Don’t Fall Prey to Crowdfunding
One of the latest trends in financing is crowdfunding. This alternative to traditional business loans can seem attractive for small businesses, nonprofits and startups for a variety of reasons. Although there are plenty of success stories to lure in unsuspecting business owners, here are some reasons to avoid using this strategy for your long-term business growth.
The primary reason to avoid a crowdfunded approach is that it is very risky. Despite the enormous success of certain brands, less than half of all campaigns actually reach their proposed goal. Few businesses would take those odds from any other financial approach.
When it first went viral, crowdfunding was an exciting way to carefully research nonprofits and small businesses and invest your money where it could make a difference. Now, however, with more than 2,000 options available to individuals, the sheer mass of crowdfunding campaigns can discourage many funders from finding your business.
These campaigns may not ask for you to put any financing upfront to create an account, but designing a successful campaign requires hours of work. Carefully crafting your branding, creating engaging videos and offering expensive or time-consuming rewards are often the only way you can rise above the competition and receive the donation you need.
Just like a loan application, you’ll need to put all this work in ahead of time. Although a crowdfunding platform may market itself as an easy way to reach your financial goals, you’ll often need to put in more time and take on even greater risks than a traditional business loan.
The impersonal nature of crowdfunding leaves many donors unwilling to carefully research your company and donate their money. You’ll need to make great efforts to prove that your company is not only worthwhile to invest in but also based on a successful business model, engaged in areas that your donors find relevant and trustworthy enough to spend their money responsibly. When you put all these factors together it’s easy to see why so many crowdfunded businesses fail to meet their goals.
Don’t wait around for a small chance of receiving the funding you need. Despite the claims that crowdfunding is a quick and easy way to reach your goals, avoid this distraction and look for more reliable, tried-and-true ways to reach your startup goals. Launching a business can be a risky endeavor, so your goal for financing should be to minimize those risks as much as possible and seek a more traditional form of funding.
