How to Crowdfund a Small Business

One of the things we can all relate to is that little fluttering feeling that comes around whenever we come up with a meaningful idea. When that idea can be turned into a reality, things get even better. If you’ve been working hard to create a small business,  crowdfunding can give you just the boost you need to turn that idea into a reality. 

No matter how good a business plan is, sometimes money just doesn’t stretch far enough to get the idea going. Getting a loan isn’t always a smart option, either. However, online platforms like Kickstarter and Indiegogo have led a revolution by allowing people to support ideas they like from all across the world.

Crowdfunding allows you to tap into a base of backers and future customers that support your vision, in exchange for a fee that goes to the crowdfunding platform. With fewer strings attached than a loan or other traditional means of investing in a business.

When it comes to crowdfunding your business, you’ll need to have a well-thought-out strategy that clearly communicates your vision and engages with potential backers. If that seems stressful, don’t worry. While it won’t be easy, it’s less complicated than it seems. 

Key Takeaways

• You’ll want to develop a clear and concise communication strategy and crowdfunding pitch that focuses on your unique idea. 
• Setting clear goals, being transparent with potential backers, and having a strategy in place can help your crowdfunding campaign be more successful. 
• Engaging with backers before, during, and after the campaign is essential. Make sure to be transparent and give regular updates.
• Giving backers incentives is a great way to connect with potential customers.

Can I Use Crowdfunding to Start a Business?

Crowdfunding has been capturing the attention of entrepreneurs for a while now, and it’s not hard to see why. There’s a lot of power in community and crowdfunding harnesses that power to allow backers to feel like they have a stake in your success. Crowdfunding platforms have huge audiences that are always ready to back the next big idea, after all, that’s why they use the platform. 

So, yes. You definitely can use crowdfunding to start a business, but should you?

Should You Crowdfund Your Small Business?

Crowdfunding is a super valuable resource for those looking to bring their ideas to life and the best part is that they come with less risk than traditional financing options like banks and investors. Crowdfunding allows you to test your idea among potential customers before you invest significant amounts of time and money into building inventory and setting up shop only to find there isn’t as much demand for your product as you thought.

If you’re on the fence about crowdfunding your small business, here are a few pros and cons to help you out.

What Are the Advantages of Crowdfunding for Small Businesses?

• Crowdfunding opens the door to a pool of potential backers, supporters, and customers without relying on traditional financing methods. No borrowing. No interest rates. 
• Setting up a crowdfunding platform and pitch is very accessible, making it a great option for entrepreneurs at every level. 
• A successful crowdfunding campaign can be helpful in validating a product or service before you commit fully. 
• Some crowdfunding pitches can catch the eye of media coverage and gain lots of exposure.
• Crowdfunding can help raise money for a project, but it can also help build a community around your product or service that ensures continued success outside of the platform. 

What Are the Disadvantages of Crowdfunding for Small Businesses?

• Because crowdfunding is so easily accessible, it can be competitive and it may be difficult to stand out from the crowd. 
• Creating a crowdfunding campaign can be time-consuming, but keep in mind that setting up a successful business also takes time and money. 
• It may be hard to match the high expectations of backers and customers.

Four Types of Small Business Crowdfunding; A Breakdown

Believe it or not, there is more than one type of crowdfunding. There are actually four: equity crowdfunding, backer crowdfunding, reward crowdfunding, and lending crowdfunding. This is crucial information if you’re considering crowdfunding as an option, so let’s go through them all. 

Equity Crowdfunding

Equity crowdfunding is when backers invest in a company in exchange for equity or ownership of your project. If you’re looking to expand your team and invite new people in, equity crowdfunding might be the right choice for you. Do keep in mind that this type of crowdfunding means you’ll lose some autonomy over the project. It’s also important to be up to date when it comes to local, state, and federal laws and regulations as well as the rules and regulations of specific platforms that may not allow for this model of crowdfunding.

Backer Crowdfunding

This is the kind of crowdfunding you probably think of when you hear the word and this is the kind that LaunchBoom helps you master. When you raise money this way, backers support your idea because they want to see it become a reality. For projects that offer solutions to backers’ everyday problems and are looking for a community of shared values, this type of crowdfunding is a great option. 

Reward Crowdfunding

Reward crowdfunding is pretty much like backer crowdfunding, with one difference: backers offer their support in exchange for a reward or perk. This could mean getting early access to products and special discounts, among other incentives. This is a good choice if your product or service is tangible because it makes offering perks easier. 

Lending Crowdfunding

Last, but not least, lending, as the name suggests, is when money is borrowed with the expectation that it will be paid back with interest. The reason this is a cool option is that it’s an innovative twist on more traditional financing and loans, and it can also help a business quickly raise the funds it needs to get off the ground.

Three Stages and Tips for a Succesful Crowdfunding Campaign

When it comes to launching a successful crowdfunding campaign, there are three stages involved, each with different responsibilities and needs: the pre-launch, during the campaign, and after the campaign. Let’s dive into these. 

Pre-Launch

The pre-launch is one of the most important stages because it’s the work that you do here that will determine your success on launch day. In fact, this is where most of the work of the campaign will be done. From validating your product to building a mailing list of supporters to crafting a prototype, this is the stage we like to refer to as the Test Boom.

Establish Your Kickstarter or Indiegogo Platform

First off, you need to decide where the crowdfunding is happening. Kickstarter and Indiegogo are great online platforms that can help set the foundation of your campaign. They are also the most successful platforms with the largest audiences, so these are the platforms we would recommend. 

That said, deciding which one is right for your business is going to depend on the type of business you’re planning to launch. If you have an idea for a board game, for example, you’ll want to go with Kickstarter as this is one of their most successful categories. Indiegogo, on the other hand, would be better suited if your business falls into the tech category. Here is a link that will help you decide which platform suits your business best.

Understand Your Target Audience, Marketing Goals, and Budget

Next, you need to sit down, create a plan, and learn it backward and forwards. This includes understanding who your target audience is by creating a customer profile, getting to know their interests, behaviors, and habits, setting clear and concise marketing goals with a strong presence, and coming up with an intelligent budget that you can stick to and be transparent about.

Finding your audience and validating your product is all about identifying what your ideal customer is missing in their lives and providing it. This can take a few tries and may you require you to tweak your product or even launch a new one you never intended to create. It’s all about filling your customers’ needs. Here is a more in-depth look at how to validate your product.

Set Realistic Goals for Your Small Business

Now that you’ve got a clear idea of what your product is, it’s time to set specific goals for your project. What is your funding goal? How will the money be used? How much money are you asking for? Making sure you know the answers to questions like these can help you more effectively make your dreams come true.

You’ll want to take everything into account including platform fees, fixed costs, variable costs, average order value, and break-even count.

We’ve put together a handy guide here to help you with setting a funding goal.  

Create a Compelling Video Pitch

A video pitch is key. This element might be one of the most time-consuming and creatively-exhausting parts of the process, but it can really make or break the campaign. Make sure you highlight and showcase who you are, what you’re looking for, and why you’re product is the one that will change your backers lives. You’ll want to create a sense of urgency that leaves backers feeling as though they might miss out if they don’t get behind your brand now. This is why it’s more important to focus your message on how the product will affect the customer rather than displaying your passion for your project.

For more info on how to craft the perfect pitch, check out this guide.

Create Launch Strategy That Brings It All Together

Before the campaign launches, you’ll want to come up with a comprehensive launch strategy that combines all the elements that we just talked about. You’ll want to get people excited about what’s to come and start creating a community of hyped backers that are dying to support your idea. 

During the Campaign

Roll Out a Launch Strategy

You’ve already got the launch strategy plan in place and now it’s time to have what we call a Launch Boom. Make sure you’re keeping the campaign visible and active on social media, your website, emails, or any other way you can communicate the message. You’ll want to keep in touch with backers, sending regular updates and keeping the community engaged and excited. Don’t lose that momentum! 

Utilize Social Media and Email Marketing Channels

Let’s not kid ourselves, social media and email marketing channels are everything when it comes to getting the word out, and using them strategically and intelligently is the way to make your campaign blow up. The more traffic you drive toward the platform, the better you can ensure success.

In this case, Facebook is one of the most effective ways to control the traffic you get. With the sheer amount of data that Facebook provides, using its ads is a no-brainer that will allow you to craft your message and see the results in real-time allowing you to tweak your messaging and targets.

Provide Frequent Updates to Backers

Once someone decides to support your idea, they’ll want to stay in the know. Let your backers know what’s going on, and how it’s going, and provide all necessary information to be as transparent and communicative as possible with your new crowdfunding family. You’ve spent time building your mailing list, now it’s time to mobilize them for the launch!

Create Engaging Content

GRAB ATTENTION! And hold it! You want to keep the community you’re building engaged and excited about your project. Use your voice in your own way and find out how to connect with backers and potential supporters. This is where knowing and understanding your target audience and what makes them tick is vital to success.

Use Urgency

You’ll want to create a sense of urgency during the crowdfunding campaign. Most platforms allow for the pitch to be active for a few weeks and we recommend a campaign length of 30 days at most. This ensures that potential backers are feeling the FOMO and decide to support you right away. 

Make a Strong Final Push and Raise More With Add-Ons

Just because the campaign is coming to an end, doesn’t mean it’s time to kick your feet up. You can still give it one last adrenaline-packed push to bring it to the next level. Consider offering incentives, rewards, or bonuses to backers that contribute at higher levels. At the end of the day, every single penny counts. 

After the Campaign

Deliver on Promised Rewards (Make Sure Your VIP Backers Get Their Product First)

Now that the campaign is over, it’s time to really get to work and deliver on the promises you made. Depending on your project, you might’ve offered a first grab of the product, special discounts, and more. 

Stay Connected with Backers

Keep backers in the loop by sending regular updates that show progress and make sure you always revise the growth and expansion. After all, backers got behind your idea because they want to see it come to fruition.

Utilize Funds for Business Growth

Obviously, the money raised goes nowhere other than your business. You’ve already outlined what the money is going towards, so get that show on the road. Maybe you’re getting new equipment, making prototypes, expanding product lines, or hiring more people for the team. 

Be Transparent

Whatever you decide to do with the funds, you want to be transparent with your supporters. There’s no easier way to ruin your reputation than to be or appear dishonest. Keep the positive vibes in the air by always being transparent and straightforward about what’s going on behind closed doors. 

Thank Your Backers

We’ve all been taught to say “please” and “thank you”, so make sure not to forget your manners when speaking to backers and the community that supported your project. Tap into the sea of gratitude and make sure all backers know how much their contribution means to you and the project.

Where to Find the Best Crowdfunding for Small Business Support and Expertise Online

No doubt about it: crowdfunding has fundamentally changed the way many small businesses are able to get up and running, and it seems this is only the beginning. The right approach can do wonders for an idea by building awareness and excitement, reaching new potential backers, and creating a community that loves your project as much as you do.

As prepared as you may be, sometimes you need a little help. That’s where LaunchBoom comes in. Crowdfunding marketing is our jam. We’re here to make sure that every aspect of your strategy is executed perfectly. 

The LaunchBoom process focuses on every stage of crowdfunding, from the pre-launch to the height of the campaign and all the way to the post-campaign. All along the way, you’ll find expert guidance, data-driven insights, and a strategy that has raised over $100M for our partners, big and small.

Whether you’re looking to build your brand, generate awareness and excitement, tell a story, create compelling content, or showcase your project, LaunchBoom has got your back.