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8 Ways Crowdfunding Can Help Entrepreneurs

06.24.2013
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You have a dream. A goal. A vision. A labor of love. You have the tenacity to see it through, attract the right team of people to make it happen and the emotional support of those around you.

The only thing you don’t have is the bank account, to finance your payroll, your supplies and the macaroni and cheese you’re happy to eat while you’re building your dream.

When was the last time you were getting a loan from a bank for a start-up? Unless you have enough collateral to guarantee your loan, the bank’s doors are closed to you. Same goes for other investors, i.e. venture capital firms, private equity companies, etc. Everyone wants to see your track record and your sales for the past few years. What if you do not have any yet? And your reach uncle/father/mother/brother is not in the mood to give you the money? But you still have that urge, you are certain your concept will work, you are willing to pay the dues in the form of long working hours, no weekends, and living in your parent’s basement to prove to the world that your business will be a success. What is your best option to make your dream a reality?

The answer is crowdfunding. Here’s why:

1. You do not have to part with equity.

FunderHut is a rewards-based crowdfunding platform that allows project creators to provide Kudos (rewards) to your contributors. An example can be a gadget your business produces that you can offer as an early reward to your contributors before the product hits the shelves. Once the project creator receives his or her funds and sends out the Kudos to project contributors, he or she still maintains the same level of ownership as before.

2. This is not a loan.

There is no interest to be paid back, unlike debt financing. Just produce your product and send out your rewards to the backers who believe in you.

3. This is a great proof of concept.

This gives someone the ability to see who their early supporters are and who will most likely keep spending on future updates and releases. These people express the most interest among users. If the project is very popular, you can make more money than your initial goal (campaigns continue when they reach 100% funding if your end date hasn’t been reached). You can also receive valuable feedback from backers on ways to improve the product as well, because who knows what the general public wants better than the general public?

4. You are in control.

You have control of costs, timing, delivery, creative vision and execution, marketing and customer interactions. You have the ability to choose your budget, the amount of time you would like the project to run for, contributor Kudos, and where you wish to see your project go in the future. That also means that careful thought and consideration has to be put into your fundraising goals as well—don’t pick an end date further out than you need, you don’t want to suffer from project fatigue.

5. Your idea gains LOTS of exposure.

Due to the nature of the crowdfunding campaign, your product will be nationally and internationally exposed. Imagine how much it would cost to pay for that type of publicity? The more you update your backers, the better. Interaction is key, and the better you are at replying to comments, sending periodic updates, and utilizing your resources effectively, the more likely you are to reach your goal.

6. You receive instant and on-going feedback.

You have your first critics and endorsers while you are campaigning for funds. Some projects can become outrageously popular and can receive very high feedback, while others may receive some guidelines for improvements that may potentially save them large amounts of money in the future.

7. Your own fan club.

If you are running a crowdfunding campaign that your backers are passionate about, then they’re bound to help spread the word about your business. Think of them as your own public relations department, working within their network that you otherwise wouldn’t have had access to.

8. You are independent!

Your success will ultimately depend on yourself. We all wish funds would simply fall from the sky, but in reality, a successful campaign takes work and dedication, just like your business.

Crowdfunding is a great tool for businesses owners to publicly fundraise their growth and expansion. By offering your product or service as Kudos to your backers, you find a dedicated group of early supporters and receive valuable feedback prior to bringing your product to market. It is the new, disruptive, low-cost alternative way to start, grow, and fund your business.

Published at DZone with permission of its author, Dan Salganik.

(Note: Opinions expressed in this article and its replies are the opinions of their respective authors and not those of DZone, Inc.)