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How To Choose A Startup Product For The Crowdfunding Business Model

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There are many ways a business can raise capital, from personal savings to bank loans and other financing products. But aside from traditional funding sources, the Internet has ushered an empowering business model – crowdfunding.

Through the connecting power of the Internet, aspiring entrepreneurs can showcase their business ideas, products, and solutions to a larger audience, and gain financial support from strangers.

Over the past years, we’ve seen the feasibility of this model. We know of countless success stories with crowdfunding. Some of the biggest successes include EOS that garnered over $4 billion, Star Citizen brought in over $300 million, and Pebble Time that raised over $20 million back in 2015. In 2019, over 6.4 million crowdfunding campaigns were launched which raised around $13.93 billion.

These innumerable success stories have put crowdfunding in the spotlight. Alongside the revolutionary success of crowdfunding, investment platforms like Stokr have grown in number too. These platforms have made it easier for startups to launch their campaign and tap their target community.

Different Crowdfunding Business Models

Different crowdfunding models have also emerged, such as:

  • Donation-based crowdfunding operates purely in donations and is commonly used for philanthropic campaigns or those intended for good causes or advocacies. Platforms such as GoFundMe host this type of campaign.
  • Reward-based crowdfunding offers supporters special perks in return for their contribution.
  • Pre-sales-based crowdfunding enables supporters to choose from fixed prices, each of these price levels guarantees them with certain rewards, usually finished product.
  • Debt-based crowdfunding pools the money of the crowd and lends it to multiple startups. The loan agreement comes with a certain set of terms, such as the reward to supporters and the timeline of the project. In case any of the terms are not met, the startup is obliged to pay back the funds.
  • Equity-based crowdfunding offers equity in the company in exchange for financial support. Contributors are aware that they won’t get any return unless the business starts earning profit or is sold off. This model is not the same as initial public offerings.

Each of these categories comes with advantages and disadvantages. Given the flexibility of crowdfunding, businesses from various industries – and even some types of organizations – utilize crowdfunding. We’ve seen campaigns launched by tech startups, entrepreneurial ventures, and struggling enterprises, as well as churches, charities, advocacy groups, and communities raising funds for their projects.

Certain business models tend to be geared toward success through crowdfunding. These startups dabble into original tech gadgets, independent books, unique home inventions, local service businesses, and home cooking tools.

Is Crowdfunding Business Model Ideal For Your Startup Product?

Although any enterprise or organization can initiate a crowdfunding campaign, it is not always the right solution for every business. Even the most effective crowdfunding campaign can fail if the product is not suited for this business model. To ensure an enormously successful campaign, you need to have the right startup product and campaign. Here are key considerations to help you choose a startup product for crowdfunding.

  • It should have a clear target audience, market, or community.
  • It should solve a prevalent and persistent problem of your target market.
  • It should be simple and charismatic for people to desire to own or buying one.
  • It should offer something interesting and exciting in return for their support.
  • It should have a modest target amount or an amount that is realistically achievable.

These are the main characteristics of an ideal startup product that can be launched successfully through the crowdfunding method. But aside from these considerations, you also need to evaluate the readiness of your organization or company to launch the startup product. You need to show to your potential contributors that you indeed deserve their support.

  • You should have the time and initial funding to run a successful campaign.
  • You need to have a profitable business model, one that clearly shows how you’ll implement the project and how it will earn revenue.
  • Your startup should be unique and has less competition which is essential for success and growth.
  • You need to have a quailed and experienced team to run your organization.
  • Your company must have good financial standing and a positive reputation.
  • You should provide supporters with a definitive plan on how you can ensure the return of their investment, as well as, the continuity of the project.
  • You should have an exit plan, such as going public, getting other investors, selling the business, or signing up for financing products.

Do a careful evaluation of your startup product or businesses. If it possesses these criteria, then crowdfunding may be a suitable business model. On the other hand, if your business idea does not meet these conditions, don’t get distraught. There are many other equally exciting alternatives to funding your startup. Better yet, you might need to develop or revisit other unique startup products and business ideas. Perhaps, one of your bizarre business ideas could become another crowdfunding success story.

All in all, crowdfunding can be an exciting way to get fund your new product or startup. However, such a lucrative opportunity does not come easy. You need to invest your time to understand the entire process and exert effort to win the support of the crowd.

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