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Cult favorite video game developer Double Fine recently shocked investors by raising over $1 million in 24 hours on Kickstarter for its new adventure game, despite the genre’s supposed death. This has led critics to speculate that crowdsourcing isn’t just the hottest new thing to happen to startups and small business owners since Apple’s App Store; it may also present tomorrow’s most promising new source of venture capital and angel investment.
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From both research and ROI perspectives, the model makes sense. Why spend years building a better widget when you can instead find and fund tomorrow’s next million-dollar idea simply by asking potential customers? Crazy? Not so much. Wasting thousands on research and development up-front, then manufacturing thousands of unproven goods, hoping that they’ll actually align with market needs years hence is now an unnecessary approach. Through crowdsourcing fundamentals — requesting feedback or recruiting help from public donors via open calls for assistance — you can gauge demand for and create bankable products from day one. That’s what entrepreneurs call risk mitigation.
Under current business models, creators can only make educated guesses as to what consumers will buy and how much. By letting shoppers fund only ideas they like best, you know exactly what to create, and in what quantities. Repositioning up-front spends more heavily around development vs. marketing, crowdsourcing allows you to deliver a high-quality product that essentially sells itself. Better still, pre-orders provide working capital to fuel production, and donors feel more emotionally invested in the end result.
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To start the process, create just enough design samples, documents and drawings of your product or service to convey its unique selling points. Then, build short two- to five-minute videos that highlight key features and introduce team members and mission statements. Doing so promotes viewer empathy, attractively showcases core concepts and provides a user-friendly platform for sharing your elevator pitch on social media.
When summarizing your product or service, discuss no more than three to four main benefits. Include short, bulleted text descriptions, screenshots, photos and 90-second maximum film clips to dive deeper into supporting topics. And don’t forget to dress for success. Regardless of available capital, always double down on visual presentation: People tend to judge on first impressions, and a picture’s worth a thousand words.
Also worth noting: From an investor’s perspective, working prototypes and vertical slices are far more convincing showpieces than tech demos, sketches and sunny PowerPoint presentations. Therefore, when possible, always use text, mock-ups and prototypes to showcase proposals before public announcement.
Equally important as pre-production and marketing is defining required funding levels, broken into tiers to attract spenders of all budgets. Also, assign associated rewards to each. Payouts can be physical ($50 nets a copy of the DVD and signed poster) or personal ($500 earns you an executive producer credit and thank you call from the director). It's important to remember that current regulations prohibit startups from raising money via crowdsourcing. Therefore, payouts for crowdfunded, non-qualified investors must be tangible returns, like the aforementioned DVDs. In other words, money donated must essentially amount to pre-ordering future products or services.
Either way, the more value-adds, the merrier. Lest you feel stingy here, remember: They’re ultimately cheaper than giving up a piece of your company.
After building presentation materials, you can introduce your designs to the world through your website, or via the following services:
Such online hubs act as both product showroom and public forum, where everyday buyers greenlight projects by voting with their wallets. The beauty: You own the end-product, minus any optional payments or royalties awarded to collaborators or contributors who’ve submitted original designs for inclusion. Profits from every sale, starting with the first one, help keep the lights on and new ideas flowing.
Win or lose, you not only retain all rights to your creations – you’ve also begun generating buzz for them and connecting with potential backers and fans.
Image courtesy of iStockphoto, ramihalim
This story originally published on Mashable here.
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