Starting up a company is not an easy feat. An estimated 80%–90% of start-ups fail within the first five years. Competition is fierce, and the lack of market space and investment means that, without the right team, brand positioning and extensive market research, there is slim chance of long-term success.
In a survey, start-ups revealed money was the second top reason for failure, market space being the first. Whilst lack of investors continued to be a problem, the country’s tax system and lack of bank lending were some of the other financial challenges. Faced with these legalities and red tape, it is no wonder that crowdfunding has been a popular choice for start-ups to build funds.
Crowdfunding offers start-ups the opportunity to raise funds, reward their backers and gain brand advocates at the same time. It allows the start-up to test out their marketing strategy and to gain validation that their product will be successful. Surely there can be no downsides?
Although crowdfunding has proved successful for brands including World Food Innovation Awards winner Smith & Sinclair and nutrition drink Soylent, crowdfunding is not a sure-fire way to success – a fact that rings too true given the news this week.
This Tuesday, reports revealed two major products from Kickstarter have run into serious trouble. British company Zano had raised millions on Kickstarter for their “sophisticated nano drone”, and whilst the start of this year looked secure, the team have revealed the plan to pursue a creditors’ voluntary liquidation just 11 months later. Although not as disastrous, a similar fate has befallen Coolest Cooler. Founded by US inventor Ryan Grepper, the Coolest Cooler proved to be Kickstarter’s second highest grossing campaign of all time. Marketed as a bluetooth-enabled, speaker-equipped cooler that could blend cocktails, play music, and store 55 quarts’ worth of beverages, Grepper has revealed the team were unable to fulfil orders due to a problem with production. Whilst backers were promised their delivery in February, Grepper could not start fulfilling orders until July this year and has now started selling the cooler on Amazon in order to keep the funds flowing and to try and keep the project afloat.
Without money, a start-up cannot succeed, but it appears, certainly with these two examples, that overfunding can also prove disastrous. By expanding too quickly, the demand for products becomes unfulfillable.
So what can be learnt from these examples?
Be aware of becoming too big too soon
Whilst investment often comes in a lump sum, crowdfunding can be unpredictable. This can work in a company’s favour but can also prove a problem. Have a plan in place if you raise more money than expected. How do you plan to fulfil extra orders? The production of a product is often the result of a combined effort; the ingredients, the processing unit, the packaging company. Do you have a plan in place in case a problem occurs at each stage of your production chain?
Market placement
Have a clear idea of where your product fits into the market, before launch. Successful brands are ones who convey a story and engage their audience. In order to do this, a brand needs to be confident in the message it is trying to convey. Market placement is also a factor which needs to be considered during the product’s packaging design process.
Build brand advocates
Crowdfunding is a great way to build brand advocates, but it is also important to think of other ways to do so. Using social media to engage with consumers during your product development and launch is a great way to build interest and get people discussing your product. This way, your brand advocates aren’t just those who have invested but consumers who can spread the word to their own followings. Due to some of the problems Coolest Cooler has faced, its crowdfunding backers have responded negatively on social media. If you diversify your brand advocates, you’re more likely to neutralise any negative feedback in case you encounter a problem.
How else can you raise funds?
If crowdfunding doesn’t provide all the necessary funds, or you’re in need of extra capital to fulfil expectations, think outside the box on ways to raise money and appeal to your audience. Pop-up events are proving really popular, especially to the millennial market. Without the burden or costs of a shop, a pop-up event allows you to engage with your audience face to face, offers the opportunity to collaborate with other companies, and, due to its exclusivity, creates an air of excitement with minimal effort. We recently interviewed start-up company Contra Coffee, who have done just that.
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