The number #1 barrier to getting a business off the ground is fear and I’ve shared tips and solutions on fear of failure and how to overcome this barrier for years. Today, I want to focus on the second biggest barrier to getting a business off the ground. What do you think it is? Money. Entrepreneurs struggle with access to enough money to stay in business until it becomes profitable. According to the US Small Business Administration, at any given time, there are roughly 27 million US businesses in need of capital.
In the past, access to money to build a business has been limited by a very small pool of people that we know or come in contact with. Reaching out to friends and family is how most entrepreneurs get started or maybe you bankrolled yourself initially by using a credit card (like me!). These tactics present a very narrow path to securing the much needed capital entrepreneurs need for expansion.
I’ve become interested in this process lately as some of my clients have been looking at Crowdfunding as a solution to getting access to the capital needed for their next level of business growth.
Crowdfunding is a tool that allows you to mine the online world for like-minded individuals and fast-track your passion project way beyond what you could ever imagine. There are more than 700 crowdfunding sites online, funding a variety of projects and the number is expected to double in the next few years.
If you’ve got a passion project that’s on hold due to lack of funds or maybe you’re an entrepreneur with a proven business model ready to scale, but lack the capital to reach that next level, crowdfunding may be exactly what you need.
There are four main types of Crowdfunding. Each one is based on what the investor/donor receives in return for helping fund a campaign. Check out the differences below:
1. Donation – This is a simple version of the traditional charity model. Donors send money and get a feeling of gratitude and a receipt to claim on their taxes.
2. Debt – This is sometimes referred to as micro-lending. This is where the entrepreneur asks the “crowd” for a loan and in return, they repay the loan with interest. One example of this type of crowdfunding is Kiva.
3. Equity – This is a newer type of crowdfunding and allows the business owner to sell equity in their company online, asking investors for cash in return for stock.
4. Reward or Incentive – The donor sends money to support the creation of a product or service that inspires them and in return, they get a reward. Examples: Send $25 and get a t-shirt. Send $100 and get a sample of the product you’re helping to fund. This type of crowdfunding is currently the most popular and has shown to be much more effective than other types. Examples of this type of crowdfunding are Indiegogo and Kickstarter.
Wondering just how effective crowdfunding might be? Uber raised $1.3M through crowdfunding for their passion project which has become a household name, especially in metropolitan cities.
I’m barley scratching the surface on this new platform to help entrepreneurs grow their businesses and get their passion project out into the world. There’s a plethora of information online. In addition, there are a few essential elements that have to be clear before you enter into your own crowdfunding campaign such as determining the minimum amount you would need, if funded, to help you move your business forward in a meaningful way. Also, you’ll need to set aside some serious planning time to prepare for a successful campaign.
Don’t let lack of funds keep you from realizing your dream. Today, that is no longer a barrier to entry. Abandon your fears, create a plan and the money will come. And if you’ve run a crowdfunding campaign for your company, I’d love to hear about your experience.
And in the words of Jerry McGuire, “Show me the money!” ; -)