Skip to main content

How Crowdfunding Solves Business Problems

The items below are from an article on what causes small business failures. I have repurposed it to show how crowdfunding addresses these issues and how we use these factors in evaluating potential crowdfunding campaigns.

"Inadequate Financing"

Clearly, crowdfunding addresses this issue.

"Amount of Effort Exerted: The single most important factor in determining who succeeds and who doesn't is simply the amount of effort exerted. If you aren't ready and willing to work - and work hard - being an entrepreneur is probably not for you."

While we don't believe that effort expended is the single most important factor, crowdfunding is hard. If you will not work hard on it, and work smart, then you will not do well.

"Lack of Planning: Another fact rarely considered is that the majority of new businesses fail within a few years mostly due simply to poor planning or no planning at all."

You have to plan your crowdfunding campaign. As noted above, it is hard work, but it will help in planning your overall business strategy. 

"Inability to Commit: Even though most people would like to start their own business, only a small percentage actually do it. When push comes to shove, most lack the self-confidence to make a decision and act on it. In order for the business to succeed, they must be able to gather information, weigh the facts and then make a prompt decision."

You must do all of this in creating, launching and managing a crowdfunding campaign.

"Unrealistic Expectations: Many individuals assume not only that most businesses succeed, but that they're lucrative from the get-go. This is definitely not the case."

The results of your crowdfunding campaign helps set expectations, with feedback directly from the marketplace.  

"Unwillingness to Take Responsibility: A business owner is 100 percent responsible for his or her mistakes. There's always a risk of a business failure or less-than-expected financial return. If that should happen to you, you can't blame it on someone else."

Same thing with a crowdfunding campaign. It's all you, even if you have a team or consultants. 

Summary

We reject many potential crowdfunders because they are not willing to work hard, have unrealistic expectations, cannot fully commit to the campaign (and the time/effort it will take), have not done the planning, are unwilling to do the planning, and seem like they are looking for someone to pin the blame on if they fail. Our answer: Thank you, but, not us.

Comments

Popular posts from this blog

Crowdfunding Accounting 101 - Revenue Recognition in Crowdfunding

A start-up using crowd funding to create a product is different from a normal company. The start-up has cash inflows from donations but does not have a product, yet. In this situation, we recommend using completed-contract method to recognize revenue. Under this way of thinking, we assume the start-up is akin to a project or a long-term contract. The crowdfunding company will find it difficult to estimate the revenue from crowdfunders and, hence, the cost of rewards or perks. Under International Financial Reporting Standards (IFRS) and GAAP guidelines, if the firm cannot reliably measure the outcome of the project, revenue should be recognized based on contract costs. These costs should be expensed when incurred. Profit is recognized only at the completion of the project. In summary, for crowdfunding companies, revenue, expense, and profit are recognized only when the crowdfunded product is actually manufactured. 1 For example, assume that AAA Corp. wants to manufacture bicyc...

Top 50 Crowdfunding Campaigns: Fifty Most Successful Crowdfunding Campaigns

  Top 50 Crowdfunding Campaigns: Fifty Most Successful Crowdfunding Campaigns Kindle Edition https://www.amazon.com/gp/product/B00RKK4NL0/ref=dbs_a_def_rwt_bibl_vppi_i0

Top 50 Crowdfunding Campaigns

The chart below results from an analysis of the Top 50 crowdfunding campaigns on Indiegogo, 'Top' measured by total dollars raised. The X axis shows the dollar amount of the reward or  perk ($1 to $10, $11 to $20, etc.) The Y axis shows the cumulative number of rewards/perks collected across all 50 campaigns, so the chart shows that, for the top 50 crowdfunding campaigns on Indiegogo, 100,000 rewards/perks with a  value ranging from $1 dollar to $10 dollars were selected by supporters.  Normally, we might expect this chart to be convex, declining steadily from $1 to $5000. This is not what we see, however. It seems that people are willing to donate small dollar amounts, up to about $50, and then contributors look to donate at least $100. What's going on here? To explain this phenomenon, classify backers into two categories: 1. The first category are people who simply want to help. They donate less than $50 dollars and do not donate for the reward (normally a T-shi...