Why Crowdfunding Campaigns Fail and What Can Be Done to Avoid It

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In this article, we explore 1) an introduction to crowdfunding, 2) why do crowdfunding campaigns fail and 3) what can be done to avoid your crowdfunding campaign to fail.

INTRODUCTION TO CROWDFUNDING

1) What is crowdfunding?

Crowdfunding is a process of fund collection where money is typically collected from a large number of contributors via the internet. The crowdfunding process usually has three components:

  • The idea: There is always a core idea or motive behind a project. The idea is proposed by the initiators or owners of the project to the contributors.
  • The contributors: Contributors are the group of people who come together on a unique platform to fund a project.
  • The platform: The platform is the regulating mechanism that brings together the initiators and the contributors. It is usually the crowdfunding website.

2) Advantages of crowdfunding

The crowdfunding process, if executed impeccably, presents a lot of advantages:

  • It costs nothing! Crowdfunding is the perfect answer for budding entrepreneurs like you who cannot afford to set aside huge sums for advertising and promotion.
  • It provides a ready source of funds or capital. It frees you from the hassles of having to approach banks or other financial institutions and clear a lot of complicated formalities to solicit funds.
  • It reduces the risk of potential losses. In a crowdfunded project, losses are hedged.
  • It results in an organized internet marketing mechanism. Marketing comes automatically as an important side product of crowdfunding.
  • It brings in credibility to the project from an early stage. Crowdfunding being utterly transparent allows for investors to track the progress at every stage of the project.
  • It facilitates a practically endless flow of ideas from investors and the public. Since investors have a say in every phase of development, the flow of ideas and constructive inputs is a given in crowdfunding projects.
  • It creates a reliable customer base. Due to the immense visibility of the crowdfunded project on the internet, your project can automatically generate a lot of interest, not only among potential investors, but also among potential customers.

3) Crowdfunding platforms

There is a multitude of websites dedicated to the cause of crowdfunding projects you can use. Some renowned sites are:

4) Crowdfunding success stories

Some highly successful crowdfunded projects are:

  1. Star Citizen (Video game): Earmarked with a $500,000 budget on Kickstarter, Star Citizen managed to rake up USD 83 million! The brainchild of game designer and programmer, Chris Roberts, the game holds the Guinness World Record for being the largest crowdfunded project across all genres and platforms.
  2. Pebble Time (Smartwatch): Another successful Kickstarter project, Pebble Time brought in USD 20 million against a $500,000 campaign target.
  3. Ethereum (Cryptocurrency): A Bitcoin project, Ethereum is a type of cryptocurrency and secure contract programming language. It raised a total fund of over USD 18 million.
  4. Coolest Cooler (Portable cooler): With a target of only $50,000, this little USB-powered cooler raked in a humongous USD 13 million!

WHY DO CROWDFUNDING CAMPAIGNS FAIL?

Although a lot of time, effort and money goes into a project, it doesn’t always return expected results. Often, the reason for the failure of a crowdfunding project is a disastrous campaign.

After analyzing a whole host of successful and failed crowdfunding projects, we are able to classify broadly the grounds for failure of a campaign. They are as follows:

1) Campaign is not unique

One of the main reasons for the failure of a campaign is the lack of a competitive edge. Competition arises when the product or service offered is not unique. It is a very difficult proposition to sell an idea that isn’t idiosyncratic, and convince investors to invest their hard-earned money in a product that is unable to justify its advantages over its competitors.

2) Campaign is poorly prepared and organized

A lot of preparation is essential for a successful campaign. A lot of time and effort needs to be invested in the campaign. A successful project mandates that the several months worth of meticulous networking be set aside even before the campaign is launched. A poorly prepared campaign is a recipe for disaster. Also, you can never afford to launch a campaign and then sit back and try to automate it – that’s never going to happen. A campaign is never just a day’s work – you will need to be constantly in touch with your campaign and always be available to tweak it to your advantage whenever the necessity or opportunity comes. A campaign fails when:

  • Not enough time is invested: Time is of great essence to any successful campaign. When you prepare a project, you would need to dedicate enough time for its planning and its promotion. Without a meticulous plan that looks ahead, the project is doomed for failure.
  • The message of the campaign is not consistent: Unless the core idea is well-defined, it would not be possible to have all the people involved on the board. Without clear goals and clear-cut strategies to achieve them, investors will be in the dark about what the target is. Without proper communication, investors may bank upon unrealistic objectives that will lead to conflicts later on.
  • No video is included: In a successful campaign, the prerequisite of having a video is a given. Without a meaningful video that clearly illustrates the vision of the entrepreneur(s), a campaign cannot hope to succeed. A well-made video not only describes how you aim to go about your project, but also exemplifies why you are going for that project at all. The video has to be persuasive and should lend itself to being shared on multiple platforms. It should be long enough to include all core messages, however short enough to retain interest. It should have clear audio and should include on-screen captions wherever necessary to aid in understanding.
  • Campaign is too complicated: When it comes to an advertising campaign, it is the best bet to have things simple and sweet. Too many complications in the campaign will result in drastic narrowing down of the target audience, and you will end up losing many prospective investors just because your campaign was too tricky for them to comprehend.
  • Campaign is targeting the wrong crowd: It is essential for you as an entrepreneur to have the backing of the right audience. Targeting one and all, irrespective of the domain of interest is a futile attempt at advertising – this will never bring the right people in the loop. You will need to spend a lot of time studying who your target audience is and listing out sources where you will gain access to them.

3) Campaign is not emotional

To be successful, it is obligatory for the campaign to strike a chord with the investors and the general public. It is not possible for you to connect on an emotional scale with investors when you are not emotional about your project. Lack of passion and self-motivation will invariably result in a poor image of the campaign. Failing to get investors excited will literally translate into a poor prospect of investment in the campaign.

Again, different audiences respond to different emotional stimuli. So, it is paramount to study an audience to understand what they connect best with. Once you are able to convince an audience to act upon their hearts over their heads, you achieve a successful campaign on your hands.

4) Campaign has unrealistic funding goals

One of the main reasons for the failure of a crowdfunding campaign is the setting of unrealistic goals as far as funding is concerned. Many times, a project is under-financed due to faulty predictions about capital requirements. Many campaigns have failed because entrepreneurs overlooked vital areas of funding while preparing plans. Only a comprehensive plan – one that takes care of all possible situations and scenarios, however, miniscule or trivial, will be successful in attracting the right amount of funding.

5) Campaign has low exposure and popularity

Low exposure is one of the foremost reasons for the failure of a crowdfunding venture. Just putting up your project on as many crowdfunding platforms is just a little step. You need to understand that without exposure, no one is going to know about your project just because “it is there somewhere”. You will need to push it actively on all possible social media platforms to get the best visibility for your project. Harness the power of the internet and your friends, family, and acquaintances – in fact, get everybody you know that has a social media presence, to share your campaign. There are many options for paid campaign on social media sites like Facebook – use them to your advantage, they will help you reach a relevant audience.

Also, too few PR contacts will have an adverse effect on your campaign. It is vital to know that you will need to make as many PR contacts as possible BEFORE you start campaigning your project. For example if you are planning on manufacturing a fluoride-free herbal toothpaste, it is important to create and distribute a PR article about the ill-effects of fluoride-based toothpastes and the benefits of herbal toothpastes on all possible platforms at least a fortnight before the actual launch of the product.

Also, sharing on all possible platforms doesn’t mean spamming. If your PR initiative is considered spam, it will have a terrible effect on your reputation. Share your project on relevant platforms only.

6) Campaign perks do not add enough value

The main motivation behind your campaign should be to deliver certain perquisites to your stakeholders. Without a distinct set of perks, it would be impossible to grab the attention of any investor. An investor will only invest when he feels assured about certain returns that add value to his cause.

It is best for you to assume that your investor is going to be very selfish in demanding that he gets his fair share of returns from his investment. Remember, your investors are investing, not out of affection, but out of trust and compulsion.

7) Campaign owner does not have sufficient experience

Many projects meet with failure when the project owner or the entrepreneur does not have any or sufficient experience in the field. It is not uncommon for an entrepreneur to pursue a project outside the domain of his primary experience. However, it is mandatory for such an entrepreneur to associate himself/herself with people who possess the relevant expertise and experience.

8) Campaign has faulty timing

You may have everything going your way in your campaign, but just the one factor of wrong timing is enough to foul up all future scope of your project. It is essential to hit off the project at the right time of the day, given, of course, the geographical location of the target audience. For example, if you are located in the United States and your target audience is in Japan, you will need to work out a suitable time slot in Japan (and not in the United States) to kick off your campaign.

At this juncture, it is important to note that for all projects in the US and nearby areas, Eastern Standard Time (EST) is the accepted standard. Morning is the best time for the launch of a campaign anywhere in the world.

9) Campaign is “stuck online”

Yours may be an online campaign, but if you assume that the internet is the only way to go about your campaigning, you aren’t farther from the truth. You cannot have your campaign stuck online – in the face of so many successful campaigns that have taken place off the internet and at an “actual” venue, you need to take steps to ensure that you have a viable presence outside the internet. Arranging promotional parties, distributing flyers, getting posters up are just some of the quickest ways that will help your campaign catch its much-deserved impetus.

WHAT CAN BE DONE TO AVOID YOUR CROWDFUNDING CAMPAIGN TO FAIL?

There is no end of measures that need to be taken to ensure that your crowdfunding campaign is successful. Whether you are an established entrepreneur or a start-up, you can use crowdfunding as a powerful tool to reach your intended objective. Here are a few methods how you can approach crowdfunding judiciously.

1) Plan your budget

It is essential to have a budget planned right from the start so that you can include it in your campaign. It is understandable that arriving at the exact amount by way of fund requirement predictions is near impossible. However, it is always a very good idea to have a rough target set. Many crowdfunding websites set minimum funding limits to all projects, so it is mandatory for you to reach at least the target, or you stand to lose all the contributions pledged by your investors.

2) Prepare a great story

Nothing sells better than a great story. When you add your own great story to your campaign, you help create an appealing proposal – one that will help you take your campaign to the next level. A great story never fails to engage the investor. Your story should be such that it connects well to both your intended objective as well as with your intended audience.

Also, always speak at a personal level. Connecting personally via speech subliminally forges a personal bond between the speaker and the audience – one that has the audience relate to the story and the speaker.

It is always a great idea to back your story up with relevant supporting images. A great video works wonders in fostering the trust of the audience in your proposed product. Also, if you have already created a website with details about your product or offer, that can go a long way in generating genuine interest in your campaign.

3) Provide value for value

A crowdfunding campaign is a give and take relationship between the entrepreneur and the investors. While, as an entrepreneur, you are entitled to funds from your investors, your investors are also entitled to perks and incentives in return. It is a best practice to come up with incentives that are practicable as well as appealing to the investors. You would do well to empathize with the requirements of your investors before you chart out a reward plan.

4) Make your product/perks personal and scarce

In the product portfolio of any company, it is almost always the “limited edition” products that sell like hot cakes. Your product or offer will do so too if you bring some scarcity or rather, exclusivity to both your product and the perks offered to investors. Because scarcity increases demand, when you are limiting the most prolific rewards to your investors to a petite number , you are invariably generating a lot more interest among your investors to pledge allegiance to your campaign and grab the rewards. Keeping the rewards personal will mean that you have elevated the most benevolent of your investors to a higher personal level.

5) Build credibility

You have heard the popular axiom, “Seeing is believing”. In order to establish your credibility before your investors, your campaign has to be genuine. You can corroborate the legitimacy of your campaign by backing it up with elaborate details about the core motive behind the project. You can take the aid of various slide shows and video presentations to drive your point through.

6) Show social proof

Once you start building up a support base for your campaign, you would do well to target certain individuals or groups with high credibility in their fields – they can be experts, analysts, advisers or well-known investors. Once you have such important entities in your fold, you will be able to highlight their contributions towards your campaign. Highlighting influential people or groups as part of your campaign will work wonders towards attracting more investors into the loop. Remember that many people join a cause only because other people they know or have heard about, have done so.

7) Communicate with your audience very frequently

It is fundamental to your campaign to maintain communication with your audience at every step of your project. You cannot afford to cut your investors out from your campaign. You would do well to engage your investors at each and every phase of the decision-making process. You need to send out frequent updates to your audience on the progress made and what plans you have for future action. Another important aspect of this communication is that it should be two-sided. You will need to encourage your audience to come up with their ideas and inputs to keep them engaged.

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