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Handbook For A New Era Of Crowdfunding

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Editor’s note: Sandeep Sood is founder of Oakland, Calif.-based Monsoon+RainFactory, a product house that conceptualizes, designs, develops and markets mobile and web applications.

Ever been to Indiegogo? Kickstarter? Spend any cash? What’d you leave with? Why does anyone buy a product that doesn’t exist yet…and may never exist? On the surface, crowdfunding seems to defy logic. Economists find the phenomenon of crowdfunding startling. If you think like an economist, crowdfunding shouldn’t work. But it does. And those who understand why it works are able to get results every time.

Why Does Crowdfunding Work?

There’s no amount of economic acrobatics or consumer rationalization that can explain it. That doesn’t mean there’s no explanation. I’ve seen it work first-hand a dozen times — predictably. The explanations move you beyond logic into behavioral psychology.You need to understand how crowdfunding works because it has become a driving force for everything from hardware products to startup investing. Figure out what the economists can’t, and you’re on your way to making crowdfunding work for you.

Instead of going to the bank and putting up collateral to fund their crazy idea, entrepreneurs  tap into a world that is seeking out connections and ideas everyday. Just hack together a passable prototype, and a product is making money from day one without giving up a thing. No stock, no IOUs, nothing.

People back these entrepreneurs knowing this. Based on a video and a few paragraphs. To buy a product that may never get built at all. Why? Are we so in need of a story that we’ll open up our wallets to anyone taking a risk? Because some dude with a cooler looks like he’s having a lot of fun? Maybe.

I’ve taken a long hard look at crowdfunding behaviors. What makes people want to give to some projects and not others? It’s more than just altruism and some irrational gift economy gumming up the works of the supply-and-demand machine, as the New York Times suggested. It’s an emotional thing, and it’s bigger than logic.

First comes love. Backers often want something so badly, they’ll do anything for it to exist. On Kickstarter or Indiegogo, when someone sees a product they love, made by someone they believe in, backing is a way of throwing their hat into the ring. They wager what it takes to realize an idea, even if there’s risk involved. It doesn’t matter if they can’t enjoy the result right away. Love is patient. Love is kind.

Next, backing a crowdfunding campaign is essentially a chance to shape the way things are. It’s influence, and it gives backers an outlet where they can be creative. Even if it’s just vicariously. Throw in a little surprise (nine months later something shows up in the mail) and bang, they didn’t just buy something. They were part of an experience from start to finish, and research shows buying an experience makes us far happier than buying things.

Build your campaign around love of the product and a chance to make a dent in the universe, and you’re a step ahead of the game. Instead of economics, let these emotional impulses guide your decisions for what you build, how many you build, how much you charge, and what you give away. If everything you do isn’t helping people feel—love and vicarious creativity—your crowdfunding campaign doesn’t have much of a chance.

Ingredients for a Successful Campaign

Here’s your challenge: Your competition is getting bigger, corporations are testing out new products, and venture capitalists are using crowdfunding as a proving ground before they shell out any cash. I’m not saying it’s not grassroots anymore, but there’s a newer, bigger movement that overshadows the small guys we send to Sundance every year. Here are five considerations to use in the new era of crowdfunding:

1. Story, Story, Story

Platforms like Indiegogo and Kickstarter were designed for storytelling. Anyone can sell a product off a shelf. How many can sell thousands before they’ve been made? Only the ones that capture our imagination. Bring people along on your journey. Where did your idea come from? How will it change their lives?

The JIBO robot was born out of a family who was tired of fumbling with technology. Tile suggests that if you use its chips to keep track of stuff you lose track off, you’ll have time to find something big, like a husband. A good narrative can make unremarkable garage-sale items sell for 50 times more than what they’re worth. What can it do for you?

2. Partners

Every campaign’s got the same tools to tell its story. It’s about how well you use them that’ll make the difference. My guess is, there are some things you’d be better off leaving to the pros.

Video Producers. The first thing people do is watch your video. My advice: get some all-stars who know how to make an emotional pitch and can package it up nicely. It’s hard to talk about yourself, and even harder to look good doing it.  Consider agencies that work JUST in video, such as Sandwich Video (which launched Coin), and Feedback LLC (which launched Tile).

PR Campaign. PR companies orchestrate launches like Houston blasts rockets. Get the timing right and get the right people talking about your product. Organic traffic from your crowdsourcing platform won’t account for much more than 10 percent of a successful campaign’s booty, so you’re going to have to look elsewhere. PR firms such as Inner Circle Labs (which launched Jibo), JumpStarter PR, or BAM Communications (which focuses on innovation) should be considered.

Marketing Agency. Get a marketing team that understands technical marketing and how to design and develop compelling web and mobile experiences, such as and Agency20, which focus just on crowdfunding. You’ll want them to launch and manage your funnel, but they should also be thinking about your user experience and building you a website that can serve as the traffic hub of your campaign.

3. A Real Ad Budget

Have a budget of at least $50,000 to start. Grassroots isn’t dead, but it isn’t growing, either. Making people feel emotionally invested in your product is table stakes. You’ve got to start there. But advertising is the only thing that gives your campaign legs and makes it predictable. Everything else is holding your breath and hoping for the waters to part. So build advertising into your budget, and if you’re raising funding, start with at least that much.

Plan to spend your first $50K learning. Figure out what you need to spend to acquire one new customer. Scale that to 10. Test the crap out of it. Then, scale that to a thousand, ten thousand, and a hundred thousand. Test a variety of media and ad channels. If you have a solid product and stay diligent, you will reach a point where you’re spending what you need to spend on each customer to make long-term money. Hear that humming? That’s the sound of your very own perpetual money machine. Don’t worry, you’ll get used to it.

4. A Storefront

If you didn’t get it by now, we’re not really talking about crowdfunding as a “campaign.” This is the new way to market your product. Don’t just think of Kickstarter or Indiegogo as some punctuated thing that’s going to end. Make it your storefront and your e-commerce engine. Use the crowdsourcing platform as a way to accept payment and take control over how you tell your story. You need your own site in addition to any platform you’re using. You can build your own site and sell people on your own even if you are using platforms like Indiegogo and Kickstarter.

When your crowdfunding campaign is over, your team should be ready to make some tweaks and turn this into your store. Nothing is wasted. Your crowdfunding campaign isn’t some moonshot gamble; it’s the beginning of everything.

5. The Wild Card

Like I said, everyone’s working with the same materials. But some repurpose them in a way that no one’s ever done before. Exaggerate what makes you different. Have a gaming product? Maybe you let people unlock achievements and new levels of contribution. Weight loss tool? Perhaps track total pounds lost in parallel with funds earned. Don’t be afraid to let your personality set you apart from the noise.

It is now possible to develop your product and your customer base simultaneously. We’re only beginning to realize the implications here — in an era where we can prototype groundbreaking products in our garage, we can also practice telling our story to millions of customers, learning what will and won’t make them fall in love.

This is the way we build (products and customers) now. And the crowd is going wild.