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Is Your Idea Right for Crowdfunding?

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Crowdfunding isn’t for everyone or every project.

And one of the simplest ways to fail in crowdfunding is launching a project that’s not a fit.

Yet there are so many different types of successful crowdfunding projects, from films to backpacks to drones to virtual-reality headsets.

So how do you know if your idea is right for crowdfunding?

This simple guide is designed to help you decide. It’s broken down into 5 parts:

  1. Understanding the different types of crowdfunding, and which is right for you
  2. Knowing the attributes of a good rewards-based crowdfunding project
  3. Learning the platform rules and guidelines
  4. Browsing and backing other projects
  5. Validating interest and demand

Let’s take each one, step-by-step:

1. Understanding the different types of crowdfunding, and which is right for you

There are five very different kinds of crowdfunding:

  1. Rewards-based crowdfunding: The first type of crowdfunding is rewards-based crowdfunding. It’s well named, because in rewards-based crowdfunding, backers contribute typically small amounts of money in exchange for some sort of reward. This reward is often, but not always, the item being produced, such as a watch, an album or a film.
  2. Donation-based crowdfunding: The second type of crowdfunding is donation-based crowdfunding. In donation-based crowdfunding, donors generally donate small amounts of money and often, there is no reward beyond the gratitude of the project creator and / or beneficiary (and possibly a tax deduction).
  3. Equity crowdfunding: The third type of crowdfunding is equity crowdfunding. In equity-crowdfunding, investors give larger amounts of money in exchange for a small piece of equity in the company itself.
  4. Debt crowdfunding: The fourth type of crowdfunding is debt crowdfunding. While lesser known, debt crowdfunding still makes up a large piece of the global crowdfunding industry. Unlike other forms of crowdfunding, debt crowdfunding is not an exchange for a reward or equity. The investors don’t get a reward and they don’t get a piece of equity in the company. Instead they make a loan with the expectation to get paid back the principal plus interest.
  5. Recurring crowdfunding: The last type of crowdfunding is recurring crowdfunding. Like debt crowdfunding, recurring crowdfunding is lesser known, but it’s perfect for certain kinds of creators. In recurring crowdfunding, patrons contribute a recurring amount of money, either on a specific time period (like every month) or every time the creator makes something new (a new song, a new album, a new video, etc.).

Giving rewards, like a watch, an album or a film, is very different than giving away equity in your company. Decide which type of crowdfunding you even want to consider for your idea.

(For the rest of this guide, I’m going to focus on rewards-based crowdfunding, using platforms like Kickstarter and Indiegogo.)

2. Knowing the attributes of a good rewards-based crowdfunding project

Good rewards-based crowdfunding projects are (almost always) a creative project, with a beginning and an end, in which something new gets made and shared with a tribe of people that you can identify and communicate with before you launch.

That’s a mouthful, so let’s break it down piece by piece:

Good rewards-based crowdfunding projects are almost always…

a creative project…

The definition of ‘creative project’ is pretty broad, but selling the surplus inventory in your warehouse doesn’t count. 

with a beginning and an end…

The creative project should have a beginning and an end. So this rules out most recurring services, like accounting services or dog walking. If you’re selling services you provide regularly, crowdfunding doesn’t make sense.

in which something new gets made and shared…

The point of rewards-based crowdfunding is to make and share something new.

with a tribe of people that you can identify and communicate with before you launch.

Just because your project is a good fit for rewards-based crowdfunding doesn’t mean that the platform (Kickstarter, Indiegogo or another) will magically bring you all the traffic and backers.

It won’t. The platform will bring you some traffic and backers (almost always enough to cover platform costs) but you need to find your tribe and bring them to the platform. This is the part that so many creators miss and is a main reason most crowdfunding projects fail.

Creators don’t identify and build permission with a tribe of people (who want the thing being crowdfunded) before they launch.

Crowdfunding projects get funded before they launch, not while they’re live.

We’ll touch on this more in Part 5.

3. Learning the platform rules and guidelines

Each platform publishes their rules and guidelines clearly and publicly. Familiarize yourself with the rules and guidelines of any platform you’re considering to make sure your project is allowed on that platform.

For example, Kickstarter’s rules don’t allow any item claiming to cure, treat, or prevent an illness or condition (whether via a device, app, book, nutritional supplement, or other means)….so if that’s what you’re launching, you’ll need to use Indiegogo or find another platform.

Check well before you launch. Platform rules and guidelines don’t change daily, but they do evolve over time. Indiegogo used to be solely for rewards-based crowdfunding, but now allows donation-based and even equity crowdfunding.

4. Browsing and backing other projects

If you were considering making a documentary film, you’d (hopefully) go watch some other documentaries to learn how they’re made. It’s the same with crowdfunding, yet I’m always amazed by how many people come to me that haven’t even browsed the Kickstarter and Indiegogo categories or backed any projects in their category.

Finding and backing other projects is a great way to really understand and get a feel for what kind of projects are good fit.

Both Kickstarter and Indiegogo have categories that are pretty specific. Kickstarter even has sub-categories. Your project will likely fit cleanly into one of those…and if it doesn’t, it may not be a good fit for crowdfunding.

Choose the right category for your project and then research (and back) other campaigns inside and outside your category.

5. Validating interest and demand for your idea

The final step is validating demand for your specific idea.

  • Even if your project has the attributes of a good rewards-based crowdfunding project…
  • Even if your project is technically allowed by the platform…
  • Even if you’ve browsed and backed other projects in your category…

It doesn’t mean your project will be successful.

To help ensure that, you need to validate interest and demand for your idea.

You do this by:

  1. finding the sub-tribes of people that care about what you’re building and
  2. building permission to talk to them about your idea and campaign

Often, the best way to start doing this is with a well-designed landing page. I break down how to build that here:

How to Build The Ultimate Landing Page (Before Your Launch Your Crowdfunding Campaign)

Summary

Hopefully this guide is useful in helping you decide whether your idea is right for crowdfunding.

To recap the five steps:

  1. Understand the different types of crowdfunding, and which is right for you
  2. Know the attributes of a good rewards-based crowdfunding project
  3. Learn the platform rules and guidelines. Not everything is allowed on each platform.
  4. Browse and back other projects inside and outside your category
  5. Validate interest and demand by finding the sub-tribes and building a landing page

 

crowdfunding, ask clay

Can I offer marketing (or other) services as a crowdfunding reward?

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This is the eighth post in our 30 Day Ask Clay Crowdfunding Q&A.

I’m answering a new question every day in June.

Submit your question by going to CrowdfundingHacks.com/AskClay, where you can see all of the questions and all of my answers.

Full Transcript

 

Hey everyone…this is Clay Hebert from CrowdfundingHacks.com…and today’s question is…

Can I offer marketing (or other) services as a crowdfunding reward?

Great question. The answer is, yes, you can offer marketing services as a reward on Kickstarter or Indiegogo.

But, if you remember from Episode 3, “How do I know if my idea is a good fit for crowdfunding?”, a great crowdfunding idea is a creative project, with a beginning and an end, in which something new gets created and shared.”

So, I want to walk you through two examples of offering services as rewards on crowdfunding.

Scenario #1:

Let’s say you run a marketing agency and your existing business offers marketing services. If that’s the primary crowdfunding perk you’re offering…an existing service that your business provides…then there’s really not a creative project where something new gets created.

If an ad agency just tried to sell some billable hours via crowdfunding, then no, that would not work well.

Scenario #2:

Now, let’s say your marketing agency wants to raise money via crowdfunding to launch a new app. Maybe one of the perks is the app itself, one of the perks is a lifetime pro version of the app, and maybe one of the perks is a full-day session where the backer can sit with your team and learn how to build and market their app.

That’s also offering marketing services as a reward but in this case, it’s a higher level reward and it’s not the main reward.

To use another quick example…let’s say you’re a personal trainer.

If you just want to use crowdfunding platform to just sell hours of personal training with you, that doesn’t make sense. Again, there’s nothing new being created and shared and crowdfunding platforms are not good ways to just sell existing service-based businesses.

But let’s say you own one gym and you want to raise money via crowdfunding to open a second location. If that was the case, and one of the many reward levels was personal training sessions (ideally, discounted from the full retail price), then that could make a lot of sense.

So to recap…

Yes, you can offer services as reward levels but they should be part of a larger creative project, not just selling existing hours or services. Something new should be being created.

As always, you can submit your question or see all of the crowdfunding questions and my answers at http://crowdfundinghacks.com/AskClay

End Transcript

crowdfunding, ask clay

How big is the crowdfunding industry?

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This is the seventh post in our 30 Day Ask Clay Crowdfunding Q&A.

I’m answering a new question every day in June.

Submit your question by going to CrowdfundingHacks.com/AskClay, where you can see all of the questions and all of my answers.

Full Transcript

Hey everyone…this is Clay Hebert from CrowdfundingHacks.com…and today’s question is…

How big is the crowdfunding industry?

Well, just a couple months ago, in April of 2015, the folks over at Massolution released their 2015 – Crowdfunding Industry Report…a report on the global state of crowdfunding…

Here are some of the key stats from that report. Keep in mind, these stats are global and cover every type of crowdfunding (rewards-based, donation-based, equity and debt).

  • Global crowdfunding grew again in 2014, expanding by 167 percent to reach $16.2 billion raised, which is up from $6.1 billion in 2013.
  • In 2015, the industry is set to more than double once again, on its way to raising $34.4 billion.
  • The strong growth in 2014 was due in part to the rise of Asia as a major crowdfunding region. Asian crowdfunding volumes grew by 320 percent, to $3.4 billion raised. That puts the region slightly ahead of Europe ($3.26 billion) as the second-biggest region by crowdfunding volume. North America continued to lead the world in crowdfunding volumes, growing by 145 percent and raising a total of $9.46 billion.

The Massolution research team collected information on 1250 active crowdfunding platforms across the world.

In the second episode of this series, we talked about the four different types of crowdfunding, including rewards-based, donation-based, equity and debt. While rewards- and equity-based campaigns typically get the most headlines, it’s lending-based crowdfunding that’s dominating the industry: in 2014, it raised $11.08 billion dollars.

As far as categories, business and entrepreneurship remained as the most popular crowdfunding category, collecting $6.7 billion in 2014, which represents 41.3 percent of total crowdfunding volume.

Social causes ($3.06 billion), films and performing arts ($1.97), real estate ($1.01 billion), and music and recording arts ($736 million) rounded out the top five categories.

Now those are global numbers, across all of the different types of crowdfunding.

If you want specific platform numbers, some platforms provide those and some don’t.

For example, on Kickstarter, as of today, June 7th, 2015, the platform has had 86,504 successful projects and $1,757,899,300 total dollars pledged to Kickstarter projects.

For Kickstarter, all of their stats can be found at

http://kickstarter.com/help/stats

Indiegogo doesn’t publish their stats publicly.

As always, you can submit your question or see all of the crowdfunding questions and my answers at http://crowdfundinghacks.com/AskClay

End Transcript

crowdfunding, ask clay

What are some common misconceptions people have about crowdfunding?

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This is the sixth post in our 30 Day Ask Clay Crowdfunding Q&A.

I’m answering a new question every day in June.

Submit your question by going to CrowdfundingHacks.com/AskClay, where you can see all of the questions and all of my answers.

Full Transcript

Hey everyone…this is Clay Hebert from CrowdfundingHacks.com…yesterday we talked about the rise of crowdfunding, and today’s question is…

What are some common misconceptions people have about crowdfunding?

Great question. There are actually quite a few.

Here are three of the biggest:

Misconception #1: There is actually a crowd

The first misconception is that there’s actually a crowd of strangers waiting to helping you reach your funding goal. There’s no secret crowd that gets together every Thursday night and decides which projects deserve to be funded or not. Crowdfunding is actually a lot of tiny micro-transactions and the “crowd” is often not assembled until you find and organize them (before you launch). Unless you’ve written a blog or newsletter and have built some form of permission to communicate with your tribe ahead of time, the “crowd” isn’t going to save you and fund your project. Which leads to…

Misconception #2: The crowdfunding platform (Kickstarter or Indiegogo) will bring me most of my traffic and backers

I see this all the time. The press highlights the outliers and celebrity projects raising millions and people think that, with no real marketing plan, Kickstarter or Indiegogo will bring them lots of traffic and backers. That’s not how it works.

Successful campaigns build good pre-launch permission (often via an email list) and typically bring the first 30-50% of traffic and backers themselves. Then, if it’s an interesting product, those first backers will share it. That “second circle” sharing gets you the next 20-30%. And then, if you’re 70-80% funded with enough time left, the platform will typically help you get the last 20-30%.

Misconception #3: A few big press hits (or a celebrity tweet) will bring me lots of traffic and backers

This belief is very common and understandable. And completely wrong. Press mentions from larger, more mainstream outlets are great for credibility. Definitely use that New York Times or Rolling Stone logo and grab a positive pull-quote or testimonial and put that on your landing page (before you launch) and on your crowdfunding campaign page (after you launch). But hits like this don’t typically drive a lot of traffic or backers. By definition, they’re “mainstream” so they appeal to a much broader audience than your campaign does.

What works better is smaller, more targeted press. I worked with Kittyo, a device for cat owners to see and play with their cat when the owner isn’t home. Kittyo was an innovative device and ended up getting a lot of press, but the campaign got more and better traffic from a popular but niche site called HausPanther.com, because HausPanther was exactly the Kittyo demographic (cat lovers who appreciated design). The tagline for HausPanther is “The premiere online magazine for design-conscious cat people”. Creators should focus less on the big names whose traffic doesn’t convert and find their HausPanther.

As always, you can submit your question or see all of the crowdfunding questions and my answers at http://crowdfundinghacks.com/AskClay

End Transcript

crowdfunding, ask clay

How did crowdfunding come out of nowhere? What changed?

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This is the fifth post in our 30 Day Ask Clay Crowdfunding Q&A.

I’m answering a new question every day in June.

Submit your question by going to CrowdfundingHacks.com/AskClay, where you can see all of the questions and all of my answers.

Full Transcript

Hey everyone…this is Clay Hebert from CrowdfundingHacks.com…and today’s question is…

How did crowdfunding come out of nowhere? What changed?

I know it seemed like the concept of crowdfunding is pretty new and these platforms like Kickstarter and Indiegogo seemed to come out of nowhere over the last few years.

But the concept of crowdfunding is actually far from new.

Way back In 1713, Alexander Pope set out to translate over 15,000 lines of ancient Greek poetry into English. It took him over five years to get it right, but it was worth the wait: a translation of Homer’s Iliad that still exists. In exchange for a shout-out in the acknowledgements, an early edition of the book, and the delight of helping to bring a new creative work into the world, 750 subscribers pledged two gold guineas to support the job before Pope ever put pen to page. Yes, in 1713, Alexander Pope crowdfunded his translation.

70 years later, in 1783, Mozart wanted to perform three recently composed piano concertos in a Viennese concert hall, so he published an invitation offering manuscripts to those who pledged. Mozart’s first campaign actually failed, but a year later he tried again, and 176 backers pledged enough to bring his concertos to life. He thanked them in the concertos’ manuscript.

And in 1885, the the Statue of Liberty had no pedestal on which to stand in New York Harbor. France had given us the statue and the United States was just responsible for building the pedestal, at a cost of $100,000. But nobody wanted to fund the project… until Joseph Pulitzer (who would create the Pulitzer prize in his will), used his newspaper, The World, to launch a unique crowdfunding campaign to build the pedestal, save the project and keep the Statue of Liberty in New York City.

So we know the concept of crowdfunding isn’t new. So what’s changed?

Well, what’s changed is that the internet that connects us all. We don’t live in an industrial economy anymore, we live in a connection economy. You want proof?

Uber, the world’s largest taxi company, owns no vehicles.

Facebook, the world’s most popular media owner, creates no content.

Alibaba, the most valuable retailer, has no inventory.

And Airbnb, the world’s largest accommodation provider, owns no real estate.

Like no technology in history, the internet allows us to find and connect with each other.

If you’re Lee Miller and you want to make a new kind of device that allows you to play with your cat when you’re not home, you can find not just cat owners, but cat owners that love design and have some disposable income.

If you’re Satya Tweena and want to save New York City’s last hat factory, you can find the people that care about that and want to buy a hat to help you save that.

If you’re BSX Athletics and want to build the first ever wearable lactate threshold sensor, you can find the super serious athletes who care about tracking that.

The connection power of the internet, that’s available to all of us, is something Alexander Pope, Mozart and Joseph Pulitzer could only dream of.

The internet connects us all and makes the crowdfunding model exponentially more dynamic and accessible.

Sometimes what seems new is actually very old.

As always, you can submit your question or see all of the crowdfunding questions and my answers at http://crowdfundinghacks.com/AskClay

End Transcript

crowdfunding, ask clay

Why do some terrible ideas get funded, while some great ideas fail?

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This is the fourth post in our 30 Day Ask Clay Crowdfunding Q&A.

I’m answering a new question every day in June.

Submit your question by going to CrowdfundingHacks.com/AskClay, where you can see all of the questions and all of my answers.

Full Transcript

Hey everyone…this is Clay Hebert from CrowdfundingHacks.com…and today’s question is…

Why do some terrible ideas get funded while some great ideas fail?

This is a great question. As a creator who has either had a failed project or someone thinking about doing a campaign, it can be frustrating to see what you perceive as “lesser” ideas succeeding and what you perceive as “great ideas” fail to hit their funding goal.

The answer can be found in the following statement:

“Crowdfunding is not a meritocracy, it’s a marketocracy.”

Yes, marketocracy is a word that I made up, but that’s OK. People make up words all the time. I highly encourage you to make up some words of your own.

I’ll explain what it means.

The Merriam-Webster definition of a meritocracy is:

a system in which the talented are chosen and moved ahead on the basis of their achievement

So if crowdfunding was a meritocracy, the “best” ideas would raise the most money and the “worst” ideas would fail.

The problem is, the concept of a “good idea” is very subjective.

Let’s look at The Coolest Cooler.

To some people, a cooler that has a blender, a solar panel and an iPhone charger is ridiculous. To others, it’s literally, the “Coolest” cooler they’ve ever seen.

The Coolest Cooler campaign raised over $13.2 MILLION on Kickstarter, but what most people don’t know is, the first time out, The Coolest Cooler had a funding goal of $125,000 and they missed their goal. They only raised $102,000 and because they missed their goal, they got nothing. Zero. Zilch.

The second time out, there were a few minor changes to the cooler, but it was essentially the same thing! So what changed?

Their marketing changed.

The second time out, Ryan Grepper and his team completely revamped how they marketed and promoted the campaign.

They did the pre-launch marketing right and blew past their funding goal in a matter of minutes. Then they continued to promote the campaign effectively, targeting the people who they knew would be interested.

Same idea. Same basic product.

Completely different marketing. Completely different outcome.

Now even great marketing can’t save a horrible idea that nobody wants. It’s important to have a great product, but in crowdfunding, it’s about finding and reaching the people that care desperately about your idea. And then ignoring everyone else.

So to recap…

Crowdfunding is not a meritocracy, it’s a marketocracy.

It isn’t just the “arbitrary” quality of your idea (which is different to everyone), it’s also about the marketing…finding the small group of people who love your idea and building permission to market your campaign to them.

So with a nod to Merriam-Webster, if we were to define a marketocracy, it would be

a system in which campaigns succeed due to the combination of a great idea (to certain people) and the creator’s ability to find and market to those people (and ignore everyone else)

There…we didn’t just make up a word, we defined it.

As always, you can submit your question or see all of the crowdfunding questions and my answers at http://crowdfundinghacks.com/AskClay

End Transcript