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How to Rock your Crowdfunding Campaign While Others Flop

By Joseph Hogue

How to Rock your Crowdfunding Campaign While Others Flop

Crowdfunding is booming as a way to promote a small business idea. And new rules for equity crowdfunding could mean even faster growth for investors. More than $16.2 billion was raised in 2014, more than half of which came from North America (where crowdfunding grew by 145 percent from the previous year). In fact, growth in North America was only surpassed by South America - where crowdfunding grew 167 percent - and in China, where volume in the online phenomenon surged by 320 percent over the year.

But don't think crowdfunding is just about raising money. The benefits of crowdfunding go well beyond fundraising. These include:

  • Product advice and insight that would normally cost thousands:
    Your campaign supporters will tell you exactly what they like and don't like about product ideas and features. It's like a focus group of thousands.
  • A community that includes lifetime supporters of your brand:
    Crowdfunding backers feel a special buy-in with the businesses they support because they feel like they helped make it possible.
  • Free marketing on websites that reach millions of people:
    Your campaign is an entire page dedicated to your message and brand. People will actively watch your video, read your message, and share it with their friends because they see it as a special project - not as a commercial.

If crowdfunding is such a great opportunity, then why have only about two percent of small business owners used the approach, and why do 63 percent of campaigns fail to reach their funding goal?

Crowdfunding isn't as easy as throwing a campaign online and waiting for mountains of money. It's no longer enough to post a video and a personal message to supporters. From start to finish, five common pitfalls continue to trip up business owners and prevent them from crowdfunding success. Understand and avoid these common small business crowdfunding pitfalls to get the most out of your campaign.

Crowdfunding campaign pitfalls to avoid

Crowdfunding Pitfall #1: You don't think crowdfunding is right for your business

If Zack Brown can raise more than $55,000 to make a bowl of potato salad, then anything can be crowdfunded. What you should ask is whether or not you are right for crowdfunding.

While any product or service can be taken to the crowd, you'll need a special set of skills to make your campaign a success. Think of it this way - since crowdfunding is a fusion of fundraising and online social media, campaign owners need to use a mix of skills from each arena. In most cases, a successful crowdfunder must be:

  • Personal
    You may think of yourself as an introvert, but you need to be the life of the party while working on your campaign. Successful campaign owners reach out to their community in person and by phone, forums, and social media.
  • Strategic
    Even if your campaign isn't for a business idea, you need to treat it as such. A successful campaign means putting together plans for marketing, budget, management, and production.
  • A team builder
    Slava Rubin, founder of Indiegogo, says teams raise an average of 70 percent more money than campaigns run by a single person. Not only do team members offer extra ideas, but they also have an expanded network.
  • Aggressive
    You can't be afraid to ask for support - sometimes more than once.

The Takeaway: If you feel you lack one or more of these traits, push yourself out of your comfort zone. Consider the words of heavyweight champ Muhammad Ali: "To be a great champion, you must believe you are the best. If you're not, pretend you are."

Crowdfunding Pitfall #2: You give the "crowd" in crowdfunding too much credit

How much money crowdfunders raise on kickstarter

The term crowdfunding is more than a little misleading. The media doesn't help by regularly publishing accounts of campaigns going viral and reaching millions of backers. The biggest pitfall in crowdfunding is believing there's already a crowd.

Too many crowdfunding campaigns start without an established community ready to back the project. The crowdfunder prematurely pops the cork on a celebratory bottle of wine, the campaign goes live, and then nothing really happens. Successful campaign owners know the difference between community and the crowd - and which comes first in crowdfunding.

Start building a community around your campaign at least one or two months before it goes live. Once your campaign starts, your community will drive initial funding and word-of-mouth. Data on campaigns shows a strong link between campaign owners and their Facebook community. Crowdfunders with only 10 Facebook friends have a 9 percent chance of meeting their goal. People with at least 100 friends see their odds jump to 20 percent and people with 1,000 friends have odds of 40 percent or better.

Take these crowdfunding pre-launch steps to build your community:

  • Research previous campaigns similar to yours. You'll see which rewards are most popular and how much campaigns typically raise, and may even uncover some affinity groups to market.
  • Develop a contact list of influencers in blogging and within your industry. Building a relationship with these people before the campaign makes it more likely for them to share your message when the campaign launches.
  • Actively post to forums and interest groups related to your campaign idea. The people in these groups are already passionate about the idea - you just need to build trust through conversation.

The Takeaway: With a community in place ready to support the campaign, your message is more likely to go viral and reach the real online crowd.

Crowdfunding Pitfall #3: You think like Custer when you should think like Napoleon

The Pebble Time watch raised $20.3 million on Kickstarter in March 2015, more than a million of it within the first hour of the campaign. People hear stories like this and rush to get their idea online with all the planning of Custer's Seventh Cavalry at Little Bighorn.

Go into your crowdfunding campaign with a strategy around your funding goal and you may get some extra help. While just 37 percent of Kickstarter campaigns reach their funding goal, the platform reports an 80 percent success rate for campaigns that raised 20 percent of their goal. Related to this is the fact that campaigns featured by Kickstarter show an 89 percent chance of meeting their goal.

While Kickstarter doesn't release information on the ranking program (which chooses projects to feature) we can look at other ranking programs by sites like Google and Amazon for a few ideas.

  • Combine a little bit of community building and goal planning. Set your funding goal low enough that you're sure you can raise at least 20 percent of your goal over the first few days. Make sure you push your community to show their support within the first two days. Reaching the milestone quickly is going to make your campaign look popular and will help get it noticed by the platform.
  • Ranking programs follow on-page measures of popularity such as number of visitors, comments, and pledges. If you can get people to visit your campaign page and interact by commenting, watching the video, or using the message system, then your campaign will look interesting and engaging.
  • Ranking programs also follow off-page measures such as social shares and links from other websites. Through pre-launch, build your following on social media and get them ready to share and like your campaign page when it's live. Reach out to bloggers and other websites and ask them to provide a link to the page, sending traffic and a valuable signal to the crowdfunding platform.

The Takeaway: Strategize how you will accomplish these tasks before the campaign and you'll not only get the attention of the crowdfunding platform but you'll also build social proof. Social proof is the online version of the bandwagon; people will notice your campaign's worthiness based on the fact that so many others have already given their trust.

Crowdfunding Pitfall #4: You think, "Sure, I'll try crowdfunding once."

Even on meteoric growth, crowdfunding is still a novelty for many people. If they give it more than a fleeting thought, it's that they'll try it out once to see what all the chatter is about. A one-time, all-or-nothing idea can drive six-digit funding goals and ultimately miss some of the real benefits to crowdfunding.

While stories of multi-million dollar projects are fun to read, the fact is that 70 percent of successful crowdfunding campaigns raise $10,000 or less. Only a small percentage raise more than $100,000 and less than 1 percent of campaigns raise more than a million.

Less than $10,000 in funding may not be enough for you to even consider, but it brings up two important ideas in crowdfunding: staged financing and the power of multiple campaigns.

  • Don't try to fund your entire budget with a crowdfunding campaign. Aim for just enough to develop a workable product or add a key feature to an existing product. Set the funding goal of your first campaign at a point you're fairly certain you can achieve, and consider a traditional loan or peer lending to make up the rest. Lending remains the most active segment of crowdfunding with 78.7 percent of total funding, followed by 13.5 percent to rewards-based crowdfunding and 7.8 percent to investment crowdfunding.
  • Besides the more realistic goal, an initial loan provides the funds for product development and marketing to drive momentum for your campaign.
  • Use your first campaign as a way to build support for your business and for product development. That first campaign can provide the spark for future campaigns to you can raise much more money.

It's in these follow-on campaigns where we uncover a crowdfunding secret few people ever see: The odds of success for campaign creators jumps in each subsequent campaign, from 37 percent in the first campaign to as high as 91 percent for creators launching six or more campaigns. Not only do your odds improve each time, but you have the opportunity to build an army of supporters. The average number of backers on successful projects increases by one third, on average, for each successive campaign.

In fact, even failed campaigns can provide a huge source of information for your business. Ryan Grepper's first Kickstarter project quietly ran out of time the day after Christmas in 2013, missing his $125,000 funding goal. Eight months later, his revamped Coolest Cooler campaign and became one of the most funded projects of all time at $13.3 million.

The takeaway: Don't look at crowdfunding as a quick tool to raise money, but rather as an online extension of your business and another marketing channel. That special level of buy-in your supporters feel means they'll stick with you time and again. Use crowdfunding to launch special improvements to your product or new ideas. After a few campaigns, your community will likely be so large that you may not even need to pre-launch the next campaign.

Success of repeat project creators

Crowdfunding Pitfall #5: You ignore the legal side of crowdfunding

Despite the social nature of crowdfunding, the internet can still be a very uncertain place. You won't find any demarcation lines between countries, or a formal police force with jurisdiction over the World Wide Web. While copyright and patent laws still apply, they can get lost in the immense growth of crowdfunding and the breadth of the internet.

Last year, Kickstarter alone received 282 claims under the Digital Millennium Copyright Act, including 28 claims of trademark violations. Of those, action - removing images, videos, and/or deleting projects - was taken on 44 percent of the claims.

Don't think you can freely use other people's intellectual property or that yours is completely safe on the web.

  • Seek legal counsel on patent and copyright protection before pre-launching your crowdfunding campaign. You have one year after publicly announcing a product to file a patent application. After that 12 months passes, you won't be able to get patent protection.
  • Do not divulge trade secrets to campaign backers or on your crowdfunding page. Your community of backers can be instrumental in product development, but make sure you sign non-disclosure agreements with anyone that gets special access to information.

The Takeaway: The informality of the internet can be deceiving, especially in crowdfunding. Make sure you protect any intellectual property with patents and copyrights. Do not plagiarize work or infringe on copyrights or patents.


While these aren't the only pitfalls in crowdfunding, they commonly trip up campaigns and can keep you from achieving your goals. Focus on the takeaways from each pitfall and put together a broader view of the benefits. Look closely at what crowdfunding can do for your business and you may find that the money is little more than an afterthought.

Joseph Hogue

About the author

Joseph Hogue, CFA is the founder of Crowd101, an informational blog for investors and crowdfunding campaigns. He combines his experience in private equity and investment analysis with years spent coaching crowdfunding campaigns for a unique view from both sides of the table.

A CFA charterholder and a veteran of the Marine Corps, Joseph has worked as an investment analyst for nearly a decade. Talking with small business owners through his role at a Canadian venture capital firm, he became interested in alternative finance and crowdfunding as a way to fill the gap left by disappearing bank lending after the financial crisis. He has appeared on Bloomberg TV and his analysis can be found on Morningstar, Barron's, and the International Journal of Economic Development.

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