How Crowdfunding Can Help You Launch Your Social Enterprise | by StartSomeGood



Image from One Wave’s crowdfunding campaign

Over the past ten years as the social enterprise movement has grown, fueled by the launch of new purpose-driven products, companies and models in every industry and niche, crowdfunding has become a key driver of that innovation.

At StartSomeGood we are proud to have worked with many new social enterprises, from food trucks to mind-control wheelchairs, beer to bikinis, seafood delivery to emerging technology, who have successfully used crowdfunding as part of their go-to-market or growth strategy.

Crowdfunding is a powerful tool for anyone needing funds to change the world but for social enterprise founders it is coming to play an especially important role, helping emerging entrepreneurs launch and grow their enterprises.

Here’s how…

1. It is a very lean way to test a new product

In the early stages of a new business venture you don’t really need money; you need validation.

You need to know that some group of people want and are willing to pay for the product or service you are offering.

A social enterprise, unlike a traditional non-profit, can’t just sell the story of the impact they are creating and ask for donations, although many do start by doing this initially. However sooner rather than later you will need to also demonstrate the ability to sell the product.

One way to try and establish this is by asking people, but for social enterprises this too is uniquely challenging. The very fact that you are trying to start a meaningful, purposeful enterprise will result in more people telling you what they think you want to hear out of a desire to be encouraging.

Also humans are not very good at predicting their future behavior.

At the end of the day, the only way to prove that someone will pay for something is to try and sell it to them.

Crowdfunding allows you to do that in a lean and effective way, without the need for your own online infrastructure.

Warndu products, launched via crowdfunding

The Lesson: If you are crowdfunding a new social enterprise you have a choice between fundraising to launch that enterprise or using the crowdfunding campaign as the launch. In the former you will be focusing on the social impact story and looking for more philanthropically-minded contribution; in the second you will be seeking to sell your social enterprise product or service to your target marketing. We like this approach because when you succeed you don’t just have money you have real customers and validation.

2. You can sell a product before paying to manufacture it, reducing risk

What’s more, you can sell the product before you need to produce it, reducing waste and risk.

Not so long ago, if you wanted to launch a social enterprise t-shirt company you would need to design and print a bunch of shirts, paying out significant funds, then try and recoup those costs through sales.

This sequence is only possible if you have the funds to pay for that initial manufacturing, and carries with it the danger that you will then find yourself unable to sell them, ending up with a garage full of boxes of unsold shirts and a big financial loss.

Now, through crowdfunding, you can offer your t-shirts and make sure people really want them and will pay for them, collect the specific sizing they want, then produce and ship exactly what’s needed, without the risk of financial disaster.

Indigenous streetwear label Sacred Era, who launched via crowdfunding

The lesson: Treat the crowdfunding campaign as a product launch. You may not have manufactured the product but you need to have completed design and testing so you’re ready to unveil it to the public, and ask them to buy it. This requires quality product shots, demo’s and clarity on pricing. Don’t just describe things: show us. If it’s a space or a building, show an artist’s rendering of what it will look like, or architects’ drawings. If it’s an app or a book have a number of screens and pages designed up, so we can see what it will look like. If it’s a movie cut a great trailer. We’ve even seen people make houses out of cardboard then film at that scale to give a sense of what their space will look like.

3. Crowdfunding is filling a gap for early-stage “angel” investment for ethical businesses

As we covered recently in our post on why social enterprises fail, there simply isn’t very much early-stage risk-tolerant investment for social enterprises.

The power of crowdfunding is it allows each individual contributor to find their own acceptable level of risk and contribution.

Whereas an investment pitch asks an individual or institution to put in a significant amount of funds themselves, with all the attendant risks, crowdfunding allows for contributions as little as $10 up into the thousands.

In financial industry jargon this “fractionalizes” the risk by spreading it across more people.

It’s hard to be too adventurous and back a new and risky venture with $100,000, even if you’re got it, and a lot easier to do so with $100. If 1,000 people can be persuaded to give $100 you can still get to $100,000.

To inspire this trust and credibility it’s important to choose the right crowdfunding model. There are two to choose from: keep-what-you-raise, whereby you keep contributions regardless of reaching your goal, and all-or-nothing, where you must reach your goal before funds are processed.

For anything that is new, de-risking your project is key. The keep-what-you-raise model, whereby you’ll keep my donation even if unable to go ahead with the project as described, is simply too risky for most potential donors. It restricts largely restricts your supports to those who already know you and trust you. Whereas the clarity of the all-or-nothing model, the commitment to only take supporter’s money if you have sufficient funds to follow through, creates credibility and confidence in potential donors.

AbilityMade, a social enterprise improving child orthotics, who raise early funding through crowdfunding

The lesson: To give yourself a better chance of acquiring new donors and expanding your community use all-or-nothing crowdfunding. All or nothing platforms have 2–4 X the success rate of their keep-what-you-raise peers.

4. Crowdfunding builds social capital

In many ways the biggest benefit of crowdfunding isn’t raising funds at all — it’s raising a crowd.

Or, to use a better and more apt word, a community.

To succeed almost any effort to impact the world needs a community around it. It could be a community of customers, or activists, or participants, but without the support of a wider group of people little progress can be made.

Great crowdfunding campaigns represent the coming together of just such a community, united in their desire to see this vision for the future made real, and their willingness to trust that entrepreneur or team to make it real.

We have heard many many times from successful crowdfunders that while they came to StartSomeGood looking for money — as you do — they later realized later that the social capital they generated was the greater asset in the long-run, because it long outlasted the financial capital.

As Simon Sinek said, “When people are financially invested, they want a return. When people are emotionally invested, they want to contribute.”

Crowdfunding is a chance to build an emotional connection with a community so that together you can make something real in the world. It relies on contribution, and contribution relies on real connection with your story and your cause.

Once that connection is made it is a great asset, as your community will help recruit new customers, promote you online, share your campaign and stick with you even when things don’t all go according to plan (as they almost certainly won’t).

The reason crowdfunding — and especially all-or-nothing crowdfunding — campaigns are so good at generating this social capital is they represent a communal effort.

Whereas a traditional online donation or sale is an individual decision, crowdfunding campaigns require numerous contributions to succeed, and call on their supporters to help rally that community to achieve the goal. When the goal is then achieved people feel that they were really part of something that matters, and that’s the best feeling in the world.

Radio SkidRow saved their station through crowdfunding after they lost their government funding

The Lesson: Don’t make your campaign about you and your need for funding; make it about the cause and the opportunity people have to be part of making a difference. Emphasis that the enterprise can’t go ahead, or the product can’t launch, if you don’t have sufficient buy-in now. Treat every new contributor as a member of the team, and send them gratitude and encouragement to keep sharing.