Crowdfunding is all about getting your ideas off the ground. Sometimes life changing ideas come to everyday people, so this is new concept allows creators to pitch their ideas to potential customers instead of taking out crippling loans they can’t afford to take a risk on.
You’ll probably have heard of crowdfunding and be familiar with websites like Kickstarter or Indiegogo. They basically work under the principal that instead of giving equity away to start a project, you pre-sell it and get the money first.
On both Kickstarter and Indiegogo you set a funding goal for how much it will cost you to produce a product and hope that enough people pledge money to meet the goal, and make the dream a reality.
Backers usually receive different rewards depending on the amount they’ve given financially (perhaps a tweet, the product upon release, a Skype call to say thank you etc.)
Funding on Kickstarter is all-or-nothing: projects must reach their goals in order to get the money pledged. If a project is successfully funded, Kickstarter will apply a 5% fee to the funds collected.
Indiegogo works under the exact same basis, with one difference – creators have the option to receive whatever funding was pledged, even if they don’t reach the final goal (with again, a 5% charge).
Let’s take the guys at XU Magazine as our case study. Meet the two brothers who were going through their ordinary lives, when one day they saw a gap in the market for their product: a magazine that compiles information about the accounting software Xero and its add ons. It would save Xero Users (usually business owners and accountants) from trawling the internet by providing them with everything they needed to know in the form of a professional and glossy magazine.
If it was going to become a reality, the magazine had to be delivered where most of the Xero Users are based. Xero was founded in New Zealand so it has a massive market both there and in Australia, whilst of course the UK and US also have big audiences.
Once calculating the costs and working out profit margins – they set their funding goal on Indiegogo. They told me that marketing on social media was a massive part of the process, getting in touch with people in their target audience and asking whether websites would do articles about the magazine – anything they could do to get the word out.
Negotiating and communicating between all these different time zones meant a lot of work, it was basically a full-time project. They stressed that if you’re a potential project starter you'll have to be prepared to put a lot of time and effort into bringing it all together.
They set themselves 3 weeks to achieve all of the funding, and in two weeks the amount had been reached. They described it to me as a surreal experience seeing thousands of pounds being put towards an idea they’d come up with in their local pub – that this idea really was worthwhile to people and that this crowdfunding thing was actually working!
Creating A Project That Lasts
The guys have just released issue 04 of their quarterly magazine and business is booming! A big question once you’ve created your product is - 'do you want to carry it on?' Was it a one-time thing, or is it something that can keep on growing and producing sales?
If the answer to any of these are yes – then it’s important not to pick a random target, but do the financial work before you get started. Choose a figure that will allow you to keep on growing!
To start a project takes an idea in a pub, to give it a future requires financial foresight, hard work is necessary to produce interest and gain momentum and confidence in the idea is what will pull it all together.
So what are the risks? Only the time it takes trying to make it work.
The Floor's Yours
If you have any questions for the XU Magazine guys regarding Crowdfunding, or anything else - then leave a comment & we'll get some answers from them in a future blog post!
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