Crowdfunding Is A New Option For Entrepreneurs

By Dan Voorhis
The Wichita Eagle.

Kristina Boyd makes elegant Victorian-style greeting cards as a side business in her north-side home.

People loved them, but doing the work by hand took too long to be worth it. She needed a sophisticated printer that could work with cardstock.

“We reached a point where I thought if I don’t get funded, I’m just going to stop,” she said. “I’m not getting the kind of sales that I felt was worth my time. I’m at the point of the cycle where I needed more cards and more variety.”

Her business is called K.B. Boyd Cards and she has a site on craft website Etsy.

Money is tight at the Boyd home. She stays home during the day with her two small children and works evenings and on weekends, trading day-care chores with her husband. She didn’t think a bank would back her for the $450 she needed and didn’t want to put it on a credit card.

Classic business problem, new-fangled solution.

She turned to Kickstarter, the five-year-old crowdfunding website, to get the money. She raised it within 30 days and the printer is coming.

“It turned out really well,” she said. “I reached my mark and got some excess for supplies.”

Kickstarter is one of the most prominent crowdfunding sites. There are tons of them, a quick search for crowdfunding will turn up dozens.

Crowdfunding is an Internet innovation in which people can list their projects on a website to attract funding from a large group of people. There are many such websites, which make their money from keeping a percentage of the contributions. Their rules and what they fund are each a little different.

There are two quite different models of crowdfunding: the donation model and the investment model. In the first, people contribute money because they like the project and receive token rewards such as CDs or T-shirts. These sites often have a kind of a feel-good atmosphere and lean heavily toward artistic efforts such as movies, music and artwork.

The second model is websites that feel like a lot more like traditional business fundraising, trading money now for debt or equity, but these sites are still working their way toward a solid legal ground, as the federal government writes rules out how to regulate sites that would attract unsophisticated investors.

Brandon Michael Ellis, a music, religion and business student at Friends University, sought $1,000 through Kickstarter in 2013 to pay for some of the production of a CD of his music.

He describes the music as pop/rock with a Christian influence, with songs about love, faith and loss. He calls them “snapshots of my life.”

He reached his goal in 10 days and wound up with $1,785. “The Journey” was released this spring.

He was very positive about his experience with crowdfunding, but it takes a good bit of work.

“I definitely had to push,” he said, “posting something on some social media outlet daily, the video or a link or something. That is the key to the success. And it helps you connect to your fans.”

Kickstarter took 5 percent, plus Amazon, which processed the transactions, took more. He said they took 10 percent off the final contribution.

It doesn’t always work, though. Kickstarter, which requires that projects reach their target to get the money, says that only 42 percent make it.

Amy Young has made artisan soaps and lotions from scratch at her Wichita home under the name Foam on the Range for six years and full time for the last three.

In 2012, she successfully raised $2,500 in her first go round through Indiegogo.

“There are millions of ways out there to raise money, but not many of them are available to those with tiny businesses,” she said.

She tried again this year, asking for $10,000 for capital equipment she needed, but didn’t make it. Indiegogo does allow the crowdfund seekers to keep most of the money even if they don’t hit their goal.

She said she ran into limitations of the platform: much, if not most, of the money comes from family and friends, and friends of friends. Some of them will give once, but not again.

And, she said, she’s not great at getting out and hustling her wares and her fundraising campaign.

“But, I’m pleased with my experience and that things like the Indiegogo exist,” she said.

Daniel Hesting of Wichita is a little less generous.

He is seeking $5,000 to fund development of a small power turbine. He’s done a lot of work, receiving two patents and building several prototypes. For his pitch, he made a video and wrote a long narrative about the product.

He is still in the middle of his campaign — it expires Sept. 29 — but so far has attracted just one contributor, for $100.

Contacted this week, he seemed a little discouraged with his experience. Part of the issue, he said, is that the product might not appeal to the people who come to Kickstarter, the kind of people who tend to get excited by artistic projects or electronics or computer games.

He also said that maybe he needed to have his product look a little more polished, to package it better for non-engineers.
He said he did get one contact out of the deal that was promising.

“I’m not going to say it’s a bad experience,” he said. “You get out of it basically what you put into it.”

Susan Solovic, a St. Louis-based author and speaker on small business, entrepreneurism and technology, echoes every bit of advice given by those small business crowdfunding seekers.

Crowdfunding seekers have to realize the products don’t sell themselves, she said. They have to sell it and it’s hard work if it’s done right.

Much of the work is done before the campaign even begins, she said. People seeking money need to market themselves and their business, let their friends and family know, let their customers know. About half of funding comes from the extended circle of people who know the entrepreneur.

“It really does depend on the entrepreneur to sell the idea and sell the benefits and get people excited. It helps if people are strong on social media.”

Crowdfunding, at least the variety that relies on donations, certainly won’t replace traditional business funding. It’s too fickle and too focused on the fun and artistic. What it does best, Solovic said, is help small- or first-time businesses.

But there a number of benefits of a successful campaign are several, she said. The business owner doesn’t give up any equity or take on any debt.

And the process can really build up your network of customers and professional acquaintances, and teach several good lessons in online marketing.

“I think it’s for any start-up business that doesn’t have a history or a track record,” she said. “They may have a great idea, but the traditional funding sources are nervous about that kind of risk.”

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