Student Spotlight: You Can’t Crowdfund Failure

Though the idea of crowdfunding draws in many new entrepreneurs and innovators, the probability of a successful campaign is less than one might guess. In today’s Student Spotlight, senior IT management major Colin Babcock provides a series of tips to consider before embarking on an Indiegogo, Kickstarter, or RocketHub project. Make sure to check out on his infograph, included halfway through the post!

Crowdfunding. We’ve heard a lot about it in the social entrepreneurship world. After first learning of it, I thought, “Why don’t more people embrace this relatively new and quick way to raise money?”

Maybe because about 56% of crowdfunding projects fail.

That number is very startling and confusing. What differentiates a good fundraising campaign from a bad one? For starters, successful projects find a perfect blend of exposure, presentation, and value that attract the right audience. Individuals who contribute to crowdfunding have the tendency of embracing innovation, have some sort of social connection with the project, and have the belief that they will ultimately benefit from their contribution. These donors have specific needs to be met, and it is common that failed crowdfunding attempts miss one or all of these needs.

The three major ways to fund a project are through donations, pledges, and equity sharing. Donations are personal monetary gifts to support a cause, pledges are exchanges of money for something in return, and equity sharing is an exchange of money for a share of the organization. Donations are what most social ventures will pursue because donors do not expect to receive anything tangible in return. On the other hand, pledges and equity sharing, are often associated with projects that could have significant value in the future and the investors seek to increase their own value. All these things considered, before you launch your campaign, make sure you have decided which approach, or combination of approaches, to take.

Many crowdfunding projects involve new product ideas or creative works. For this blog, I want to focus on a smaller percentage of projects: social ventures that aid a community in need. Dan Morrison’s company, Citizen Effect, was an online platform that created a medium for a social entrepreneur to utilize his/her friends and family as investors in a small venture. Although this site is no longer in use, there are many more which serve the same purpose. One major group, Fundly, picks up where Citizen Effect left off. This website allows you to post your social campaign on the site for free, connect with your friends on Facebook for social promotion, and manage your campaign on your smartphone. This is just one example of a popular crowdfunding site for social entrepreneurs.

Crowdfunding Infographic

Someone could have a truly powerful idea but have it turn into nothing because of inadequate campaigning methods. To prevent failure as a social entrepreneur, you need to build your “brand” before the campaign, ensure there is enough time to raise funds, and include a video on the campaign page.

An issue you need to avoid as an aspiring entrepreneur is to not launch your crowdfunding campaign without enough social capital. Typically we hear about the need for financial capital, but success is also founded in establishing a public image and following first. Ignoring this step makes it hard to gain attention for your campaign, leaving you without investment.

Then next thing you need to prevent failure is ensuring there is enough time to complete the campaign. In the past, people will get ahead of themselves and start a campaign before completing other organizational tasks. When you are forced to multitask, you cannot give the crowdfunding campaign the attention it needs to blossom, eventually killing the idea. The company must be organized and as operational as possible prior to the campaign launch.

Lastly, the campaign must have an informational video to accompany the launch page. Many of the potential donors browse multiple campaign pages daily and reading through pages of informational text could lose their attention and interest. A short, entertaining video can quickly grasp their attention and give them all the information they need in a pleasing manner.

Using these preventative methods, companies can greatly decrease their chances of failure with crowdfunding. Although there is no precise formula to follow to avoid crowdfunding failure, there are certain steps you can follow to make your campaign as fail-proof as possible. What was originally a daunting challenge can now be completed by the click of a button. So what are you waiting for? Start your campaign!

References

Schneider, Lee. “Top Ten Reasons Crowdfunding Campaigns Fail (and What Can Bring Them Back).” The Huffington Post. TheHuffingtonPost.com, 29 Oct. 2013. Web. 30 Nov. 2013.

Strohmeyer, Robert. “The Crowdfunding Caveat: Most Campaigns Fail.” PCWorld. N.p., 26 Sept. 2013. Web. 01 Dec. 2013.

Thorpe, Devin. “Eight Crowdfunding Sites For Social Entrepreneurs.” Forbes. Forbes Magazine, 10 Sept. 2012. Web. 01 Dec. 2013.

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