10 things to consider before crowdfunding your product business
At a recent Indiegogo workshop, four experts in the start-up space shared their insights on how businesses can prepare their crowdfunding campaign
If you’ve got a great idea, prototype or product, then turning to crowdfunding for finance and added exposure can seem a very attractive option indeed.
However, businesses with a ‘hang it up and hope’ attitude won’t see their campaign page generate much attention or investment.
No longer a niche form of raising capital, crowdfunding has now become the norm – particularly among hardware tech start-ups, but there’s more to planning than just prepping your page.
With customers pledging donations from across the globe, you’ll need to work out exactly how you’re going to get your product from you, to them.
Thankfully, at a recent Indiegogo workshop, four experts sat down with Indiegogo’s UK and European director Joel Hughes to discuss what start-ups should consider before launching their crowdfunding campaign…
Don’t be scared to take on the big boys!
For many aspiring entrepreneurs, successfully launching and growing a hardware start-up may seem a tough ask – considering the multiple corporate giants who’ll stand in your way as competitors.
Mat Hunter, managing director at hardware accelerator Central Research Laboratory, says that while consumer products have traditionally been made by multi-nationals with extensive R&D budgets, there’s no reason why smaller start-ups can’t compete – and raise finance.
“If software start-ups can make amazing apps that challenge the likes of Adobe, then why can’t we make amazing bits of hardware that challenge Samsung?”
Deliver a minimum viable product (MVP) first
However, while Hunter urges hardware start-ups to dream big, he says it’s important that entrepreneurs keep their feet on the ground or risk running out of money before they start.
Instead, start-ups should seek to produce a minimum viable product (MVP) first time round – and try and conquer bigger aspirations once they’ve got some success under their belts.
Above all else, make sure you actually get a working product into your backers’ hands.
“It’s a balance between ambition, ability and knowledge. One of the first challenges is that you set your bar too high. There is a balance between your ultimate ambition, what you’re in business for, and deciding how many steps you’re going to take to reach that vision.
“I think typically people aim for too big a step in the first round. It’s that level of ambition combined with [a lack of] knowledge and ability where there’s a mismatch.”
Be realistic about what can be achieved with the money
Helping start-ups achieve growth at a fast, yet viable, pace – Hunter says that even raising a substantial amount of money via crowdfunding is still no guarantee of success – if you don’t know how to manage it properly.
“What happens is that it takes you much longer than you imagined to do things, and therefore requires much more money. So the first place people fall over is when they go bust before they’ve even started or reached the market.
“I got a call last week from someone I was going to give €90 to. They’d raised €850,000 to make an induction-based kettle. They blew through the €850,000 in two years and they just folded. This is not malicious, they didn’t want to cause problems. It’s just that they didn’t know.”
His advice for hardware start-ups prior to launching their product? Learn how to control your ambition and don’t take on too much of a challenge.
“An ambition that you think is normal but really it’s huge, that distance that you need to travel may be more than you think. It takes too much money and time, and even if you have successfully crowdfunded, you never make it till the end.”
Get yourself a mentor who has been there before
When attempting to raise your first round of finance, your business will naturally be entering new territory – and you may find yourself in need of some good guidance and advice.
A serial entrepreneur, investor and advisor, Stuart Hillston cannot stress the importance of gaining good mentoring enough.
Keen to support start-ups and ensure they are suitably prepared to meet and do business with investors, he admits it’s not an attitude shared by everyone in the industry – and that start-ups need to surround themselves with people who will genuinely help them.
“My first employer took great delight in screwing business owners. Creative people who manage products need help. They need someone on their side to say ‘That investor is toxic. Stay away’.”
Build a community of fans around your concept
Indeed, Hillston suggests that business owners who might feel slightly isolated in the investment scene should seek to build a strong following of fans who’ll not just invest – but also engage with the brand as a whole.
“It’s all about the community you build around your product. Community is vital to your success and the ability to reach out to your community globally will give you enormous value.”
For Hillston, failure to do so can lead to one of businesses biggest disappointments. “You build a fantastic website and you look at your visitor stats and it’s two a day. You’re doing all the social media you can possibly do – and then it goes up to three a day!
“If I build it they will come? Well, they don’t. So, find a way to build a community and at the same time, get some funding into your project.”
Understand that investors back businesses – not products!
His tip for entrepreneurs coming face-to face with potential investors? Remember what they’re interested in – and it’s not you!
“One of the things you find with start-ups is that they’re so proud of their product that they forget that investors invest in businesses not products. What we want to know [about your product] is how are you going to sell it? Who is going to buy it? How much are they willing to pay for it? Focus on your value proposition. People don’t buy features, they buy benefits.”
Run a PR campaign in tandem
With crowdfunding now very much the norm for start-ups, you can’t expect your campaign page to receive much attention if you don’t put in effort to promote it.
Michael Raven, founder of Blazon PR, says that few start-ups ever hit their crowdfunding target unless their use the services of a PR company.
“Companies mainly fail with a lack of pre-campaign. A lot of businesses when they delve into the world of crowdfunding initially think they can put their campaign on and it will immediately raise £100,000 without any previous work done. The trick is to concentrate so much on your pre-campaign that you’re ready to by the time your campaign launches.”
Mimic the marketing of successful campaigns
However, with a plethora of PR companies out there, who should your start-up approach, and ultimately pay, to help get your campaign off the ground?
Raven says that start-ups should seek out both tried and trusted companies and campaigns that have worked before.
“Research as many successful campaigns as possible and try to mimic the successful ones. You start with an already defined audience and a defined market that they’ve [PR company] worked with in the past.”
Not just relying on PR’s to do all the work, Raven also suggests business owners can take their own steps to attract attention prior to campaign launch.
“Do a lot of pre-campaign advertising on Facebook to get email subscribers in your mail list, so that on day one you’re already hitting the ground running and can hit your goal in the first 24 or 48 hours.”
Calculate the cost of your supply chain asap
One of the most essential elements of running a product-based business, but overlooked by many start-ups too excited about their product, the importance of planning the logistics of shipping your product cannot be underestimated.
Tony Leach, chain product manager, at Horizon International Cargo, says that calculating the cost of your supply chain as soon as possible is vital in order to meet customer expectations.
“If you understand what the cost of the supply chain is, if you understand what the cost of putting your product in consumers’ hands is, country by country, you have the full picture.”
He advises start-ups to scan their order profile and see where the most amount of pledges come from, work out product value (as this will influence packaging) and maintain strict margin management.
Get to grips with the rules and regulations for shipping
While your start-up will be based in the UK, crowdfunding will offer the chance for consumers from all over the globe the chance to purchase your product. It’s important that you keep abreast of all the latest rules and regulations that will differ country by country and region by region.
“The devil really is the detail. Right down to things such as email addresses. If you’re shipping out of Hong Kong directly to Australia and haven’t got the customer’s email address and telephone number, FedEx wont collect it.”
For Leach, the considerations are almost endless and include everything from customs compliance, duty costs, inventory licensing and insurance, to fulfilment hubs, after-sale care and courier tracking.
Like all experts, Leach has many horror stories of start-ups who just didn’t think the logistic side of things through.
“We were talking to a start-up recently who packaged their product because it aesthetically looked nice. It was a cube. Cubes don’t fit through letter boxes. If you’re air freighting cubes, they build up to a large volume and it’s going to cost you a lot more.”