Small Business

Crowdfunding: More Than a Financial Flea Market

Crowdfunding is a game changer, no matter what industry you're in. How to build a supportive community of fans, investors and customers for your business

Written by Rick Spence

After decades of trudging through the barren landscape of love money, bank loans and venture capital, Canadian entrepreneurs now can tap a funding source that lets them leverage their creativity in business and product design instead of financial projections. This makes crowdfunding a genuine game-changer. Many scowling cynics dismiss it as a financial flea market—and it’s true that’s how the movement started. But entrepreneurs aren’t supposed to see things as they are. They must see them as they will be. Crowdfunding could be a catalyst for capital, community building and business growth in every industry. While the significance of this fundraising method is largely limited today to businesses in IT and the creative arts, the phenomenon is quickly spreading to other niches.

Read: 3 Hidden Dangers of Crowdfunding

Crowdfunding connects people and projects that need funding with a natural community of sympathizers. Tech-savvy early adopters flock to Kickstarter, Indiegogo and similar sites to help to finance cutting-edge health monitors, smartwatches and 3D printers. Culture vultures ante up to support their favourite musicians, video artists and gourmet cooks. A few local crowdfunding sites, such as iFundWaterloo.ca, even leverage existing constituencies to promote municipal projects that taxpayers can’t afford.

You can currently find niche crowdfunding sites for board-game development (MyWittyGames.com), manufactured goods (crowdsupply.com), real estate investment (realtymogul.com) and natural resources exploration (explorationfunder.com, with industry experts “curating” each opportunity). Your industry may be next.

Read: Online clothing community Betabrand’s recent crowdfunding success, dress yoga pants

So far, most mainstream businesses have been shut out because their natural fan bases—customers, suppliers and partners— don’t think of themselves as communities. But once entrepreneurs figure out how to connect their audiences around their firms, everyone from B2B service providers to manufacturers and transportation companies can start drawing cash from the crowd.

Crowdfunding currently is associated with startups—but that will change, too. Scores of unknown filmmakers regularly raise $10,000 to get new projects off the ground, but when the cast and crew of cult favourite TV show Veronica Mars launched a Kickstarter campaign to produce a reunion movie, they raised US$5.7 million—well above their goal of US$2 million—from more than 91,000 backers. In the crowdfunding sphere, ventures with built-in communities will leave startups in their dust.

For now, most backers receive “rewards” for their investments (usually product samples and exclusive perks). Securities laws designed to protect investors have largely prevented the crowd from getting equity for their financial contributions. But this past autumn, the U.S. Securities and Exchange Commission gave equity crowd funding the green light for up to US$1 million a year for U.S. issuers. The Ontario Securities Commission (along with its other provincial counterparts) is deliberating how to follow suit.

In a way, crowdfunding lowers the bar for companies looking to raise money. Instead of targeting flinty-eyed investors interested only in finding the best growth opportunities among a range of industries, vertical crowdfunding attracts people who specifically care about your organization and what it does. “With more than 800 crowdfunding platforms worldwide, and more being announced each week, we are certainly seeing increasing specialization,” says Christopher Charlesworth, co-founder of Toronto-based crowdfunding platform developer Hivewire Inc. Hivewire’s own crowdfunding business, Catalyst, focuses on social innovation, and Charlesworth has seen other highly specialized platforms gain market traction, such as New York€“based Medstartr.com, which drives innovation in health care. “Provided that regulators allow for a broad base of market participants,” says Charlesworth, “we will increasingly see crowdfunding platforms find new niches and communities to support.”

To help these niche financing markets evolve, entrepreneurs need to build supportive communities, which in time can become a funding resource. If you’ve always wondered about the point of social media, now you know: Twitter, Facebook, Pinterest and LinkedIn can help you build that community. Customers, end-users, suppliers, industry partners, employees, alumni and job seekers are all part of your ecosystem. Through social media, you tell stories that engage these supporters in your objectives and challenges. By crowdfunding new projects, they can become part of the solution. “We’re living in a world that’s open and collaborative,” notes Craig Asano, executive director of the National Crowdfunding Association of Canada. B2B and vertical crowdfunding sites are essential in encouraging such industry collaboration and growth.

Listen: An interview with National Crowdfunding Association board advisor Murray McKercher

Even if you don’t need cash now, you might consider crowdfunding for your next big initiative. By engaging industry partners in advance, you can raise awareness of your project early and invite informed feedback. The software sector has demonstrated the value of agile, rapid product iteration. With crowdfunding, you can start harvesting suggestions from the get-go. When you find your customers investing in your next innovation, you’ll know you’re on the right track. In this way, says Charlesworth, “crowdfunding is reshaping the traditional company and consumer relationship.”

How do you build this supportive network? Make your firm truly social. Engage with your industry and your customers through blogs, email newsletters and surveys. Host industry events; even invite your competitors to participate, when appropriate. Leaders rise above petty jealousies when they’re building a community. Treat your supply chain as a network of partners by adopting a joint approach to fixing bottlenecks and other shared challenges. Take an active interest in the hurdles facing your customers and suppliers, and they will take more interest in yours.

Crowdfunding is no flea market. It’s the next big step in the emerging “sharing economy.” And you can lead the charge.

Rick Spence is a Toronto-based consultant and blogger on the subjects of entrepreneurial marketing, strategy and business growth.

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Originally appeared on PROFITguide.com
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