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How to use crowdfunding for business: Examples and benefits

Now that the likes of Kickstarter and Indiegogo have the attention of big business, raising money isn't the only reason to use crowdfunding for your small business idea, says SearchCIO columnist, Bryan Barringer.

Recently I wrote a piece on how to gain funding for your business concept. Among the options were private equity, venture capital and Angel investment. Additionally, crowdfunding was detailed as a new and viable alternative. Having spent over two decades as a serial entrepreneur in need of money to start businesses, I can say without a doubt, I LOVE CROWDFUNDING! Call it love at first sight.

Believe it or not, the crowdfunding finance method has been around at least since the 17th century. Yet the phenomenon we think of as crowdfunding today -- driven by the likes of Kickstarter, Indiegogo, GoFundMe and Booster -- is just a few years old, and the ability to successfully use these platforms to raise anywhere from a few bucks to millions of dollars, I would say, is even newer. Crowdfunding for business is an entrepreneur's dream come true. 

Let me give you some practical examples.

Say you have a nonprofit organization and are looking for a means to fund a charitable project through donations; you traditionally would have to take a "hat-in-hand" approach in your local community. With options like GoFundMe, Booster or YouCaring, you can reach a much larger audience. These solutions are mostly targeted toward charitable contributions with no strings attached for the organization raising the money. Unlike some other crowdfunding options, these services do not require you to set a goal and meet that goal, or else not receive any funding. Plus, there typically are no fees applied to the donations and no limit on how much you can raise. Hundreds of millions of dollars have been donated to charitable projects like ALS research, memorial scholarships and even to cover hospital bills so far. Plus there is a ready audience for your requests. There are already massive numbers of potential charitable contributors frequently visiting these sites to see what they may want to support next.

Big business trawls crowdfunding sites for acquisitions

From a different perspective, let's say you are launching a business based on a new concept or technology. Crowdfunding is a great way to get your idea out of the garage and into the public view. Take, for example, the inventor of the Coolest Cooler, Ryan Grepper. Here is a guy who had an idea to cram a phone charger, Bluetooth speaker and a blender (yes, a blender) into a cooler to make it the ultimate solution for any outdoor adventure. Just include a battery, some rigged wheels and handle and Bam! Now you do have, hands down, the coolest cooler in the world.

Just a couple of years ago, like-minded inventors would have been tearing apart Igloo and Coleman coolers in a garage to build such a thing and then wheeling it around to convince anyone who pretended to listen that it's something they needed. Now, with a slick Kickstarter campaign, Mr. Grepper gets some quick traction with press releases and search engine marketing and in 60 days raises over $13 million dollars from pledges made by 62,642 backers. As noted in my previous column on funding, the punch line to Mr. Grepper's story is that the $13 million jackpot was his second attempt at raising money for the Coolest Cooler. An earlier attempt had stalled at $100,000. He rejiggered his campaign and, lo and behold, Kickstarter delivered a new crowd of funders.

With this kind of notoriety, crowdfunding has attracted the attention of big businesses. Innovation in technology is a big deal for large companies, yet it is often difficult to fund such efforts internally. Or conversely, companies will spend millions of dollars on R&D with little hope of significant return on that investment. Many companies now are looking closely at these crowdfunding sites to identify acquisition targets -- or good ideas -- that will help them leapfrog in to new territory and markets. Take for example, Facebook and Oculus Rift (virtual reality headset). Oculus needed $250,000 to finish the development of its virtual reality device. Not only did it raise over $2 million through crowdfunding, but at the same time, it drew an offer from Facebook to buy the whole shebang for $2 billion.

So here is my advice. Figure out what you want to fund/create/sell and what money you will need to make this happen. Then, before you start asking select individuals for big dollars, put your idea on one of the crowdfunding sites. Make sure you look at successful and failed attempts at crowdfunding for business to learn how best to put forth a polished campaign. Once you launch the campaign, work on it daily and get the word out however possible. At worst, you will have a new perspective on how to better market your product. And if you can make these changes, try launching it again as there is no limit on how many times you can make an attempt through crowdfunding.

About the author:
When he's not starting new businesses and advising on how to use crowdfunding, Bryan Barringer is an independent enterprise mobility consultant and speaker, specializing in mobility, user adoption, UX/UI design, customer acquisition, product design/management and strategy and business development. Most recently at FedEx, he was in charge of evaluating mobile solutions for operations and sales professionals and leading FedEx Services' Office of Mobility and Collaboration.

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