Crowdfunding: What It Is, And How It Can Affect Your Business

Crowdfunding is a new way for any business to either begin operations or expand an existing company. In essence, the definition of crowdfunding is a mass of people who agree that a project’s success is worth betting on, and then who each donate a small amount of money to that project. Together, those small amounts can represent a significant financial boost for a company needing to complete a project.

A Non-Traditional Means Of Acquiring Needed Funds

Crowdfunding doesn’t follow the more traditional lines of funding like venture capital and bank loans. Instead, it utilizes the power of mass collaboration to achieve the desired result. Crowdfunding could also be considered to be the next step in the evolution of crowdsourcing, which is based on the principle that a crowd can be assigned and together, complete a single task.

The process of crowdfunding can also be used to determine whether or not the general public deems an idea to be viable or profitable. This may be disappointing, but at the same time can end up saving a would-be business owner thousands of dollars on supplies and marketing materials.

The Benefits Of Crowdfunding

In addition to receiving much-needing funding, your business can benefit from crowdfunding in several interesting ways. When you submit your idea for crowdfunding, you receive immediate exposure for your business or idea. This can have a number of effects on those who are new to your business.

You may be able to solidify an already-established brand in the minds of new customers and generate deeper loyalty, as each person’s investment in your business means that they each become a part of your company.

This increased exposure can also work wonders on those who already proclaim themselves to be fans of your business, turning them into evangelists who won’t hesitate to tell the world about how great they think you are.

For businesses in the pre-launch stage, the buzz created from crowdfunding can help to create a buzz for your project and provide an extra financial boost and more attention when it’s time for you to launch.

But Be Aware Of These Potential Disadvantages

As we well know, there is a potential downside to every situation or tactic we encounter. The same is true for crowdfunding. Because it’s still a relatively new concept with little in place as far as legalities go, crowdfunding carries with it an additional element of risk. For example, there is still no course of action in place for those business who are crowdfunded but then fail for some other reason. But it should be stated that even with all of these potential risks, crowdfunding can and has proven to be very beneficial for many entrepreneurs.

Among some of the risks involved with crowdfunding is not being prepared to put more money, effort and time into it than you expect to. Things can and do happen in the world of business that may seem simple at the outset, but become more complicated the farther in your journey.

Knowing how you handle rejection can be an important aspect to a successful crowdfunding experience. In effect, by choosing to go the crowdfunding route, you are leaving it to the people to decide whether or not your business has value. And they may determine that it doesn’t. Should that happen, congratulate yourself for being brave enough to lay everything out on the table, and think about your next steps with confidence.

Regardless of the outcome of your crowdfunding experience, this alternative offers multiple opportunities to learn about ecommerce, effective communication with others and even the development of your business’s unique selling proposition.

  • Crowdfunding businesses – benefits and risks

Guest author Margaret Li enjoys writing on a variety of topics, particularly related to technology.  Check out what Margaret has written on how to locate internet providers in Memphis.