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Crowdfunding: The basics

Cocoon Labs

Funding

It starts with that ‘Eureka!’ moment…

Often as these things do in life there’s a moment of clarity, the stars align and after considerable time spent researching the market you determine that there is a need for your idea. Pat yourself on the back, you’re on the road to creating a startup!

Now is the time to watch The Social Network for tips on keeping ‘developer hours’, grow your hair and getting a Mac, as you’re soon going to hit the harsher reality be prepared to make sacrifices to your lifestyle – no more popping to Starbucks when you feel like it and kiss goodbye to that gym membership that you never use!

The team in Leeds for Cocoon Alpha Test - SUBSOUND

Develop and validate your proposition before crowdfunding

After some intense activity pulling together a fantastic team of co-founders you set to work bringing your passion to life. Crowdfunding is brutal – success or failure, and there is nothing in between. Around 60% of crowdfunding campaign fail to meet their campaign goals. If you don’t hit your crowdfunding target straight away, the probability is that you campaign will fail and worse, you won’t know why. It’s unlikely that you’ll get the insights that you need to develop your initial idea into a proposition from the campaign itself so plan, test and learn before you press that button and go live.

Get out of the building, speak to some prospective buyers and use their feedback to develop your pitch to the point where a reasonable number of them at least say they’d support your campaign. Crowdfunding can help you validate product/market fit but not until you’ve validated problem/solution fit.

In my opinion most crowdfunding campaigns fail because they went from idea to campaign without enough in between. Your crowdfunding campaign should be validating what you’re pretty sure you’ve already established using methods with richer customer feedback.

Establish your reasons for choosing crowdfunding

If we skip ahead about six months you’re now at the stage where you’ve validated your idea with research, you’ve certainly convinced yourself that there is a need for your product and you’re about to set the world on fire with a launch…

Long gone are the days of ‘build it and they shall come’, but you already know that because you’re a ‘millennial’ and you’re considering crowdfunding. Establishing your reasons for choosing crowdfunding will help you work out if you have been successful or not and inform your approach to a campaign.

Your’s may differ but the reasons for our campaign were simple:

1. Market Validation

You’re not a business until you sell something. To make a successful business you need to be able to sell enough to cover your costs and drive a profit.

We decided to validate demand and price. We set an ambitious target of $100K in just over 30 days to confirm market demand and would release batches of the product priced low to start with and over time moving closer to our expected retail price monitoring the response. These are all important ‘learnings’ that will help but bear in mind that your product could require $50K or $500K.

Cocoon Blog Market Validation Hitting Milestones

Remember that each person who buys your product is investing their hard earned money into you and your business. Indiegogo revenues are a small part of our funding mix but if crowdfunding will be your only source of funds, if you can’t bring your product to market with $50K then set your target to the amount you need – you have a moral responsibility to fulfil the order or hand back the cash if you can’t.

2. Customer Feedback and Promotion

There is no greater resource for helping to grow your business than willing customers. Customer feedback helps you improve your product, avoid mistakes and understand how and where to sell to when you launch.

Even established businesses are being advised to start testing the water with crowdfunding projects before launching. But beware, you won’t get feedback from the people that didn’t buy so it’s important to continue to reach outside your community of early supporters as you develop.

Cocoon Customer Feedback Blog Image

3. Access to Funding

Hardware is expensive to bring to market. Without validating the market through pre-order/sales any investor would only have your team/concept on which to base a valuation. Validation should translate into easier access to equity funding at a much better valuation. In the medium to long term you’ll have more time to focus on product development as funding is crucial to success.

Simply launching on Indiegogo or Kickstarter doesn’t guarantee you a successful campaign. Planning every step of your activity is key to success, and having a firm base from which to start your activity is crucial. Agree your reasons for choosing crowdfunding and continually measure your progress to make sure you’re on the right track!

How far are you through your launch planning?

Have you chosen your crowdfunding platform yet or are you still in the initial research stage? Let us know here, on Facebook or on Twitter @Cocoon.