Crowdfunding, finance

Disadvantages of Crowdfunding

With all of the hype of how easy it is to use crowdfunding to raise money for your business, There are some disadvantages. I don’t want to be the Debbie Downer of the crowdfunding world but there are some hard truths to crowdfunding. And I like to be honest so that everyone knows what they are getting into. 

This isn’t meant to be a fear tactic but another reason to be motivated to complete the project. Have you heard the phrase, “If it were easy, everyone would do it.”? Well, here you go.n This is yet another example. Once your project goes live, you’ll get all kinds of offers to help you raise money for a price. Some companies will offer to get you publicity. You should be asking if the publicity will lead to more contributions or simply money you are paying out to another business. 

So let’s look at some of the potential disadvantages of crowdfunding. Not everyone will experience these disadvantages though. 

  1. Lots of work required to run a campaign. Unless you have a funding angel looking over your shoulders, you will probably have to do a lot of work before he campaign begins. Then you will have to do lots of work once the campaign launches-getting more publicity, answering questions. Then you will have to fulfill all of the rewards once the project ends. But hey, you’ll hopefully have new customers after you’re done!
  2. Takes time away from running your business. Guess what? You only have 24 hours in a day. So if you are working on your crowdfunding project, researching, budgeting, creating videos, answering emails, pitching publicity stories, then you are not working on your business. If you have several employees, you can spread the work. But if you’re a solo cinnamon roll baker, then you either have to stop baking so many cinnamon rolls or get less sleep to work on the campaign. 
  3. Only half of all crowdfunding projects are fully funded. This may be the worse news yet. Only half are fully funded. Half fail and half succeed. Are you a glass half empty or glass half full person? So, what will you do to succeed? 
  4. Hurt reputation. What happens when you don’t get fully funded on your project after doing all of that work? Well, you may not receive all of the money that you need. You may also suffer a little ego loss by way of a hurt personal or business reputation. Of course, you can always spin this by proclaiming that you learned a lot and the next campaign will be a guaranteed success!
  5. Perception of bad business or idea. So if you can’t get 1,000 people to give you $20 to share your dream, then maybe your dream isn’t likable by others. Your idea may be too extreme or too narrow of a market. Of course, it’s more likely that you need to look at your business plan and find a better way to reach your target audience. But, there may not be enough people to support your business. Great ideas don’t always equate to great businesses. 

Don’t be discouraged after reading this. Just be informed. Be weary when you’re bombarded with companies saying that they can help you be successful! Be equipped to handle the potential struggles so that you can grow your business! It can’t be worse than seeing the red “Rejection” stamp on a bank loan, can it? 

 

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