crowdfunding platforms. Crowdfunding is the practice of funding a project or venture by raising money from a large number of people who each contribute a relatively small amount, typically via online platforms such as Kickstarter and GoFundMe.
Seeking traditional financial backing can be time-consuming and unaffordable to many entrepreneurs. Applying for a loan or trying to find an interested investor requires a business plan as well as necessary contacts with specific investors who may be interested in your business. This relinquishes control of the business and the vision for the business in many cases. A successful crowdfunding campaign is far more efficient and effective in getting your message out to the right people. With the right platform, you can share your startup’s vision, produce a quick video, set up some enticing incentives, and benefit from having all the relevant details and information in one focused location where potential backers can find you.
A strong, well executed crowdfunding campaign can provide approval and social affirmation that’s crucial in mapping the best direction forward for a business. When possible clients express interest in your startup’s product or service, social proof is generated. This demonstrates that there is a market for what you’re doing. Once early adopters believe in your idea, others are more likely to follow suit. Social proof can be converted into traction, whether it’s a significant quantity of backers, pre-orders, or media exposure, this can be invaluable as you endeavour to attract other investors or try to acquire a loan.
Crowdfunding platforms allow possible customers and investors to ask questions and offer criticism towards start up ideas. This feedback can often be unsettling to an entrepreneur. But this is valuable feedback that can help a business to innovate and grow. Ries (2011) states that the first product does not need to be perfect and that through testing and feedback we gain the necessary feedback to strengthen or perfect a product or service. Ultimately, a start up is addressing a customer’s need or problem. Hence customer feedback provides excellent insight as to how you can adapt your product or service to better fit the needs of your customers and make the product or service more useful to them. Crowdfunding is a constructive opportunity to get close to customers and to engage with them in a meaningful way. This can generate excellent ideas and innovative adaptations for start ups.
Social proof can be built by early adopters and potential brand advocates on crowdfunding platforms. These people who believe in your story, product, or service, are encouraged to spend their money on its longevity and long-term success. Early adopters are vital to the success of crowdfunding campaigns. Due to the belief on your idea, they are most likely to share your vision with friends and family and promote it through their social networks. Nieto-Rodriguez (2017) believes that in the current business climate that there are more benefits to selling a project rayher than just a product or service. Due to businesses now selling experiences and solutions, Nieto-Rodriguez (2017) believes that a better understanding of what customers needs and aspirations are, can help in attracting them and getting them to support your project.
Social networks are the key to growing businesses in current day business environment. Through social media exposure, the media may also notice your campaign. Press coverage of a crowdfunding campaign can potentially attract more attention to a campaign and create ongoing brand awareness for a startup. This can come in the form of a feature story on a popular news station, blog, or print publication, and is a great way to bring in backers outside of your personal network. A good feature story or Twitter mention can create a powerful snowball effect, putting you in touch with major investors you might not have otherwise reached. Whether they read about your new product on a popular blog or hear about your innovative campaign from a friend, a successful crowdfund is a great way to capture new investor interest.
In retrospect, crowdfunding was a tool I have failed to make use of. Both with Babatunde as well as our team startup HugBuddy. Babatunde could have benefited greatly from a crowdfunding campaign. I wasted time looking for a business partner rather than focusing this time and energy on a campaign that could have given the brand greater exposure, but also contact with serious investors. In the future, I aim to take advantage of a crowdfunding campaign when I begin my next business idea.
Nieto-Rodriguez A. (2017) Selling Products Is Good. Selling Projects Can Be Even Better. Available at: https://hbr.org/2017/10/selling-products-is-good-selling-projects-can-be-even-better (Accessed: 22 April 2020)
Ries (2011). The Lean Startup: how constant innovation creates radically successful businesses. London: Portfolio Penguin.