Why crowdfunding doesn’t work – and solutions

I very often see projects either already running a crowdfunding, or in the process of evaluating crowdfunding as funding system.

The first are about to fail, the 2nd will fail – none (want to) realize so, and will push ahead until reality will arrive to cash all the checks they’re writing.

Let’s dive a bit into details.

Where the problem starts

Crowdfunding is a tool to generate funds with which finance your project – think of it as a piano.

Generating funds is a strategic business operation. It’s a vision who concretizes your goal, in which there’s use of tools thanks to mastery of their use – think of it as a symphony.

And that’s exactly where the problem lies in:

do people actually know how to plan a strategy to generate funds?

Or: if I give you a piano, can you play Mozart?

A bit more into details

It’s not that crowdfunding cannot intrinsically generate funds: it’s just that people grossly underestimate, for various reasons, how hard it is to generate funds. They think “crowdfunding” will make money by itself.

Here’s a practical example: say you want to raise 1M £ for your project. Think of these 2 ways:

1. Investors (B2B marketing) Market the project to 4 investors (people who work in your industry, and can reinvest their profits in it), professionally trained to understand the idea you’re selling, who will then fund 250.000K £ each.
2. Crowdfunding (B2C marketing) Market the project to 100.000 consumers, bearing in mind they possess no professional training in the idea you’re selling, because they only want to enjoy the product (e.g. No need for mechanical engineering degree to enjoy a nice car), who will then fund 10 £ each.

Or, simplified:

Market your idea to 4 individuals with great professional preparation in your field

vs

Market your idea to 100.000 individuals with no professional preparation in your field

This is a very practical way to look at how funding works – and how crowdfunding is such a titanic task. Way, way outside the capabilities of the people usually looking for it: those without access to investors and/or capital.

The “so good will sell itself” fallacy

Two main reasons because this is grossly wrong:

1- Market saturation It might have worked if your idea would’ve been the only one seen by your potential consumer. But, within the crazily information overly saturated society we’re in, do you actually think people will stop and think about your pitch just because it’s yours…?

Think of these images: this is your idea

This is the ideas that, on daily basis, a consumer gets bombarded with

What exactly is the reason because he should focus on yours? (Hey, this is legit marketing: that’s the UVP concept! Whoever figures out a good one is on the good way to get the cake)

2- Marketing skills Say you’ve got a great idea: are you sure you know how to pitch it in such a compelling way that people will feel the need to buy it? And that includes overcoming any asymmetrical information problem that there might be (nominally: how much does your consumer understand about your product? Say you’re a car driver: if I tell you this new car I’m offering you has 550Nm at 6500 RPM, do you instinctively know if that’s what you need? The answer is obviously no – unless you’re a real car aficionado. Which is a negligible % of your customer segmentation)

Solution: ask yourself real questions

No matter how much you fantasize, reality will always arrive. So, better to make it happen right now: be honest with yourself. Can you sell to millions of people at once? Like the top players of your industry do? If the answer is “Yes”, you would’ve already had a capital ready to be invested, from the last time you developed your business development skills – as a matter of fact: you’d be probably leading a huge corporation. Because generating revenues by selling ideas to millions of people is what corporations are for. They don’t build buildings and hire thousands of employees just for laughs: they’re needed. Entrepreneurship is just about the most difficult, and important, achievement ever accomplished by humanity – and, you could say, the biggest difference between us and the rest of the animal realm (ever read about Dunbar’s work about human intelligence?).

Not like that? Can’t sell to millions of people at once? It’s alright: go to corporations, or investors. That’s what they do for a living: they propel ideas in the world.