The Master Marketer BLOG

An Introduction to Crowdfunding

Posted by Jeffrey Schmidt on Wed, Sep 26, 2012 @ 2 AM

It's probably happened to everyone: You're going about your daily life when suddenly inspiration hits, and you've suddenly got a great idea for a new product. We all have these moments of invention and wish we could do something about them. Who knows, maybe you've even started your business to try to make your invention a reality.

Either way, in years past, getting funding for new ideas was a tricky business indeed, and generally only possible if you could attract the attention of wealthy investors. However, there's a new game in town and it's changing product research and marketing:

Crowdfunding takes the basic idea behind "crowdsourced" projects like the Wikipedia and takes it into the realm of R&D. You create a business plan and marketing materials aimed at convincing everyday people to donate a small amount of money towards your project, usually in exchange for a reserved pre-sale and other gifts. Then that money is used to fund the actual development and distribution.

Crowdfunding has turned into an extraordinary success in the last year, with sites like Kickstarter exploding into prominence and hosting a variety of highly-successful enterprises, including a new video game console, feature films from noted auteurs, and affordable 3D printers.

Tiered Rewards are Enticements

Crowdfunded projects use a tiered reward system, just like those old PBS fundraisers, to encourage people to donate. These tend to start around the $10-$20 dollar level, and can go up as high as $10,000 or more, to attract a variety of interest from everyday people to wealthy entrepreneurs looking to act as patrons.

Generally, one of the lowest tiers simply involves a guaranteed copy of the product whenever it ships. Rewards scale upwards from there, including autographs, limited-issue memorabilia, and chances to participate directly in the product's creation.

In turn, the inventor seeking investment has to set a specific threshold at which point their project is considered funded, so people know exactly how likely it is to become real.

Alleviating Risk Creates Marketing Opportunities

One of the most notable things about crowdfunding is that it takes a lot of risk and uncertainty out of the investment process, on both sides.

For investors, most of these systems include an automatic refund of their money if the project fails to meet its development goals, with the money held in escrow by the web host as a guarantee. This makes investment in random projects a lot more attractive: the worst that can happen is nothing.

For inventors, it achieves several things:

Initial investment costs are extremely low, generally just marketing and pitch materials.

You get an immediate idea of how viable your product might be in an open market.

If the project fails, you're only out a little time and money, rather than gambling huge amounts and risking it all.

Especially successful projects can go viral by themselves, giving you great online exposure.

You can include additional goals to pursue if you exceed funding expectations, so your initial estimate won't restrict you.

Is Your Idea Right For Crowdfunding?

Crowdfunding is populist by nature. Products with widespread consumer appeal are far more likely to get funded than "niche" items. If your invention is only going to be of interest to a small group, crowdfunding may not be for you. Also, consumer products tend to fare far better than those aimed at business.

As with any investment venture, a crowdfunding project should be approached slowly and carefully. However, for certain inventors, it opens up entirely new avenues for small business creation and unique project development.

Call DeepSky Marketing to find out how you can create profitable marketing strategies for your company. DeepSky Marketing is a company that provides businesses with profitable marketing systems and verifiable return on investment (ROI). To schedule a brief no-cost consultation call 707 823-3888.
Posted by Jeffrey Schmidt

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