Crowdfunding is a hot topic for entrepreneurs big and small these days. Whether it’s an individual looking to graph the deliciousness of a burrito or already successful smartwatch makers setting new records, everybody seems to be doing it. (Heck, even I’m dabbling with it.)
Erin Bury, managing director of Toronto-based digital marketing agency 88 Creative, last week gave tips on how to properly use platforms such as Kickstarter and IndieGoGo at the Canadian Crowdfunding Summit.
As the former managing editor of startup-oriented site BetaKit, a key member of networking service Sprouter and one of Marketing Magazine’s 30 Under 30, Bury has had hands-on experience with the growth and evolution of crowdfunding.
I chatted with her about these changes and solicited her advice on what businesses and entrepreneurs should and shouldn’t do when it comes to crowdfunding. Here’s an edited version of that conversation.
How has crowdfunding changed since it first burst onto the scene a few years ago?
It’s become really ubiquitous. It’s kind of like when social media hit the mainstream. I remember at Sprouter we were featured in Forbes just because we had a Twitter account. You would never see that these days because it’s an expectation that everyone is on social.
It’s that way with crowdfunding now. When you’re thinking of ways to fund your company, it’s no longer this outlier and this weird option that people go to when they have no other choice. It’s become one of the core ways for companies to get their first wave of financing.
It’s also no longer just for raising that funding. People are turning to it to measure demand. I saw an interesting article today that said crowdfunding is allowing pull manufacturing, which is where if you’re, say, Pebble and you have a smartwatch, instead of estimating how many you should manufacture in the first run, you’ll use Kickstarter to sell pre-orders and then know exactly what the demand is.
Companies are also using it now for PR. If you look at Pebble, it was kind of timely that they launched their Kickstarter campaign a couple of weeks before Apple comes out with its watch. I don’t think that’s a coincidence. They knew they’d get favourable press and they knew they’d create buzz before their largest competitor comes out with their product.
They put themselves top of mind as a competitor at the right time, right?
Absolutely. Another thing is that other than selling a product through your own website, Kickstarter has the lowest commission fees [five per cent plus financial institution charges]. If you’re selling through Best Buy or some other wholesaler, you’re obviously not going to make full retail price. But you can discount the product on Kickstarter and still make more than you would at a third-party retailer. People are starting to use Kickstarter as an online store. It’s not just to fund your product, it’s to sell it.
There seems to be a parallel with online dating, which was first seen as just for “losers” who couldn’t get a “real” date. Crowdfunding was at first thought of as begging, and in some cases, still is.
The novelty has also worn off. It used to be when you were running a crowdfunding campaign, you were only competing against a few others who were doing it. That’s no longer the case. Everyone and their uncle is launching a campaign so it’s really hard to create a buzz.
It’s now about marketing your campaign and that can be a full-time job. I’ve read recaps from people who have completed successful campaigns and the amount of work that they detailed going into pre-launch marketing, post-launch marketing, getting press coverage and submitting to forums like Reddit and doing email blasts, it is a full-time job.
A lot of people underestimate how easy it is and think, ‘Oh I’ll just launch it and everyone will find me.’ There are so many other projects that you’re not just going to rise above the chatter.
IndieGoGo and Kickstarter curate their top picks of the week, but even that’s based on the amount of funding and popularity. They’re not just going to pluck you out of obscurity like Apple sometimes does in the app store. There’s an algorithm behind who’s being featured and why.
What kind of businesses should get into crowdfunding and which shouldn’t?
One of the most compelling reasons that a campaign will succeed is the quality of the rewards. If you look at something like a product-based company like Pebble, you’re backing it and in exchange you’re getting a physical product. You’re not getting a T-shirt and a sticker, you’re getting the actual product you want.
It’s very hard for a service company or one that has a product with a very high price point to succeed. If you have a $5,000 item, you’re not going to be able to sell many to the average consumer considering the average donation is $50 to $75. If you have a product between $50 to $250, you’re probably going to do well because your rewards are really easy. You can offer your product, or several, or you can bundle them.
If you look at companies like Tile, they’ve done really well with crowdfunding because it’s a low-price-point gadget that seems to resonate with everyone.
The landscape is going to change this year because the new equity regulations are coming in. Instead of just offering rewards, you’ll be able to offer equity in your company in exchange for backing on a crowdfunding platform. That to me is the single biggest thing that will change the landscape in Canada.
Then, even if I am a staffed company or I’m building a business that doesn’t speak well to rewards, I can offer one per cent of my company or however many shares I want to. As a consumer that’s really exciting because I now have a chance to get in on the ground floor with a Canadian entrepreneur.
What are some of the other common mistakes people make when crowdfunding?
Having rewards that people don’t actually want is a good one. If you look at most crowdfunding campaigns, they offer T-shirts and high-fives and buttons. I find people are sick of that, they don’t really want that. They’re either backing it because they believe so much in the idea that they don’t care about the reward or they want one of what you’re actually producing.
Companies are spending a lot of money on really slick videos for their campaigns. It’s important to have a well-designed page, but people also want to see authenticity and hear the story behind why you’re doing it. It doesn’t really matter if your video cost you $500 or $20,000 and it looks like it could be a Hollywood trailer.
People are also wary of investing and not getting their product, so companies have to lay out clearly how they’re going to produce the product and do their research, so if they actually get the money, how they’re going to produce it, is it feasible and what’s a realistic timeline to get it to people.
So how do the different sites—Kickstarter, IndieGoGo and so on—break down? Who is each for?
It used to be that IndieGoGo was really targeted to the arts, whereas Kickstarter was more of the technology and gadget platform. Obviously where there’s a clear difference is that IndieGoGo has always allowed you to keep any of the money that you raise, you don’t have to hit your goal. Kickstarter has always required that you raise the entire amount or else you don’t get any of the money.
If I was an entrepreneur launching a crowdfunding campaign, I would probably go with IndieGoGo because, if my goal is $20,000 and I only raise $10,000, at least I’m halfway there and I can try to find other sources of money. If you’re on Kickstarter and you’re putting in a hundred hours into pre-launch marketing and designing page assets and you get to 95 per cent of your goal but don’t make it, that would be pretty disappointing.
I’d say both platforms are now pretty multipurpose. Kickstarter isn’t just for technology projects, you see movies there. I’ve seen tons of tech projects on IndieGoGo.
There are also a lot of non-profits who are very interested in crowdfunding. I’d suggest those two as I don’t really know of any that are specific to non-profits.
Tilt is a recent entrant, which is really good for individuals. Crowdfunding is not just for non-profits or individuals. The recent example of Elijah Marsh is a great example of how crowdfunding can be used for things other than companies. IndieGoGo recently launched the ablity to launch funds for an ailing family member, or a local school group or whatever you want. We’ll see a lot more general purpose platforms like Tilt gain popularity.
MORE ABOUT CROWDFUNDING:
- Untangling Canada’s proposed new crowdfunding laws
- Veronica Mars and the power of crowdfunding
- The Kickstarter potato salad is the eBay auction stunt for a new era
- Unexpected demand turned this company into an exporter on the fly
- Facebook buying Oculus Rift could change Kickstarter as we know it