Crowdfunding is More Crowd Than Funding
You need to have bigger goals than getting funded to commit to a crowdfunding campaign
This is part three on storytelling, you can read part one here, and part two here.
This whole series comes from a workshop I regularly deliver to startups and university students across the country. The broader theme is crowdfunding, the storytelling component is an important part of it.
When you start thinking about launching a crowdfunding campaign it’s because of the funding part - right?
I don’t see it that way, and if you ask most people who have crowdfunded in the past they echo the sentiment.
More often than not crowdfunding isn’t that lucrative. Even if you hit a six-figure raise, you are likely to have very slim margins, and will have created a lot of work for yourself in the process.
But that isn’t to say there’s no value in crowdfunding, you just need to recognise the other value created.
As I see it, there are three reasons to crowdfund:
To launch something
To make a difference
To invite others to be a part of something
Launching is always a tense time, but launching with crowdfunding can be a useful way to drive interest.
This way, you formally launch it while simultaneously creating a sense of urgency and deadline.
You tell people - honestly - that without their help this big, new, exciting thing won’t happen. Your dream, your big ambition.
You can tell the story of the difference you hope to make, and the role they can have in making that change happen.
This then in turn leads to a couple of other things:
Validation
Market testing
Some revenue
If you hit your goals on the crowdfund then you should go some way closer to validating there’s a market for your product, evidencing that people will pay for it, and creating some revenue.
There’s still risk. If you’re launching a restaurant or cafe and you are selling credit for future people to use when you open then you’re losing out on tomorrow’s revenue when you need it most. There might be a lean period as you go through the pain of serving a lot of customers for free as they cash in their credit and vouchers.
That’s the problem with thinking about crowdfunding narrowly as a funding exercise. You can come out of it feeling worse off financially.
Crowdfunding works when you create a sense of exclusivity. You can invite people to be a part of something that can truly make a difference.
On the flip side to the financial disappointment, you build a lot of loyalty. A LOT.
One cafe in Cardiff that we worked with on their campaign still see people come in every week from their original campaign five years ago. This is vital loyalty that can make all of the difference for any small business.
Is this loyalty rational? As always, there are mental models at play, but we will want our previous decisions to work out.
People want to be proven right. If they backed you at the start then they have a reason to want to make sure you are successful. If you are, they were smart and wise and did the right thing. They came in at the ground floor.
If you fail, there can be a sense of that reflecting on their judgement. It doesn’t have to be necessarily the case, but that commitment to your success can be something which creates value for you time and time again.
Big job
Crowdfunding isn’t a shortcut to get funded. Often people will ask about crowdfunding because they’re not sure where else they will go to raise money.
Just because it is obvious doesn’t mean that it is easy.
There’s so much to do before launching, and so much to manage while the campaign is live.
There’s a long task list, and this isn’t exhaustive:
You need to get your video (I could write pages on this alone)
Work out your rewards
Map out your social media campaigns
Prepare all of your written content
Create media assets
Plan press coverage and press releases
Form your company
Set your targets - for all stages
Consider the time of the campaign - when to launch and how long to run
Evaluate which platform to go with
Capture and share team information
Plan and share your data use policies
Get your insurances in place
Create a website
Consider the consequences if you overachieve
Consider the consequences if you underachieve
Assess and prove your ability to deliver
Create a project management plan
Map your competition
Plan your follow-up campaigns
Write your business plan
Open a business bank account
Line-up your initial backers (ideally at least 50%)
Work out the cost of delivering the rewards
Some of these things might not be immediately obvious, but there are a couple of good examples of why - for example - you might need a plan for what happens if you overachieve.
There was a campaign a few years ago for a drone called Zano which raised £2.3m but never delivered a single unit to any of their backers. A lot of breakout campaigns have led to similar disappointment for backers. You might think this would be a nice problem to have, but the evidence points to it being a curse.
Why would someone part with their money?
There are a few reasons to evidence value for money for potential investors. You might choose different platforms or approaches depending on which of these you think is what you’re offering and what your investors will want.
There are five things an investor or funder might get from investing in your business:
Cash
Coverage
Intellectual property
Product/service
Warm feeling
Cash is the simple Dragon’s Den formula. I give you £100,000 for 10% of your business and in five years time when your company is worth £10m my 10% is worth £1m, 10x the amount I invested.
There are other ways to get cash back if you’re a funder, it might be loan repayments, or you might buy them out.
Coverage is something that a sponsor, philanthropist, or trust might seek from making cash available to you. It might be naming them in a plaque on a wall, or mentioning them in a press release.
Intellectual property is the protection that your ideas have in order to secure the value of them. R&D funds will have IP generation as a clear goal or outcome, which gives a tangible asset to show for their investment.
Offering your audience exclusive, early access to your product or service can be enough of an incentive to get people to invest - but this is basically just commerce. The difference here is if you’re going down the route of crowdfunding and you’re asking for the faith of the investors that you’re good for the investment and will deliver.
Some, but really not many, will be happy to support you just for the warm fuzzy feeling in their heart. These will really only appear if you’re socially driven or in a clear niche that they’re interested in.
Other Storytelling Frameworks
One last bonus bit.
There are plenty of other good frameworks out there which you need to look into if you’re interested in this stuff. I’m not going to overshare here in order to encourage you to get those books on order.
The excellent “Made to Stick” by Dan and Chip Heath follows the SUCCES (sic) template of:
Simple
Unexpected
Concrete
Credible
Emotional
Stories
The book is exceptional, and gives stacks of great examples to go along with each of these lessons.
In Do Story, Bobette Buster shares 10 Principles of Storytelling. Three standouts are:
Setting the GPS: giving a place, time, conditions, context to make people feel the moment
Juxtapose two ideas that might collide uncomfortably
Let go: hand the story over, end it, and leave your audience wanting more, less is more
The downside to any of these frameworks is that they create an opportunity for exploitation. Stay savvy to when people are trying to manufacture a calling or candour to gain favour.
There was recently a great example of a sticky tape manufacturer who had changed all of their packaging to create the impression of making their product more environmentally responsible, but it was all just smoke and mirrors.
Influence by Robert Cialdini is a great read to improve your defences.
Are there other storytelling frameworks I should have on my list?
Read next…
Crowdfunding is more about the crowd than it is about the funding…
Telling Stories People Will Hear
Storytelling is an undervalued skill that can become a superpower…
In the world of coworking the art of doing good tours…
We need to talk more about the true meaning of life.