Crowdfunding is at the heart of the future of small business.
With the worldwide value of crowdfunded projects reaching 16.2 billion US Dollars, there have been over 350,000 crowdfunded projects on Kickstarter alone
This is good news for the average Joe who’s willing to put in a whole lot of hard work. You can use crowdfunding to make your economic dreams a reality. But if you want to do it successfully, you’ll need the right crowdfunding business model.
Here are our tips on developing your plan for crowdfunding success.
What Every Crowdfunding Business Model Needs
You may think that figuring out your business model is all about choosing a platform and a strategy. And these things are important. But before you even do that, you need to figure out the real meat of your crowdfunding strategy.
Essential to this is your sales pitch. Your story is at the core of your business’ ability to succeed, as is telling investors what’s in it for them.
Beginning with your story: a crowdfunding business model is unlike any other business model. In other business models, emotion is something that should be thrown to the side. The private sector is about dollars and cents, and emotion is something that doesn’t have that value.
But when it comes to crowdfunding, you aren’t pitching to Wall Street sharks or Silicon Valley investors. You’re pitching to regular people. And regular people want to hear the emotional story behind your product. Whether that story is a lifelong passion or a desire to save lives, you should put this front-and-center in your business model.
There are also ways to tell people how your product benefits them personally. One way to do this is through rewards or equity-based investment: we will go into more detail about this a bit further down. But at the core of your pitch can be something more: the way your product benefits all of society.
A lot of crowdfunded projects are based on this premise of social-justice based investment. If this narrative applies to your product or service, then you should absolutely put it at the center of your strategy.
Remember that people, at their core, want to think they’re doing the right thing with their money. You can put their mind at ease and earn more in the process.
General Vs. Specialty Platforms
After you’ve figured out the sales pitch and narrative of your crowdfunding business model, the next step is figuring out where to take it. There are a variety of platforms available: if you want to be successful, you need to consider which platform is the best for you.
The most obvious choices are generalized platforms like Indiegogo, Kickstarter, and Gofundme. Launching a successful Kickstarter is a good choice for most projects. However, it is far from your only option.
There are a variety of specialty platforms available to those taking a more specialized approach to their crowdfunding business model. Platforms such as Crowdrise (for charity projects,) or appbackr (for mobile apps), are good choices.
Specialty platforms benefit by making it easier to get larger donations and not requiring you to compete based upon the perceived importance of your project.
On top of that, you’ll be more likely to find people just browsing the site and looking for a good cause. In both cases, you should consider specialty crowdfunding platforms depending on exactly what your project is.
Rewards and Equity Crowdfunding
Many people think of crowdfunding solely as a way to generate interest in your products. But there are a variety of ways to incentivize donation and investment. The major crowdfunding platforms use one of two methods: rewards crowdfunding, or equity crowdfunding.
Here’s an analysis of how these methods can play a role in your crowdfunding business method.
A rewards-based method is incredibly popular. Used by a number of platforms, it is easy to execute and appeals primarily to lower-and-middle income investors. It’s also a great method for non-material products, such as movies, albums, and video games.
An example of a rewards-based crowdfunding strategy would be a film offering to put anybody who donates over $1,000’s name in the credits. An example for smaller scale donations would be giving anybody who donates over $20 a free tee-shirt.
The ideal rewards-based crowdfunding business method will be based on providing rewards on a scale. The larger the donation, the better or more appealing the reward.
If you go with this strategy, you should come up with a scaled rewards plan before pitching your crowdfunded project. Make sure you can fulfil the promises you make: one of the most difficult aspects of this method is making sure you can genuinely deliver!
You can’t use this method on every platform. But if you’re using a platform such as AngelList or CircleUp, you can develop a crowdfunding method that treats potential donors as investors.
There are a few benefits to this strategy. The first is the fact that you aren’t left to promise anything. If you use a rewards-based method and fail to profit off of your project, you are increasing your losses.
Comparatively, investors assume that there will be risks associated with supporting your product. That being said, there are also difficulties associated with this method.
The main one being your pitch. You’ll need a serious business pitch with a plan for developing income in your crowdfunding pitch to make this work. Still, if you’re planning on treating your crowdfunded project as a long-term business, this is a great choice.
Successfully crowdfunding your business idea is difficult. But it’s well worth it: this is by far the best approach for allowing everybody (with a good idea) to make a profit off of what they can imagine.
We’re experts in crowdfunding. We would love to help you succeed with this business model. If you want more tips on how to do it right, contact us.