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Tips, advice, and information for South African business owners

26 Nov

Don’t Put Your Cart Before The Funding Horse

Of the many ways to fund your new idea, crowd-funding it is probably a lousy way to do it. Most crowd-funding platforms like KickstarterIndiegogoRocketHub, and South Africa’s Thundafund, are thought of as a place to find a lot of people willing to chip in a little bit funding on something that might not work out.

This thinking isn’t a mistake – it’s precisely the principle Kickstarter was founded on. You create a sexy video with a compelling story about your novel concept and wait for the crowds to find you.

Except, that’s not how most funding platforms actually work.

According to The Domino Project, it turns out that almost all successful Kickstarter projects bring their tribes of fans to the platform as just a way to activate and organise the tribe. The usage patterns also show how reinforcing feedback kicks in for projects that hit their funding target – they get a surge in additional funding as soon as the funding threshold is breached. (If a project’s funding target isn’t reached in time, the project is cancelled and no funding is collected.) In other words, funders are not backing something that might not work. They’re shopping for something they know will ship because the funding is already assured.

Seth’s Blog writes that, of the roughly 460,000 Kickstarter projects, 290,000 were not funded. Only 400 raised more than $1m, which tells us that the chances of going viral – whether by your tribe or a lucky strike with strangers – are worse than one thousand to one against you.

Aside from the enormous effort to run a crowd-funding campaign – immediacy is critical in responding to every enquiry, so expect to be permanently plugged in – the rules for winning at crowd-funding is to first prove your concept, build your tribe over time, and only then consider crowd-funding your expansion.

And for many creative inventions, crowd-funding is indeed a fantastic approach to either expand a proven concept or tap into your tribe’s faith in your zany idea. Just don’t lose sight of the hard work needed to either prove your idea or build your tribe.

That might seem old-fashioned, but there’s a reason the proven approach to validating your ideas with real products tested on real customers is just that, a proven approach.

Get this done first and, by the time you’re ready to hitch your business to the crowd-funding horse, you’ll also be ready to approach a host of “regular” debt- and equity finance providers that could be a whole lot less stressful than running a crowd-funding campaign.

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