Crowdfunding is all the rage right now–for good reason. In March of this year, Kickstarter surpassed $1 billion in pledges made. A 2013 report by the World Bank projected that the global crowdfunding market could surpass $96 billion a year by 2025.
And let’s be honest: Crowdfunding is exciting. Consumers enjoy unprecedented influence. For an entrepreneur, it almost seems too good to be true: Simply put your idea out there for the world to see and let the donations roll in.
Unfortunately, it’s not nearly that easy. In fact, many crowdfunding campaigns fail–a fact that is easily obscured amidst all the breathless coverage of successful ones. Yes, some campaigns wildly exceed their goals. But far more fail to raise a fraction of the amount that’s really required to get a business up and running. If you have a great idea but are unsure of how to fund it, I bet you’ve been thinking about getting your own campaign going. I want you to put that thought on hold for a moment–because licensing might be a better route for you.
According to Justin Massion, a crowdfunding specialist who has raised over three quarters of a million dollars for various clientele, most entrepreneurs who want to crowdfund their ideas would be better off attempting to license them. For starters, many of the entrepreneurs who reach out to him for advice do so because they don’t have enough capital to start a business–which often means they don’t have enough money to spend on a campaign, either. For campaigns that are trying to raise more than $10,000, he thinks entrepreneurs need to spend at least $2,500–at a bare minimum– to be successful. That figure includes essential tasks like hiring PR support and having killer graphic design work done.
Crowdfunding campaigns live or die by how many people are willing to back them. Most entrepreneurs don’t realize that they need to have a large list of followers to reach out to for support, Massion says. Only a small fraction of those contacts will actually end up donating–so realistically, that list needs to be in the thousands. Developing that large of a network takes time and considerable effort.
“People think of crowdfunding as an alternative to starting a business, but really, it’s more akin to a pre-sale,” Massion says. “It’s just as complicated as if you’d finished making a product and were starting to go out and sell it. And after you finish a crowdfunding campaign, you still have so much to do in order to bring your product to market.”
Before you start planning your campaign any further, I recommend asking yourself: What am I really trying to accomplish here? If you have a great idea for a product you think belongs in the market, but aren’t sure you’re up for starting a business (financially-, experience-, or time-wise), consider licensing as an alternative to crowdfunding. It’s cheaper and less risky. Then again, if it’s being a business owner that excites you, take the time and spend the money to do your campaign right.
“When you finish a crowdfunding campaign, your workload increases exponentially. When you finish a licensing deal, your workload decreases exponentially. I want to ask people, ‘Do you know about licensing?'” Massion said. “It’s 10 times easier!”
Originally published on Inc.com October 23rd 2014.
