The latest trend in finance to have a massive impact on how capital is raised for virtually any business or project in the last decade has been that of crowdfunding, a concept much less efficiently accomplished in the previous century than seen today.
There are many with ventures worth pursuing but without the means to accomplish them or even the savvy for crowdfunding because it can be a daunting concept in that it seems difficult to create the almost mimetic interest that feeds such a phenomenon.
Crowdfund Buzz is the number one PR firm worldwide when it comes to crowdfunding, and according to the way they operate, there is a psychology to crowdfunding.
Photo by: Bizking2u via Wikimedia Commons
"From almost any standpoint, crowdfunding is one of the most misunderstood subjects in modern history, if people know what it is at all. Far too many people approach crowdfunding with the mentality of a prospector off to the gold mine to make their fortune;
they operate under the mistaken notion that all they need to do launch their campaign and immediately start raising money day and night," says Howard Sherman, manager of CrowdFundBuzz.Com responsible for setting a Kickstarter record by bringing a client to 100 percent funding in 24 hours and 400 percent in four days.
Sherman is widely considered to be an expert on the subject, and those who understand the intricacies of crowdfunding know that it is, indeed, a broadly misunderstood concept.
Sherman discussed with Crowdfund Insider in considerable detail just how many different ways there are for people to misunderstand how to use crowdfunding.
He analyzed the phenomenon from the perspective of determining what motivates people to use crowdfunding in the first place, but he also looks at it through the lens of benefactors to illustrate what it actually is that motivates anyone to give money.
"Just a few of the many subsets of this thinking include:
My product is epic. People are going to find my project, love the perks and back my campaign to get one.
My idea is brilliant. I don't have the money to produce a prototype or anything else so I'll crowdfund.
I can make a lot of money with crowdfunding. I'll slap up a campaign, pay nothing out of pocket and if I rake it in then great!And if I don't, who cares?"
These are ultimately ideas amateur crowdfunders often have, and these mentalities fail consistently, according to Sherman.
He said no one should be surprised by those failures because crowdfunding failure has a high incidence rate, and he attributed that to crowdfunding campaigns not getting the requisite resources to be successful.
When the crowdfunder launches the project in question, that person or entity often takes the liberty of kicking back and believing that money will simply come trickling in without any work being done on their part.
They don't make any reasonable efforts to push the project into success, so the campaign usually dies a slow death on the ground by the time its deadline is reached.
"I've seen this a thousand times if not more," Sherman said.
He talked about having conversations with loads of people who had experienced this, and in the course of conversation with these people, he often asks why they allow their campaigns to fail.
Crowdfund Buzz is a significant PR firm that spends a lot of its time discussing with clients how to create the best publicity as a means to reach the widest possible audience and bring in all the backers they can.
At a certain point, though, during discussion of brass tacks, they talk services and fees, and this makes the crowdfunder get a bit antsy, which prompts them to ask all sorts of questions that indicate to Sherman whether or not the client knows what he or she is getting into.
Clients apparently ask Sherman all the time when his firm explains fees and services whether or not successful funding is a guarantee.
They may also ask about the firm's success rate, or they might inquire about the firm promoting the campaign first before receiving payment so that the money can be taken from the funding itself.
Sherman made it safe in his discourse for Crowdfund Insider that these kinds of questions are only the tip of the iceberg.
"Questions like these makes it clear the crowdfunder lacks even basic knowledge of the business world, specifically the marketing/advertising/PR aspects where guarantees of any kind cannot be made, success rates are impossible to calculate (more to the point, the term "success rate" doesn't exist in the public communications sector) and rolling out a promotional campaign with no money up front is something no proper firm would ever entertain," Sherman explained.
Sherman said: "The psychology of crowdfunding can be stated in a single sentence; treat any crowdfunding decision as a business decision and act accordingly."
Sherman talks about way too many crowdfunders having little to no business education, savvy or experience and breaking into crowdfunding with no preparation whatsoever.
They, of course, don't recognize that the reward is proportional to the risk in business.
Investors, likewise, sometimes miss the fact that their money may as well be invested in the stock market if they invest in equity crowdfunding campaigns.
"If you're planning to succeed in crowdfunding you will need to establish a budget for money you will invest in a quality crowdfunding pitch video, related imagery and marketing and promotion of your project.
Crowdfunding curve ball: Some entrepreneurs fully EXPECT a crowdfunding campaign to fail.
Why? They're using crowdfunding as a market research tool to test product validation.
If the campaign succeeds, they go ahead with production and perk shipping.
If it fails, they drop the idea like a hot potato and come up with a whole new product idea and try all over again," according to Sherman.
Successful crowdfunding also has to be based on facts.
All sorts of good-looking projects tank because they don't live up to what's been advertised.
The crowdfunder then becomes viewed as failing to deliver because the product or service provided is founded on claims that lack factual support.
Sherman advises, "If you're planning a crowdfunding campaign do your research on video production companies, graphic designers, crowdfunding consultants and promotional firms.
Compare fees and services, examine samples of their work and make sure you're making informed decisions.
Researching the basis of the campaign itself is critical;
does the world really need another iPhone case or portable charger?
Does your product do something better or differently than anything else on the market?
If you came up with something seriously cool or cutting edge can you support your claims to convince even the most skeptical consumer, journalist, blogger or reporter?"