Crowdfunding 101 And Why You Should Use it For Your Next Product

Crowdfunding is on everyone’s mind, especially companies who are looking to sell products online. The benefits are almost too good to be true: raise money from people who want to use your product and avoid the bureaucratic process of getting money from banks.  Before you can start raising money for your next hot idea though, you need to learn the basics of crowdfunding.

What is crowdfunding?

Crowdfunding is a way for an organization or individual to raise money from a large number of individuals or “the crowd”. Imagine you have an awesome idea for a car accessory. You have done some serious research on what it would take to build it but you don’t have the money necessary to produce enough units to start selling them. You could put up your idea and mockups on a crowdfunding website like Kickstarter and raise money from individuals who would love to purchase your product if it existed.

Sites like Kickstarter have huge audiences of early adopters who are always looking for the next cool thing and are willing to pay money before that “cool thing” even exists. You could raise a large amount of money from thousands of “investors” who are really potential customers. Other crowdfunding websites can help you raise money for causes like charities but the concept is the same. A large number of individuals provide small amounts of money to products or causes they would like to support.

You can visit a crowdfunding campaign below:

https://www.kickstarter.com/projects/1027829739/fiction-unboxed-change-the-world-with-a-story?ref=home_popular

Finally, crowdfunding is also now evolving into equity investment. Recent developments such as the JOBS act will make it possible for companies to raise money and actually give out equity in return. This is a huge because it rewards those early adopter with more than just products. They will also be able to share in the financial success of the companies that they back.

How can crowdfunding help my e-commerce business?

Now that you know what crowdfunding is your next question is probably around how can it help your e-commerce business? Let’s go back to our previous example of the car accessory idea that you would like to create. Crowdfunding can give you the funds you required to develop the first 1000 units and get them in the hands of customers. In the past, you would have to create your product, create the first 1000 units out of your own money (or spent time raising money) and then find customers to buy them.

Crowdfunding can handle all those aspects through one single campaign. The second benefit that crowdfunding provides is the ability to connect with potential customers. The people who give you money will also become your customers and the people who tell other people about your awesome product. They are also making the biggest commitment a customer can make: giving you actual money.

Finally, crowdfunding has helped certain products build hype around their launch Some of the stuff that gets funded through sites like Kickstarter and Indiegogo is unique and it spreads like wildfire across tech blogs and other news outlets. Getting this kind of promotion can be incredibly difficult and costly. Not only that but once you start receiving publicity, it helps you gain more backers for your products which causes even more promotion. This is probably the closest thing to “going viral” that some product creators will experience.

What are some examples of successful crowdfunding campaigns?

Let’s take a look at some of the most popular crowdfunding campaings of all time. Perhaps you have seen some of these products and didn’t know they had their start during a crowdfunding campaign.

Pebble:

https://www.kickstarter.com/projects/597507018/pebble-e-paper-watch-for-iphone-and-android

Oculus Rift:

https://www.kickstarter.com/projects/1523379957/oculus-rift-step-into-the-game

Ubuntu Edge Smartphone:

https://www.indiegogo.com/projects/ubuntu-edge

Which crowdfunding websites should I use?

Kickstarter

Kickstarter is the original crowdfunding website and one of the biggest sites in this space. They focus mostly on products and most people are “pre-ordering” a product before its created.

Indiegogo

Indiegogo is the second biggest site in the world, behind Kickstarter. What makes Indiegogo special is that they allow some projects that sites like Kickstarter won’t take. They have established themselves as the place for non-product ideas like causes and charities.

FundRazr

Fundrazr is one the biggest crowdfunding sites in Canada and they have focused a lot on causes and helping individuals raise money for health issues, and dreams.

There are countless other sites, in tons of different spaces. Find the one that fits your needs but remember that you do want to be part of the biggest sites since that will give you a better chance of hitting your fundraising goal.

Got any comments on crowdfunding? Excited about its future? Let me know in the comments below.

Tagged crowdfunding, fundraising, inventory management, product developemnt