Crowdfunding as an effective way to finance a small business

By / Social Media, Startups

If you have an idea for a small business but are having trouble rounding up the necessary capital to fund your operation, then crowdfunding might be the way to go. By starting a viral marketing campaign to drum up support for your business idea, you can help your enterprise grow overnight.

Crowdfunding isn’t as easy as simply setting up a website and watching the dollars flood in, though. There are many factors to keep in mind when planning your crowdfunding initiative. Here are a few tips that will help you dive into the practice headfirst.

Explain your idea clearly
You must begin with a clear explanation that will get your idea across to potential contributors. There are countless projects out there competing for donors’ dollars – everything from companies and nonprofits to disaster relief efforts and creative projects – and you will need a description of your project that appeals to people who come across your initiative. What’s the objective of your fundraising efforts? Are you looking to create a profitable corporation, or to help others, or to produce a TV show or movie? Whatever you’re trying to accomplish, communicate your goals clearly and pique the interest of those who might donate.

Set a realistic goal
You need to have a dollar amount in mind before you begin a crowdfunding initiative. As Entrepreneur Magazine explains, many websites like Kickstarter don’t allow you to collect any donations at all unless you hit your ultimate fundraising goal, so you must be very careful not to aim too high, because it will leave you with nothing. To find a realistic dollar amount, consider asking colleagues for feedback or studying the results of similar fundraising initiatives that have succeeded in the past.

Offer rewards to donors
It can be difficult to convince people to part with their hard-earned money, so it will probably be necessary to offer rewards to those who donate. According to Entrepreneur, Kickstarter requires rewards valued between $1 and $10,000, but they must be products or experiences, not cash. Cesar Kuriyama, a visual effects artist who opened a Kickstarter site to fund his successful iPhone app, recommends offering several tiers of rewards. People who make small donations can earn small items or coupons, whereas bigger givers can garner significant prizes.

Stay abreast of changing legislation
The United States Congress is actively debating legislation that might affect crowdfunding – specifically, by enabling entrepreneurs to give actual shares in their enterprises rather than non-monetary prizes. CNN reports that while President Barack Obama signed the JOBS Act over a year ago, the debate is still ongoing about whether individual donors should be allowed to purchase equity in startups. Currently, only individuals who meet certain wealth or income requirements are allowed to do so, but if this law changes, you will need to adjust your strategy accordingly.

Promote your project creatively
Once you’ve started a campaign on Kickstarter or anywhere else, you will need a comprehensive strategy to promote it. One element of this should be viral – tell your friends to support your initiative, and have them tell their friends, and their friends tell their friends’ friends, and so on. But you should also be active on social media to promote your project, using Facebook and Twitter, plus LinkedIn for reaching out to like-minded professionals who will help you make contacts in your field. You might also consider multimedia content such as promotional videos to disseminate your message.

Crowdfunding is a great way to get your business idea off the ground, but it requires dedication and creativity. Has the strategy worked for you? What tips can you share?

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