Do you want a quick infusion of cash and an invaluable social presence? Then why aren't you crowdfunding just yet?
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It's no secret that solo preneurs can struggle to get funding. Despite having more ways than ever to reach customers through e-commerce and social marketing, the wallet is still the most popular way to get seed money. According to a 2020 survey by Guidant Financial, 37 percent of small business owners use personal money to start a business. Unsurprisingly, their biggest challenge is the lack of capital / cash flow.
The pandemic is also throwing a wrench into entrepreneurs' funding plans. According to the U.S. Chamber of Commerce, 26 percent of small businesses (SMBs) have asked customers for money or set up crowdfunding websites. That may seem high, but keep in mind that one in five SMEs says they are two months or less away from permanent closure due to the current recession. According to a recent survey by the National Bureau of Economic Research, more than 100,000 SMEs have gone bankrupt since the economy closed.
Let's look at four key ways you can benefit from crowdfunding.
Related: 5 Tips For Crowdfunding During The Pandemic
1. Easily get start-up capital from supporters
SMBs have loan options from the federal government through the CARES act, but for solo preneurs starting a startup in this economy, crowdfunding through Kickstarter or Indiegogo is another option.
The average small business needs $ 10,000 start-up capital and a third starts with less than $ 5,000. The main benefit of crowdfunding is the ability to raise seed capital, especially in uncertain market conditions. Second, it makes it easier to fundraise as entrepreneurs simply go online and let backers know about the concept, business plan, and product features before mass production. Many lenders and investors want a proven track record before financing a startup. For many solo preneurs this is simply not possible.
2. Keep your ownership share
When consumers and micro-investors see many individuals supporting a project, they are more inclined to open their checkbook and support you. Unlike venture capital, Kickstarter lets you raise seed capital and / or fund a prototype without sacrificing ownership or shares. With no transfer of ownership, you retain maximum flexibility in designing and manufacturing the features that best meet the needs of future buyers.
You don't have to give in to pressure from other shareholders who later disagree with a business plan. If you keep 100 percent of your business, product or invention, you also leave room for future financing rounds, in which part of the ownership interests must be given up. After all, people love to support successful ideas and entrepreneurs, and Kickstarter campaigns bring the power of social evidence. Innovative ideas that do not currently exist on the market can be published in the press for free.
3. Receive early feedback so that you can optimize designs and features
It's less risky for a business owner to know they have a few hundred (or thousands) first-time buyers before making a product. An entrepreneur does not need to invest too much capital in inventory as there may be uncertainty about demand.
In the prototype phase, supporters provide valuable feedback on the advantages and disadvantages of the product. Business owners need to listen carefully to which features should be emphasized and which should be eliminated. Inability to listen could break your business. The customer's voice should make most, if not all, design and manufacturing decisions. This early evaluation process can be a measure of how successful your start can be. Audience receptivity can validate your project at this early stage.
4. Get free social awareness
After all, most early supporters and investors will be happy to promote and share your products and offers on a social and mobile level. So, if you've raised donations from 200 people, you will likely reach thousands of people by the time you bring the first product to market. This type of social proof gives your startup much-needed credibility in a crowded marketplace.
Crowdfunding is often necessary because the recession has made it difficult for solo preneurs, gig workers, and professionals to dive into personal savings for seed capital. The best thing to do when running a Kickstarter campaign is to make it known that you have a co-founder as well as other founding team members who have unique skills. Startups with two co-founders (compared to just one founder) raise 30 percent more capital, according to the financial company Fundera.
See Also: 3 Non-Profit Funding Options All Founders Should Know About
Financial backers should give you additional motivation and energy to be successful. They believe in you and your plan. Entrepreneurs must therefore deliver the rewards of the supporters on time. You should also create a finished product that takes customer feedback into account. If you listen to the customer, you can meet and exceed expectations.