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Crowdfunding #1: The Benefits of Crowdfunding

The rise of the internet has changed many things, including financing. In the old days you were either born rich or had to convince somebody wealthy to sponsor you if you needed access to a bigger amount of money for your project.

Traditional financing is still responsible for the majority of a new products, but there has been a new, big and shiny opportunity: crowdfunding.

What is Crowdfunding?

Crowdfunding is the process in which the entity, usually a company or in rare cases a single person, pitches a project to the public. Each project requires a fixed amount of money to be completed.

The public supports the creator’s idea by backing the project with money. There is a time limit, usually a month for which the campaign runs.

If the creator gathers the amount of money needed for completing the project, then the campaign is successful. The money goes from the backers’ accounts to the creator.

If the project fails to reach 100% of money needed, then no money is taken from the backers’ accounts and the creator gets nothing.

Backers get the product for their support, usually at a lower rate than the final, market price, but many backers choose to give more money than they would have to pay for the product. Some of them donate substantially more.

This is why every campaign has different pledge levels. Many of them offer unique rewards, some of them are available for purchase only during the campaign. Those rewards may range from t-shirts to a copy of the product signed by the developers to the chance to meet them or have all their future products for free.


Why People Choose to Back the Campaign?


Crowdfunding projects are always either half incomplete or at the stage of being nothing more than a rough draft of the finished product. Their completion is far into the future and sometimes unsure.

You never know what you will get after the campaign. The final product may be unsatisfactory or downright bad. Why back it now, when you can buy a sure product, one that has already been reviewed by others, now, rather than to have wait for an unsure thing in the future?

If you are pitching a product very similar to those which are available on the market, then the chances are most product people will think along the lines above. In most cases they won’t be that interested in your offer. Why would they?

If you are looking for success you need to offer a product different than those that are available right now. You have to understand the group you are pitching your product to.

Are those people’s particular needs unsatisfied by the market? Do they feel strongly about them and will they come in droves for your product, or can they at least be persuaded that they would really like what you are offering them?

If your product is something that cannot reasonably be expected to be made under current market realities, by being either too niche or seen as commercially nonviable, then you are in luck. You may be in the perfect position to have your project financed and get the full benefits of crowdfunding!

Crowdfunding is a dream-offering platform, and this means you can either discover other people’s dreams or offer a vision so strong that people will want to participate in your own dream. If you want to sell a typical, mundane product, then maybe you had better go back to the traditional funding model.


We are a Small Business, Can We Really Get Any Benefits of Crowdfunding?


You may think only companies with prestige, good reputation and renown who have been working in their fields for years and have a large number of passionate consumers or even “fanboys” may expect to run a successful campaign.

But not only those sure and consumer-tested entities are getting their projects funded – many no-name companies campaigns are also reaching their goals. Time and time again newcomers

gain the trust of the backers and get the chance to make their dream project come true.

Obviously those companies get much less money and need to work harder to get it, but nevertheless you can still have a fair shot at achieving your goal even without a large following to begin with.

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The Money


The amount of money you can gather from your backers varies depending on your renown, and your pitch. Money is clearly the greatest benefit of crowdfunding, but if you count your campaign success only by the money earned, you will miss many valuable assets gathered along the way.

In some cases those additional gains may be more beneficial to you than the actual money, so let’s discuss them thoroughly!


The Publicity and the Aura of Success


If your campaign is successful some news outlets will report on that. Getting free publicity is always good, especially if that news will be positive about you.

Many companies pay good money to have their story heard and you may get a free ride. Being known as a company who managed to run a successful crowdfunding campaign always looks good.

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Your idea of a product sold well. In some cases you may find people interested in giving you money not for the product, but for the return on the investment instead.

Never go crowdfunding assuming that you will get investors to help you finish the product, but that you can get additional money down the road, if you are lucky.


Fans and Feedback


Some of your backers will not only help you during the campaign, but may also promote your product after the release. They will talk about it, give good reviews of it on many sites, recommend the product to their friends.

If they are happy with how what they paid for turned out, they may become loyal fans and buy your future products. If you decide on a second campaign, they will make your life much easier.

If you carefully read what your fans write about your project, you may come across very valuable feedback which will serve to improve your product. You may never suspect what good ideas those fans have and how easily they may spot some easily repairable problems with your products.


This concludes the first part of our series on crowdfunding. In the next installment we will help you chose a crowdfunding platform and tell you what to do before the campaign starts.

Matt Warcholinski

Matt Warcholinski is the COO of Brainhub (a software house building awesome node.js web and mobile apps) who loves to build startups and play guitar.

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