Unless you’ve been living under a particularly well-insulated rock, you’ve heard of Kickstarter. Other similar platforms include Gofundme and Indiegogo, but the most popular and most recognized brand is Kickstarter, for several reasons, the first of which being name recognition. If you’re not familiar with this growing giant, here’s how it works: Someone starts a fund for whatever reason (to produce a movie, to make zombie plushie bears, to make potato salad in one $50,000+ example). Other people donate money that will go to the cause. In return, they receive rewards—t-shirts, a “thank you” on the website, a call with the creator, or any other rewards that people can think of. The goal behind Kickstarter is to enable businesses and enterprises that would not normally get their business off the ground to be able to carry out fantastic ideas, and in general, it’s produced some very cool things. There are, of course, drawbacks to introducing a crowdfunding model to a business setting.
Popularity is King
If you were the last kid picked in gym class even though you were consistently a good player, you will understand how this one feels. Nothing is more frustrating than coming out with a great idea and seeing other more mediocre ideas flourish because no one has heard of yours, or because you don’t have a big name behind it. Sure, there are random success stories (like the aforementioned potato salad). But in general, a Kickstarter started by Zach Braff is going to manage to generate a whole lot more money than one started by someone that no one has heard of. Your best hope is to make it go viral, which as any marketer can tell you, isn’t nearly as easy as dozens of YouTube stars would have you think.
The Story is Paramount
The days of simply being able to pitch a product to an advisory board are not applicable with crowdfunding. The people who are going to be donating to your project simply don’t care about the risks and challenges nearly as much as they care that they’re supporting a good person with a great story. That might not sound like a good business model, but it’s the one that is most popular these days, and the one that is tearing up the economical sphere. If you want to put out quality products by using a crowdfunding source, you’re going to have to learn how to talk to people about your product as if it’s something that genuinely needs to happen. This will, of course, really change the way that businesses are started. While no one on Wall Street cares if your family was ill when you came up with the idea for your combination bicycle and ice cream vending machine, the people who read your sob story online just might—and it might move them.
Capital is Optional
The old rule of business is that Capital was King. That meant that no one without capital, or the ability to acquire capital, was able to start their own business with even a marginal hope of success. This meant long histories of taking out loans, not being able to pay them back, making sure that you had all of your ducks in a row before you even went to the bank to beg, and long histories of paying out the interest. These days with crowdfunding, you can be on your feet without a loan in the first few months of your business, able to keep your profits instead of paying them back to a major lending corporation. It’s enough to make you think that instead of a sound business plan, a smarter option might be a great sob story. Cynical, perhaps, but there’s good evidence that the model is working.