Crowd vs funding, which one is sexier? Role of communities

Crowdfunding advantages you will love.

Crowdfunding allows creators to bring their innovative ideas to life. It offers them a chance to get the funding they need, by pooling together lots of small amounts of money from a large group of people.

While the idea is not new — many historic monuments have been financed by the ‘crowd’ — it really took off in the late 2000s.

Over the last ten years, I’ve watched crowdfunding emerge as a billion-dollar industry, with millions of contributors supporting the hundreds of thousands of campaigns that creators have brought to life.

But is it all about money?

While most of the crowdfunding campaigns I worked with five years ago were small teams of innovative minds, on the verge of becoming startups, recently we have welcomed a new wave of campaigners. ( read about our recent million-dollar campaign)

Hardly strapped for cash, Coca Cola is bottling the Swiss Alps, Philips has a new projector, and Bose a new speaker. Obviously, they are not in dire straits or looking for investments from the internet crowd.

So, what is their motive behind creating crowdfunding campaigns alongside first-time founders?

From Indie Films to Soda Pop

In 2008, Danae Ringelmann and two friends started a fundraising platform, Indiegogo. A year later, they were followed by artist and entrepreneur Perry Chen’s Kickstarter. Both sites’ aim was simple and small — to help artists and creatives collect funds for their projects.

Both platforms’ founders wanted to solve the worst hunger disaster of the first world — the starving artist. Their startups were to be platforms for creatives, filmmakers and writers to fundraise for their new initiatives.

What they couldn’t have anticipated, was the success their platforms would enjoy — Kickstarter went on to raise around $4.7 billion and finance half a million projects, and Indiegogo isn’t far behind.

But were they still the artists’ havens they had envisioned?

The lion’s share of Kickstarter’s financing comes from its game, design, and technology campaigns. Yet, over a decade later, it still positions itself as a place for creatives and works hard to promote its artistic projects.

While Indiegogo is not that open with its platform’s numbers, my guess is that about 90% of its successful dollars are due to its consumer tech projects. And, unlike its competition, Indiegogo has accepted the shift!

Despite its name, Indiegogo quickly realized that it wouldn’t survive on indie filmmakers alone. And although Danae might never have thought her startup would be so mainstream that Coca Cola or Philips would be using it to run crowdfunding campaigns, her site now welcomes tech and big brands with open arms.

Corporations are pouring through the open doors, introducing their latest products to the market through crowdfunding. JBL, Bose, Segway and Xiaomi are just some of the many other popular names you’ll find on Indiegogo.

This begs the question — do these brands desperately need money?

Probably not…

So, if it’s not the ‘funding’ in crowdfunding that these companies are after, that leaves us with the other half of the equation.

The Value Of An Engaged Community

Over the last five years, my crowdfunding career has offered me unique insights into the developments this industry has gone through.

My initial clients were exclusively startups looking to fund their original inventions. Money was their primary goal, and crowdfunding offered them a much more attractive, quicker, and risk-free solution to raising it than the common route through accelerators, investors, or bank loans.

Over time, my client-base grew to include founders who valued something more than money — the crowd.

You see, people who back projects on Indiegogo and Kickstarter are not customers. They are not clients. Or necessarily consumers. But they are not team members, either.

They are something in between. They are our community.

The backing community is more engaged in the products and ideas of the founders, sharing and supporting them. They also help campaign owners quickly validate their ideas, sharing invaluable feedback and suggestions that would have otherwise been nearly impossible to gather on such scale.

Is this that big a deal?

I think it is. And so do the bigger companies, as shown by their sudden influx into crowdfunding. It is thanks to the community of backers that we get these five bold benefits, worth much more than the monetary value of funding itself.

  1. Quick Product/Price Validation

A typical crowdfunding campaign lasts for about 2 months.

When planned and executed correctly, a campaigner’s product can be seen by millions of people in this short period of time. This rapid exposure to the community helps companies understand whether or not people really need the product and how much they are willing to pay for it.

On top of this, one of the crowdfunding benefits is that it also allows campaigners to see which version sells best, how the market reacts to price increases, what the conversion rates are, and myriads of other useful (and otherwise expensively collected) research data.

Crowdfunding campaigns have access to this data much quicker and cheaper — all without even fully developing the product, or spending money on manufacturing the required stock.

2. Feedback

Due to the supportive nature of the community, giving extensive, useful and critical feedback is pretty popular here.

People readily communicate what they like. And if there are things that they don’t like, you can be sure you’ll hear them too. But in an increasingly negative internet, crowdfunding has become a beacon for a generally positive community.

Thanks to this continuous feedback loop, launching a product via crowdfunding — even if it doesn’t become a reality — sheds a light on current trends and consumer needs.

3. Planning

One of the main concerns that both startups and big companies share outside of crowdfunding is production.

As we saw in the previous two benefits, crowdfunding provides many insights into a product’s users and uses, both through direct feedback and interaction, and indirectly, through the data gathered.

While companies often have their stock go out of fashion or have problems with hardware quantities and need to sell it at a discount, with a valid forecast, you can order exact amounts from suppliers, agree to manufacturers assembling a limited amount of batches, and negotiate specific packages with distributors.

No waste. No loss.

4. Loyalty

Building and maintaining a loyal customer base is no easy feat, but the rewards of one can’t be understated. After all, people weren’t buying the latest iPhone because it had a better camera, and people don’t drink Coca Cola because it tastes better than Pepsi.

In crowdfunding, when backers are treated well, they can be really — and I mean really — loyal. As seen in the multiple Kickstarter campaigns of Peak Design or Baubax, their loyal following has earned them millions of dollars in nearly every campaign.

5. Word of Mouth

Publicity is expensive. Or is it?

In all of our campaigns, we see really high sharing rates by backers. They are very keen to share the projects and initiate discussions among their friends.

Big companies can surely afford the publicity — but if they can have the same effect for free, why not take advantage of it?

The Big Brands Are Here To Stay

Each of the new big players may have their own agenda, but these are probably the main reasons these brands are turning to crowdfunding as a platform for their latest product launches. And regardless of what motivated them, it seems like they’re here to stay.

What does that mean for lifelong campaigners and naive newcomers? For the artists and indie filmmakers? For the tech startups and wild inventors?

Is it good or bad that Coca Cola or Philips are invading the crowdfunding platforms and competing with first-time founders?

Probably both.

First-time creators benefit from a new wave of backers, attracted to Kickstarter and Indiegogo by the big brands they know and love. Once there, they discover and help bring to life new projects that they otherwise would not have known of.

Their presence is increasing competition and quality standards. While it’s hard to compete with the world-class marketing specialists and engineers of Philips, it’s a welcome challenge. Having a strong player in the field encourages everyone to perform at their absolute best, and not only do we get better at what we do, the community of backers benefits from better products.

However, big companies distort the unity between creator and community, the intimacy within personalization, and the general team spirit. These fundamentals, which I believe were one of the main factors that made crowdfunding succeed in becoming the behemoth industry of today, are slowly being eroded. With big brands, crowdfunding loses this essence and becomes nothing more than a discount and pre-order store for savvy internet users.

I’ll hold my verdict for now, and watch and wait as we see more big companies, as well as startups, use crowdfunding to mobilize crowds communities rather than for the funding itself.

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CEO and Co-founder, The Crowdfunding Formula (TCF)

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Narek Vardanyan

Narek Vardanyan

CEO and Co-founder, The Crowdfunding Formula (TCF)

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