By Joel Hughes
Crowdfunding emerged in the wake of the 2008 financial crisis as traditional funding methods became even trickier to access. As a result, entrepreneurs began hunting down capital elsewhere, which gave rise to crowdfunding as the funding knight in shining armour. Fast forward to 2017: crowdfunding has grown into a multi-billion dollar industry and has become park of the entrepreneurial toolbox.The latest figures show that crowdfunding contributions now surpass that of venture capitalism, and it’s estimated that they will reach a whopping£73 billion by 2025.
Catching the Crowdfunding Wave
Crowdfunding is not only here to stay, but its fast growth is set to continue. What is crowdfunding and why does it matter for businesses? People often think of crowdfunding simply as a way to raise money to finance a new product. While funding is obviously a core element of crowdfunding, the benefits are not strictly financial. Successful crowdfunding campaigns offer enormous potential for businesses, particularly for product validation.
‘Crowdfunding’, in general terms, means raising money from a large group of people. There are two types, reward-based crowdfunding and equity crowdfunding. While equity crowdfunding offers an investment opportunity and a chance to share in a company’s potential success, reward-based crowdfunding allows consumers to back the latest innovations by pre-ordering new products before they hit stores. These products are usually available at a discounted price,and the early sales fund product development and production. By giving consumers the chance to vote with their money, reward-based crowdfunding validates that there is actually market demand for a new product.
Getting Product Validation Right
Bringing a product idea to life requires a lot of thought, research and effort. Typical market research is expensive, and not necessarily representative of the target consumers for a product. By using crowdfunding,businesses can get an idea of the market before jumping in and launching a product. Businesses are turning to crowdfunding platforms, such as Indiegogo, to get in front of target consumers and receive feedback from them, which can be gold dust for product development and business strategy. This way, businesses end up with a stronger, market-ready product, and thus reduce risk when launching a brand new innovation.
GE’s Firstbuild used Indiegogo as a tool for market validation with the Paragon Induction Cooktop. The team surpassed its fundraising goal, which indicated that there was market demand for it, whilst using valuable backer feedback information to make tweaks to product design.After acquiring thousands of backers and more than $300k in sales through the crowdfunding platform, the business was confident with the value proposition for consumers and progressed to production stage.
Embracing the Crowd
By taking an idea directly to ‘the crowd’, businesses can get a clear sense of how a product will be received by target consumers. A fully funded campaign validates a product by demonstrating that consumers actually want the product –paying fora product before it is even available. An unsuccessful campaign, on the other hand, suggests that a product needs some more thought before it’s market ready. Crowdfunding is fast becoming the go-to route for businesses looking to validate a product or service for an ultimate success