Crowdfunding for small business

2nd April 2014
Paul Bailey

How crowdfunding helps turn good ideas into great businesses. Some advice on why and how people contribute to crowdfunded projects.

(article first published on Enterprise Nation)

Crowdfunding has become a global phenomenon and has emerged as a practical, alternative financing vehicle for companies and individuals to realise their product or project.

It will not replace private financing, but will exist alongside it. But what might this mean for small businesses and business owners – how can you connect with potential contributors who might help you realise your project or product?

I recently conducted primary research on reward or donation model crowdfunding, specifically in relation to the contributors to projects. This model of crowdfunding – defined by a specific exchange of products or services (a ‘reward’) for contribution of an agreed financial amount – has become extremely popular, as exemplified by crowdfunding platforms such as Kickstarter and Crowdfunder. Importantly, this model does not offer equity or financial return on a financial contribution.

My research included selecting one crowdfunding platform (Kickstarter) and three specific projects from this platform as case studies (Pebble, OUYA, Dreadball), questioning not the companies but the contributors to projects themselves. My aim was to discover:

how people discover projects they contribute to?
what their motivations might be for contribution, do they go beyond a ‘purchase’ or transactional exchange?
how people understand the meaning and value in contributing to a project?
what might this mean for their relationship with and expectations of the company?

So what did I discover from the feedback of contributors that might give project creators an insight into why people contribute, and what this contribution means to contributors themselves and to their relationship with the company?

Ownership
The first significant finding is that there is a perceived ‘ownership’ of the project by contributors created by the enabling quality of their contribution. Contributors are very aware that without their contribution of financial capital prior to production the project would not exist. Their awareness of this sees a desire for them, and the importance of their contribution, to be valued by the company.

Shared purpose
The research findings also indicate that contributors, although wanting to receive the product or ‘reward’, see a value in developing an ongoing involvement with a project through a shared purpose. The purpose of the project is what contributors align themselves with and then share their support for with their personal network (such as their social media networks). It can also create the basis for a relationship, encourage contribution and help to create a community post-contribution. In the ‘consumerist’ economy people partly define themselves, or are defined, by what they consume. In the crowdfunding economy people define themselves by what they contribute to, and therefore what they enable to be produced.

Support
Another significant finding in the research was the importance of networks and the ‘network society’. The research findings indicate that predominantly contributors do not discover projects through company ‘marketing’ channels but through non-company sources, such as blogs or personal network, following which most people subsequently share this contribution with their personal network. It is this sharing of support for the project with their personal network which is a clear example of how their contribution is not only financial but is also social.

Involved
The research findings also indicate the importance of authenticity of purpose and transparency of actions. Contributors want to be involved, demanding a degree of transparency throughout the process, but also want to know that the company is authentic about its goals and purpose. One of the most important findings from this research is the realisation that the biggest benefit of crowdfunding is not the ability to raise funds from a crowd, but to discover that there is a crowd wanting to participate at all. We could say that the emphasis should be placed on the crowd rather than the funding in crowdfunding.

Market
When considering the ‘consumerist’ economy we might talk of a ‘market’ for products, a market of alike competitors. However, these research findings suggest that in the crowdfunding economy the market of alike competitors and products may be of less importance. As indicated by the considerable number of people first discovering projects on Kickstarter to which they then contribute, the ‘market’ seems to include all other projects on the crowdfunding platform.

Enabling
Crowdfinding primarily exists within the ‘networked society’ and at its core is enabling. Financially enabling the realisation of a project and socially enabling the development of a shared purpose, meaning and identity. The motivations for contribution go beyond the transactional exchange of contribution of financial capital for agreed ‘reward’. The fact that their contribution of essential capital enables the production of the project means that contributors consider themselves an essential part of the project, and that the company is indebted to them.

If you can be aware of these findings from contributors when creating and developing your crowdfunded project then this may prove a viable route to financing and realising your project. Not only that but as well as the financial funding crowdfunding can also show you that there is an audience for your project before you invest your time and money into production.

Image © Enterprise Nation

There is a perceived ‘ownership’ of the project by contributors created by the enabling quality of their contribution.

The purpose of the project is what contributors align themselves with and then share their support for with their personal network.

Contributors want to be involved, demanding a degree of transparency throughout the process, but also want to know that the company is authentic about its goals and purpose.