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By Jennifer Wagner
Crowdfunding websites like Kickstarter and IndieGoGo provide artists, musicians and other members of the creative class with the opportunity to raise small amounts of money from a large number of benefactors to support new projects. IndieGoGo offers “anyone with an idea” a platform for connecting with supporters, while Kickstarter’s criteria focuses more narrowly on creative projects from the “fields of Art, Comics, Dance, Design, Fashion, Film, Food, Games, Music, Photography, Publishing, Technology, and Theater.”
Some of the most successful campaigns haven’t been artistic endeavors, however, but were actually launches of a new product line or entrepreneurial business. With a captive audience of sophisticated backers looking to be part of the next new idea, crowdfunding has proven to be not only a way to raise funds, but also a highly effective and affordable sales and marketing channel for social ventures.
Crowdfunding and Product Strategy
Crowdfunding provides a number of unique business advantages when used to launch a new product. A crowdfunding campaign is a surefire way to test ideas before making a big upfront investment. It allows new product ideas to fail early and often, increasing the chances of long-term success.
Crowdfunding also gives entrepreneurs a better sense of how quickly a product might scale, enabling better informed planning of manufacturing and operations. For example, Windowfarms, a social enterprise committed to supporting urban food growers, recently completed a Kickstarter campaign with a threshold fundraising goal of $50,000 to fund manufacturing of its new hydroponic system in China. It also set a more ambitious $200,000 stretch goal, which would enable manufacturing in the United States.
“We really wanted to manufacture in the US. This helps to keep the environmental footprint of our product low, reduces supply chain complexity, and supports local economic growth,” notes Shivani Ganguly, the Chief Operations Officer of Windowfarms. However, unless the higher level of sales could be achieved quickly, it was not possible to justify the added cost of making the product molds domestically.
Windowfarms closed its campaign on December 7, 2011 with over $250,000 from more than 1,500 supporters, enabling manufacturing to stay in the US and making it the most successful food related project funded on Kickstarter to date.
Crowdfunding and Marketing Strategy
From a marketing perspective, crowdfunding enables businesses to connect with an engaged internet audience without paying upfront for online advertising. Both IndieGoGo and Kickstarter allow campaigns to be launched for free, and only take a cut after funds are raised. With fees charged ranging from 4-5% (plus another 2-5% in financial processing fees), the costs are already competitive with typical debt and equity financing costs, before taking into consideration the added marketing value.
Much of the interest in crowdfunding projects is generated by early supporters spreading the news about the campaign through word of mouth or online networking. Often times the buzz generated by backers will lead to other outlets reporting about the campaign. Following its new product launch on Kickstarter, Windowfarms was covered by Gizmodo, Fast Company, Treehugger, Inhabitat, and Forbes, bringing thousands of new people to the Windowfarms community.
Crowdfunding also enables businesses to connect to large and diverse audiences. The Windowfarms’ campaign had supporters from as far away as Austria and Australia, giving them a much broader reach than than a physical storefront. This global footprint helps position the enterprise for future growth long after the campaign has ended.
As the experience of Windowfarms demonstrates, social ventures should look to crowdfunding not only as a way to raise funds, but also as a way to connect with new customers and win brand evangelists around the globe. If you’ve got a new green product to launch or a social innovation that is ready to scale, crowdfunding can be a win-win proposition. You get marketing and pre-paid sales without any upfront risk, while your supporters get to be the first people on their block to support the next big idea!
Jennifer Wagner is a human capital consultant and an MBA candidate at Presidio Graduate School. In the interest of full disclosure, she and Shivani Ganguly are colleagues at Presidio.