When it comes to securing capital for your next product launch, the sky’s the limit these days thanks to the new world of crowdfunding.
Crowdfunding websites – there are around 600 worldwide, according to the research firm Massolution – help companies raise money for their products or services without the need for a whole lot of upfront cash.
Many firms are using fundraising websites like Kickstarter and Indiegogo to secure donations in exchange for specific rewards including a free product or maybe even having the chance to offer input into the design of the product or service.
But it’s not as simple as throwing a project up on a crowdfunding site and waiting for the money to roll in.
There’s prep time involved. You have to figure out the right strategies to help ensure the success of your project; find out what has worked – and what hasn’t – for other companies in the past. Put the word out via press releases, social media, and a slew of other campaign-related marketing avenues.
You have to create a video with a compelling story; reach other to key journalists in your industry and convince them to help you get the word out; add some paid advertising to the mix; send emails to key contacts – and a hundred and one other tasks I haven’t mentioned.
So how do you know if crowdfunding is the way to go for your next product launch?
To help you answer that question, I decided to talk to a couple people who have been involved with successful crowdfundign campaigns.
One of those people is Adam Saraceno, chief marketing officer at Peak Design, a San Francisco-based crowdfunded outdoor photography gear company. The company has built its business on the more than $2 million it has raised with four Kickstarter campaigns in the past four years.
“We use Kickstarter, which is the most popular crowdfunding platform in the world, to do all of our major project launches,” Saraceno said. “It’s the key growth engine for our business.”
There are a number of big pros to using Kickstarter, or crowdfunding in general, he said.
“The first is that it eliminates a lot of the traditional risks or barriers to entry when you’re in a product-based business and you make a hard good that needs to be manufactured,” Saraceno said. “When we were starting out, we used crowdfunding to generate thousands of pre-orders of a product before we actually had the product made. You generate all those pre-orders and then you have the money you need to make your initial production run. You know how much to make and you’re guaranteed that those products are going to sell and you don’t run the risk of having a flop.”
From a marketing standpoint, crowdfunding enables Peak Design to reach more potential customers who share the company’s passion – and are passionate about – photography and the outdoors, he added.
“We do activities on the side to boost the visibility of our Kickstarter campaign but just by having a Kickstarter campaign, it makes your product much more visible than many other means of marketing and promotion,” Saraceno said.
The reason: So many eyeballs are on Kickstarter because so many blogs and media sources go to Kickstarter for content to post.
“If you’re a photography blog and there’s a new photography Kickstarter out there, that might be something that you’re going to post,” he said. “Kickstarter is the source of posts and stories for lots of media and lots of bloggers. There’s also millions of people who are Kickstarter backers for other projects who are logging in to see what’s up.”
For example, Peak Design launched it’s first Kickstarter campaign for the Capture Camera Clip System in May 2011. Initially, CEO and founder Peter Dering sent out an email to about 500 people and within three days Gizmodo picked up on the news. And from there it exploded, Saraceno said.
At the time, the project became the second-most funded project in the funding platform’s history with $364,698 pledged by 5,258 backers.
“We have over 5,000 original backers who are really passionate about our product and have been there since the beginning,” he said. “We just finished a project where we had over nine thousand people back us and easily five thousand of those people were previous backers.”
Saraceno said Peak Design uses crowdfunding as a business model.
“We go back to those people who supported us in the beginning and tell them about our new product,” he said. “And they continue to support us. So it has a cyclical nature – at least the way we’re using it.”
As for the downsides, Saraceno said there are “perceived” downsides.
“There are certainly criticisms or stigmas to crowdfunding on Kickstarter,” he said. “I think those derive from the notable failures on Kickstarter. There have been projects that have raised a bunch of money and then really under delivered – either sent out crappy products or have taken two years to fulfill their obligations.”
The bottom line is that you have to take the good with the bad.
“The good is that it opens up the doors for people and companies with great ideas to bring great, new, innovative, interesting products to the market that previously would have had no chance,” Saraceno said. “The bad is that a lot of these people may have great ideas and be great designers, but they may not know a whole lot about manufacturing and fulfillment, logistics, shipping and they underestimate the time and costs of [all those things].”
Crowdfunding works best for companies that have a product that is a consumable hard good like Peak Design’s photography gear, he said.
“It also works well for art installations, art projects, music – really creative endeavors,” Saraceno said. “Basically, you need to have a deliverable of some sort. Although I see larger companies using crowdfunding, it’s definitely more associated with startups.”
“With Sabertron, swordsmen and swordswomen will be able to have sword fights with swords that keep score electronically, without any additional equipment,” according to the company.
Earlier this year, Sabertron’s inventor launched a Kickstarter only to fall short of its $195,000 goal, while still raising a respectable $55,527 from 487 backers.
Several months later, the Sabertron team launched on Kickstarter – again. That time it reached its funding level of $233,852 with 1,318 backers on June 14.
The difference – a marketing person, an ad agency and an amazing video.
Putnam said Sabertron hired him to run the marketing campaign. The company also hooked up with an advertising agency that created a video. Sabertron’s Kickstarter video was touted by many viewers as “the best Kickstarter video ever.”
“Having a marketing person and an ad agency on board the second time around made a really big difference,” he said. “The first time, Sabertron expected the product and the project on its own to take off and then the Kickstarter community would cause everything to blow up.”
But that didn’t happen.
Putnam said companies should build awareness and build their audiences first before launching their crowdfunding campaigns.
“That’s what’s preached in the Kickstarter community,” he said. “You build your audience. You set up a landing page and say something like ‘Coming soon, Sabertron swords. You’ll be able to back us on Kickstarter.’ And maybe just have an email sign up for it. There’s some intrigue and you’ve created some curiosity around it. Or you could run a contest for a free sword. So when you launch the Kickstarter campaign, you have a 10,000-person email list, a 50,000-person email list, a 100,000-person email list. That will go a long way in helping your campaign, building your audience and getting the word out.”
If you plan to launch a crowdfunding campaign, you should do your homework and keep what these guys said in mind.