You might be wondering: What exactly is crowdfunding?
In simple terms, crowdfunding is a modern approach to raising capital where your community, customers, and followers can provide both financial and non-financial support to help your business grow or launch. While the concept of pooling resources isn't new, crowdfunding as we know it today emerged thanks to advances in technology, making online transactions and digital communication channels like email and social media possible.
There are four main types of crowdfunding: donation-based, rewards-based, equity-based, and lending-based. However, rewards-based crowdfunding is the most commonly used method for small businesses, so that’s where we’ll focus our attention.
With rewards crowdfunding, instead of seeking a traditional loan or relying on a single investor for thousands of dollars, you can pre-sell your products or services to raise the funds and gather customer support. Think of it this way: while it might be tough to find one person willing to spend $10,000 on your products, could you rally 100 people to each contribute $100? That’s the essence of crowdfunding.
In fact, studies show that 58% of small businesses would consider crowdfunding if they knew how to do it. Unfortunately, much of the information available is tailored to tech startups, which can make it intimidating for small business owners to enter the scene.
But here’s the truth: These startups are not your competition. In fact, your small business may be better suited to succeed in the crowdfunding space than you think.
Why Should Small Businesses Use Crowdfunding?
You Already Have a Compelling Story Every small business has a unique origin story, whether it's about leaving a steady corporate job to open a neighborhood café or creating an innovative product. This narrative is crucial for a successful crowdfunding campaign. The most engaging campaigns often revolve around a powerful "why" – why you started your business, why your product matters, and why it’s worth supporting. If you’re unsure why your story matters, check out Simon Sinek’s TED talk, Start with Why, for some great insights.
No Limits on Funding One of the greatest aspects of crowdfunding is that the potential funding pool is virtually limitless. Unlike traditional loans or venture capital, there’s no one person or institution deciding whether you qualify. Think of crowdfunding like the story of Stone Soup, where each person contributes a little, and together, everyone benefits. In crowdfunding, people back your business because they believe in your mission and your ability to deliver – not based on arbitrary criteria like credit scores or years in business.
Relationships Are Key The human connection that defines any small business is exactly what makes crowdfunding work. Your customers already know you, trust you, and believe in your products. That relationship is the foundation of crowdfunding. Whether it’s the friendly service at your bakery or the unique products you sell, your community wants to be a part of what you’re doing. When they see the value in your story and mission, they’re more likely to support you.
Email Marketing Is a Powerful Tool If the thought of managing social media campaigns feels overwhelming, don’t worry. Email marketing is often far more effective and affordable. Think about the email list you've built from customers who’ve bought from you in person or at events. That’s more than many tech startups have! When you send a personal email to people who are already familiar with and interested in your business, you’re much more likely to receive contributions. If you’re unsure where to start, our blog Email Marketing is like Stocking Your Crowdfunding Pantry covers the basics of using email to boost your crowdfunding campaign.
Are You Ready to Give Crowdfunding a Try?
We encourage you to consider crowdfunding as a way to fund and grow your business. But be warned: It requires careful planning and preparation. Start working on your campaign 3 to 12 months in advance, and make sure you have a clear goal in mind.
Crowdfunding isn’t just about raising money – it’s about building relationships and engaging with a community that believes in what you're doing.
Stay tuned for more tips on how to get started and make the most of your crowdfunding campaign in future blog posts.