Crowdfunding as a strategy seems too good to be true. Raise capital, connect with others and publicize your business, all at the same time. But, it is true, and businesses of all sizes are doing it every day with great success.
From large companies such as PepsiCo to independently owned businesses like the Shelbyville, Tennessee, shop Through the Looking Glass Fine Teas and Gifts, building projects through public input is quickly becoming not just a creative option, but a viable, revenue-building one.
Crowdfunding is a relatively new business growth phenomenon that allows a network of people to pool their funds and other resources to support the efforts of organizations or individuals, often receiving goods, services or other non-cash rewards in return. Mainly used for creative endeavors, crowdfunding can also be useful for more conventional organizations.
"Crowdfunding really came on the map last year," said Brian Meece, co-founder and CEO of Rockethub, a New York-based crowdfunding collective. "It's basically building on the ability that social media gives to have conversations and stay connected."
That increased level of connectivity is what attracted Regan Wann of Through the Looking Glass Fine Teas and Gifts to the idea and what she says was the most rewarding part of her crowdfunding experience.
"I had people who have never met me rooting for me on Facebook, reposting my links and, in at least one case, planning a road trip to the shop," she said. "It's amazing to see how people can rally around a project and become engaged and emotionally invested in your success or failure."
Wann's business was successful and growing fast, but she still needed a little extra help to move it to the next level. She realized in 2010 that it was time to move into a larger location or close up her shop. When she originally opened Through the Looking Glass in 2008, she used non-traditional funding sources and decided to do the same for this move.
But, don't confuse this type of innovation with lack of motivation. It's not as easy as simply building a website profile and waiting for donors. Businesses are on their own, responsible for networking, marketing and driving traffic to their projects.
"The most challenging part was definitely the daily legwork involved in running a campaign," said Wann, who is also the sole proprietor of her shop. "Somewhere around day 30, I started to despair about my ability to keep talking. I was so sick of talking about myself, my shop, money and my campaign that I couldn't see straight. But I had committed myself to this process, and failure was simply not an option."
Engaging your network is what crowdfunding is all about, Wann says.
"It doesn't work with an 'if you build it, they will come' approach," she says. "This is a hands-on, every day sort of fundraising."
Although some big businesses are in the crowdfunding game, they act primarily as benefactors, as in Pepsi's Refresh Everything project. The project invited participants to submit their projects to a website and solicit votes, with the ultimate goal of having the behemoth company fund the project. On Rockethub, the average donation is US$50, and the public funds all projects. The strategy works especially well for smaller businesses looking to raise a relatively small amount of capital.
"The most compelling reason for a business to crowdfund is if it is not looking to raise a lot of money," said Meece, who recommends it for businesses soliciting up to $20,000. "If a business has something exciting—an upgrade or initiative—and if they're not looking for millions of dollars, in exchange for contributions, people give goods and/or services. They're not giving up equity or taking a loan."
The lower average donation made the process more inclusive, according to Wann.
"Crowdfunding allowed my actual customers, friends and family to participate without them having to come up with a potentially difficult sum of money," she said. "When you crowdfund, $20 is a great contribution. Most people can swing that when they might not be able to swing $1,000."
And small donations can really add up to big results. Wann set up a 45-day project with a goal of $3,275. She reached her goal a full nine days before the end of the project, so she set a secondary goal of $4,000. On her last day, she had a total of $4,050—124 percent of her original goal.
Businesses seeking to engage the public for funding projects can do so in a few easy steps.
First, research a website such as Rockethub.com or its educational blog, Rockethub.org to get a good idea of how crowdfunding works. Browse the site to see successful projects, and model your project according to its launch level, often divided by the amount of money being solicited. Rockethub's blog offers a toolkit and user forums for help throughout the process.
Meece has consistently observed three principles applied to successful projects.
"Have a compelling project that really matters, have a community or fan base interested in the project and have good rewards for funders," he said.
Wann's funder rewards included public recognition on a "Wall of Thanks" in the shop, gift baskets to custom named tea blends and naming rights to various rooms.
Although Rockethub serves primarily as an exchange place between projects and funders—not as investors or a charity—it is constantly working to expand the concept. Currently, the team is working with brands to offer high-quality packages and experiences to bidders.
"The next level for us is bringing in brands that can add value to creatives," Meece said. "While we are very excited about crowdfunding, we want to explore branding options as well."
Rockethub is currently working with Gibson Guitar for the Gibson Music retreat, where the winning artist or band will have access to Gibson's iconic studio and gear and receive a $1,000 grant.
Although Wann's project has ended, she is happy with the experience and its results and recommends it to other small businesses, organizations and creatives.
"Try it," she said. "You might be surprised at how many people, and who, will come out of the woodwork to help you succeed." One+
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