Crowdfunding is Great at Marketing, But Sucks at Raising Real Cash

According to a Canadian news outlet, more Canucks are raising funds using social media's crowdfunding to start their businesses.

Even your best friend will think twice about
funding your project if it doesn't look successful.

That may be true, but real money comes from actually selling a needed product or service to those that want it, not giving away swag online to convince people they need your product or service.

Most crowdfunding projects succeed based on the "gifts" you provide in exchange for people -- called "funders" -- donating to your project.

It's a loss leader from a marketing point of view, because you have to give away something to get something in return.

Loss leaders don't raise capital -- that's why it's called a "loss" in the first place.

And you have to often spend your own money to get others to fund your project. Most crowdfunding websites recommend having launch parties, or creating media stunts, or other costly events to get your friends funding right away.

After testing out crowdfunding, I learned to raise any money this way, you first had to spend a great deal of your own money, and it forces you to rely far too heavily on your friends and family to spend their money.

It's all part of "greenbar syndrome."

All crowdfunding websites have a progress bar, telling potential funders how much of your crowdfunding goal you have reached, and how long you have to keep trying.

No one wants to fund something that doesn't look like it will be successful. So if your progress bar indicates you are very far from reaching your goal, few will click the button to donate to your cause.

The Kickstarter Greenbar will make or break any project.

Failure to get that progress bar to move in a positive way is called "greenbar syndrome" -- as most of them are green, and it's a very common problem -- if not the MOST common one -- which kills over 60 percent of crowdfunding campaigns.

Yep, on average, only 40% of the people that try to raise funds through crowdfunding are actually successful.

That's not bad, because raising any money for anything is a challenge -- money doesn't grow on trees.

However, if you rely on crowdfunding to actually raise money, you'll either fail or lose more than you were hoping to raise in most cases, all because of greenbar syndrome.

To get that green progress bar up to a level where strangers will feel comfortable donating, you have to spend much of your own money.

It's like going to a bank, asking for a loan, and being told you have to put up 40-60% of the initial funds yourself -- those are the typical numbers the major crowdfunding websites recommend you get your progress bar up to, if you want to avoid greenbar syndrome.

Crowdfunding isn't great for raising funds, but works
to grow a loyal and dedicated following to your brand.

In the real world of business, if you were to put up that much of your own personal cash to start your business, you'd be broke before you even began.

Crowdfunding sucks at raising capital.

But it's awesome at growing friends, fans and followers to your company, it's brand, and and it's channels.

If you see crowdfunding for what it really is -- a marketing tool -- then you can create a budget for how much you are willing to spend on it, and the remaining funders that follow, will become loyal fans of your brand.

Then follow-up with those new fans, as they are key prospects to target, because they've proven they love your brand, so they'll be easily converted into paying customers.

But don't try to raise serious coin using crowdfunding.

It just isn't practical.

How NOT to be a Shark During Shark Week

Unless you've been under a rock recently, you've probably seen the hilarious, in-your-face television commercial Discovery Channel is running promoting their Shark Week.

In case you haven't here's the YouTube:

The term "shark" sends chills down our spines in a business sense too -- thanks to another American television show called "Shark Tank," where self-made entrepreneurs turned investors, listen and more often than not, chew out new entrepreneurs who have come on the show hand out, looking for some much needed cash.

We have a similar venture-based reality show here in Canada called "Dragon's Den" -- which actually features two of the same investors on the American show.

Before I go, let me be clear, I am a huge fan of CBC's Dragon's Den, which airs Sunday and Monday nights on the Canadian Broadcasting Corporation's main channels. See, I'm even giving you guys a free plug -- how about tossing some cash my way. . . 

Ever have one of those days?

You don't have to be a mean fire breathing dragon, or a cold hearted shark to do business, even if you don't like the pitch, the product or the person.

Shattering someone's dreams isn't just cold hearted, it's downright mean.

Now, there are some really, REALLY bad ideas out there. 

The second someone even mentions "MLM" -- I'm out -- BIG TIME.

Multi-Level Marketing (MLM) -- AKA -- a pyramid scheme -- despite what those running MLM businesses claim -- is nothing more than a scam which preys on the hopes of the desperate and the poor. NO ONE gets rich off of MLM except the person at the VERY top -- which usually is the person that started the scam in the first place.

RANT OFF -- sorry -- MLM bilks thousands of innocent people every year, it really gets my blood boiling.

Back to the topic at hand -- how not to be a shark or a dragon in forming business relationships.

This goes not just for venture capitalists, angel investors, and others looking to invest in and partner with entrepreneurs, but also with entrepreneurs too -- just be nice.

Remember when you were a kid, and your parents told you to "play nice?"

That's sound advice, because although you may be currently listening to a pitch that seemingly never ends, down the road, it may be you seeking out a business relationship from it's presenter.

If you cause someone to cry, or more likely, just never forget how horrible you made them feel, then when you approach them because they now have something you want a piece of -- oh boy -- I wish I had a camera with a live feed to the world when that's happened to me.

It certainly would make for entertaining -- perhaps dare I say more entertaining -- television than "Shark' Tank" and "Dragon's Den."

Sometimes it's better to grin and bare it, listening to awful elevator pitches, handling grungy products you wouldn't pay someone to use, or even sitting across from some slimy character you swear you'd never do business with, ever.

Because you never know if that person is going to be the next Elon Musk (founder of Tesla Automobiles), Mark Zuckerberg (founder of Facebook), or Richard Branson (come on -- who doesn't know this dude?)

Don't be a shark, even though it's shark week.