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SMALL BUSINESS
14 CRAIN’S CLEVELAND BUSINESS
SIGNIFICANT STEPS TO A SUCCESSFUL CROWDFUNDING CAMPAIGN Ron Young enjoys perusing online crowdfunding websites. In the past, he pledged support for two small business ventures on Kickstarter. As a reward for or fulfillment of his support, the campaigning entrepreneurs respectively promised him an iPhone holding device and iPhone magnetic backing. “I am interested in new and interesting programs. I like following the entrepreneurial spirit,” said the Rev. Young, who is senior pastor at St. Paul Lutheran Church of Westlake. Most recently, that crowdfunding curiosity led to his discovery and financial support of Better Bit of Butter Cookies of South Euclid; in turn, owner Christine Zadnik Mehling promised a cookie-decorating class and company tote bag. Mrs. Mehling’s Kickstarter campaign sought supporters for her business’s relocation. The Rev. Young enjoyed finding a local business and planned to use the class reward as a birthday gift for his wife Jeri Young. The decorated cookies brought home by his wife and two guests were delicious, he said. Previously, the Youngs attended the business’s open house; Mrs. Mehling invited her Kickstarter supporters. Although there was some delay in reward fulfillment and a desire for more communication, the Rev. Young said he was pleased with his latest Kickstarter experience. As for previous experiences, the magnetic phone backing arrived a few weeks late, but was built as promised. Not so with the iPhone holder: after 18 months and no reward, he asked for and received a nearly full refund. “Any consumer thinking about contributing to a crowdfunding campaign should research the company seeking money as well as the crowdfunding platform,” said Bob Cohen, CEO of the Braintree Business Development Center of Mansfield. “Red flags include poorly produced video pitches, a product that has not yet been prototyped, vagueness about what the money will be used for and lack of clarity about what the contributor will receive in return for the contribution,” Dr. Cohen added. As for entrepreneurs who have a successful crowdfunding campaign, steps can be taken to proactively manage backer relations. ■ Offer rewards that can be handled, ones that can be easily manufactured and/or ordered and shipped. “Good business practices translate into good crowdfunding practices — have turnaround procedures in place
to process orders sooner than later,” Dr. Cohen said. ■ Evaluate if the campaign can sustain rewards, particularly the reward shipping costs. “Make sure the reward isn’t going to eat away at the money that is being raised,” said Valerie Mayen, owner of YellowcakeShop, a contemporary garment shop in Gordon Square, showcasing Ms. Mayen’s original designs for women and children. “Sometimes you cannot reward the client, when the business is in a state where it needs to be built up; you have to be smart about giveaways,” said Ms. Mayen, whose latest campaign was not reward-based. ■ Owner communication builds customer relationships. “We encourage people to be transparent and open with their backers,” said Justin Kazmark, a Kickstarter spokesperson. “It’s not just transactional activity; it’s emotional…Backers find it compelling.” ■ Regular communication conveys that supporters are important. Give backers behind-the-scenes access; acknowledge the business demands, describe how campaign goals are being reached — even if progress is incremental. “Frequency is important; stay on their radar, but don’t annoy them … Multiple postings per day are a turnoff,” said Rachel Kacenjar owner of Re/Dress of Old Brooklyn, an online plus-size modern and vintage clothing store. “People want new information. They don’t want the same thing over and over.” ■ Take customer service seriously: Be responsive when supporters post or email complaints. “Everybody says, ‘The customer is always right’ — the customer is not always right, but you do have to be your kindest in resolving a problem,” Ms. Mayen said. “Where you can bend — bend; where you can’t, be kind.” ■ Be in this for the long haul: Maintain the supporter connection. “There are benefits to crowdfunding beyond cash … being able to reach out to them (supporters) forever,” said Rose Levy, a spokeswoman for Indiegogo, another online crowdfunding site. “You have this customer base of people who voted for you; use them as your evangelists.” ■ Confirm with the crowdfunding supporter that it’s OK to move their contact information into the business’s general customer database. Keep them flagged as crowdfunding supporters, though, for the next crowdfunding campaign. — Sharon Schnall
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Post-fundraising challenges “For some people it’s the right technique; for some people it’s a disastrous technique … for the (entrepreneur) there are a lot of challenges,” said Ethan Mollick, assistant professor of management at the Wharton School of the University of Pennsylvania. Even when campaigning entrepreneurs meet or exceed financial goals, there are other challenges: having a large or greater-than-expected supporter following; supporter connectivity to the entrepreneur; and supporter expectation regarding timely reward fulfillment. Simply put, the supporter is drawn to the campaign, intrigued by the product and willing to support the effort, but expects timely reward delivery. Ongoing communication about the business is desired — not just about reward fulfillment. “(Supporters are) special customers,” said Ken Burns, electrical engineer and owner of TinyCircuits of Akron. “They’re between an investor and a customer.” Campaign supporters are not angel investors or venture capitalists; they do not have equity stakes in the business, Mr. Burns said. Still, they need to be brought into the process, receiving explanations of where the owner is in meeting campaign goals, he added. “You’re engaging a group of people who want to help you. If you’re just asking them for money, then I think you have the wrong goal,” said Dr. Mollick, who studies innovation and entrepreneurship and is the author of a soon to-bepublished paper called “The Dynamics of Crowdfunding: Determinants of Success and Failure.” Like Mrs. Mehling and her bakery, Mr. Burns met industry criteria of successful crowdfunding: his 30day Kickstarter campaign, to turn electronic prototypes into manufactured products, in fall 2012, realized $109,700 from 1,186 backers, surging almost $100,000 beyond a $10,000 goal. His TinyDuino products, offered to Kickstarter supporters of a certain level, were highly miniaturized circuit boards that could be used for building customized products like robots or wearable sensors, for example, when embedded into a designated computer framework. Although 75% of Mr. Burns’ backers were familiar with the products’ technical capabilities, “well under 1%” were people that he knew; approximately 50%, he said, were from Canada and overseas. But, buyer and campaigner beware: good-intentioned campaigners and quality products may not translate to timely reward fulfillment and frequent communication.
Delivering the goods Kickstarter generates the largest volume of crowdfunding activity both in successful campaigns and associated monies; Indiegogo is its closest competitor in terms of activity, said Justin Kazmark, a spokesman for the New York Citybased Kickstarter. “Over 96% (of Kickstarter campaigns) actually deliver what they said, but not on time … less than 25% do (deliver) on time,” said Dr. Mollick, who studied 48,526 Kickstarter projects representing $237 million in funding pledged. Mr. Burns and Mrs. Mehling each described a predominantly sup-
portive and congratulatory funder base; they also experienced delays in reward fulfillment — not surprisingly, funder rancor followed. “You get instant feedback from Internet customers,” Mr. Burns said. “Let’s just say people can be harsh on the Internet — they can be quite frank.” In Mrs. Mehling’s case, her professional priorities were divided among serving an existing customer base, renovating and opening a new retail space and serving the new campaign contingent. Similarly, Mr. Burns juggled the demands of a then full-time job elsewhere, opening his new business space, staff training and new product manufacturing. “One of the problems: There is volume,” said Bob Cohen, CEO of the Braintree Business Development Center of Mansfield. “Additionally, things can happen so quickly in crowdfunding … (the campaigners are) not geared to meet that demand.” Braintree serves technology entrepreneurs within a 21-county Northeast Ohio region. A business technology incubator, it is part of the JumpStart Entrepreneurial Network. Dr. Cohen likens sudden crowdfunding success to that of a small farmer, approaching a grocery store buyer about selling produce at the local store, only to be offered a contract for all store locations and being unprepared to meet that demand. “People wanting working capital for a product, they don’t know how long this (reward fulfillment) is going to take,” said Dr. Cohen, who works with small business owners seeking to launch crowdfunding campaigns. “Everything takes longer than people expect; everything ends up taking longer because there are so many pieces, so many components.”
The power of communication Ultimately, crowdfunding supporters want to see the business owner succeed, said Rachel Kacenjar, owner of Re/Dress, an online plus-size modern and vintage clothing store, currently operating out of Ms. Kacenjar’s Old Brooklyn home. This past March, Ms. Kacenjar raised $27,110 through 609 funders, using another online platform, Indiegogo of San Francisco; in 22 days, she exceeded a $25,000 goal. She sought support to: reopen the formerly New York City-based online business, one that she had purchased and previously been employed with as vice president of ecommerce. Other campaign goals were to increase product offerings and open a brick-and-mortar location. To date, the first two goals have been met; a Tremont retail location opens this fall, she said. Ms. Kacenjar, previously an independent professional fundraiser for nonprofits, was familiar with customer dynamics. She had some fulfillment difficulties, but managed reaction, for the most part proactively, with ongoing communication through personal and professional Facebook accounts, Twitter and her Indiegogo site, and one-on-one communication when needed. The result, she said, “was a tight-knit donor relationship.” But, communicating takes time; time when the crowdfunding entrepreneur is too exhausted to consider blogging to campaign followers. “You are not going to have free time because of the work involved with a crowdfunding campaign,” Ms. Kacenjar said. “I felt like I was going to have to put in the work — the campaign was my job.” ■