Fundraising

Why Some Small Business Owners Are Turning to Crowdfunding to Save Their Company

In times of crisis, some entrepreneurs are finding that their greatest support system is their customer base.
Why Some Small Business Owners Are Turning to Crowdfunding to Save Their Company
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This story appears in the December 2017 issue of Entrepreneur. Subscribe »

The building on Conover Street in the Red Hook section of Brooklyn that houses Sunny’s Bar isn’t much to look at -- just a squat utilitarian block of red-painted brick with a sign hanging over the front door that announces, helpfully, bar. In the froth and churn of Brooklyn real estate, buildings like it go down all the time to make way for offices and condos. But for owner Tone Balzano Johansen, widow of beloved longtime proprietor Sunny Balzano, it’s sacred space. It’s 100 years of Balzano family history, the place teeming with the ghosts of longshoremen and artists, a place where live music is something you do, not listen to. It’s a piece of old Brooklyn still doggedly refusing to knuckle under to the new world order.

Related: 3 Steps Effective Leaders Take When Dealing With Crisis

In 2012, Sunny’s Bar was wrecked by Hurricane Sandy. The flooding closed the place for 10 months and nearly drowned Johansen in her own basement. In the aftermath of the disaster, she raised more than $100,000 to fund repairs for the collapsing shell of the building, rallying the bar’s motley crew of regulars again and again for fundraising events, and running campaigns on both Kickstarter and Indiegogo. She did this while living like a squatter with the elderly Balzano and their preteen daughter in a cold and often electricity-less apartment next to the bar, huddling in a long, puffy down coat while workers put the ruined building back together from the foundation up. One day, it was so cold in the building that her computer froze under a plastic tarp. It was a brutal slog, with Johansen publicly cheerleading all the way while privately grappling with a complex knot of interconnected business problems that lay beneath the waterline of public view, like the bulk of an iceberg. “We were gutted. Both Sunny and myself,” Johansen says. There were days when she couldn’t stop crying.

Still, she had to persevere. To stop moving forward was to fail. And in fundraising -- perhaps even more than in business -- it’s vital to keep your game face on.

“My job in all of it was saying, ‘This needs to be done now.’ That was my job, to convey the urgency of it,” she says. 

Sunny’s Bar is not an isolated case. Many owners of beloved local businesses, especially in pricier cities, have been forced to swallow their pride and appeal to their customers in times of crisis -- a process streamlined by the rise of online crowdfunding platforms. While the reasons behind these campaigns are as varied as the businesses themselves -- tax woes, health troubles, rising rents, market shifts, acts of God -- what they all have in common is an unshakable core belief on the part of both owners and customers that the business is invaluable, even if it’s not a conventional success. Even if it’s a conventional failure.

Just look at Cambridge, Mass., ice cream maker Toscanini’s, whose owner, Gus Rancatore, racked up $167,000 in back taxes over eight years. In 2008, the business was seized and closed by the Massachusetts Department of Revenue. Within a week, customers had raised more than $30,000 through donations, giving Rancatore the boost he needed to come up with a payment plan and get back in business.

Or take the Clermont Lounge, a famously divey Atlanta strip club that has a black-duct-tape-topped bar and a reigning superstar, Blondie, with almost 40 years of career experience in crushing beer cans between her legendary breasts. In February, the Clermont was forced to shut down during a months-long construction project at a nearby hotel. A GoFundMe page that was started to ensure that the girls got paid during the hiatus cleared almost twice its $5,000 goal.

That said, making a charity cause out of a for-profit business isn’t easy. Running a fundraising campaign is a grinding, time-consuming business unto itself. Reaching out for help can take a psychological toll on proud, independent business owners. The failure rate for fundraising campaigns is high, and when campaigns fall short of their goals, they often fall far short, making a tough disappointment downright crushing. Hardest of all, a business might make it all the way through a fund-­raising campaign, declare success and then discover that it wasn’t enough.

Sunny’s Bar, for instance. By midsummer of 2013, most of the major repairs were finished. Against steep odds, the bar opened for business. Regulars rejoiced. Local newspapers ran glowing headlines. Sunny’s was saved. But then long-simmering family tensions began to boil, and Johansen had to start all over again. And that’s when it got really hard.

A decade ago, crowdfunding services like Indiegogo and Kickstarter launched as platforms for bringing new things into the world: creative projects, products, tech. But lately, online crowdfunding campaigns are becoming an important source of capital for brick-and-mortar local businesses in need of help, says David Mandelbrot, CEO of Indiegogo.

“With a lot of these smaller businesses, they don’t need the hundreds of thousands or millions of dollars that some of our larger companies need to launch a product. They need a few thousand dollars to make rent, or to replace some equipment,” he says.

Sometimes the circumstances are even more unusual. Take Manitoba’s, a bar in New York’s East Village. Until he was served with legal papers a couple of years ago, things were going fine for Richard “Handsome Dick” Manitoba, Sirius XM radio personality; front man of still-touring ’70s punk legends the Dictators, now called Manitoba NYC; and, since 1999, proprietor of Manitoba’s. 

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Manitoba’s is a living, breathing, grubby little museum of a punk rock dive on Avenue B, where you can plunk down $3 for a can of PBR, fire up the well-stocked jukebox and peruse the extensive collection of punk memorabilia lining the walls. Noise complaints and rising rents in fast-gentrifying neighborhoods have laid claim to many similar places, but Manitoba always managed to keep his head above water. What almost did the place in, in 2015, was a complaint filed by a wheelchair user who had sued several dozen businesses for violations of the Americans with Disabilities Act.

Manitoba won’t name the Florida personal injury law firm that litigated the suit. (He says he doesn’t want to get in trouble with his lawyer.) But there are a few firms in the business who are behind most cases like Manitoba’s. Serial ADA lawsuit filers have plagued small businesses across the country and have become especially pernicious in a few states, including New York. A peculiarity of the interplay between state and federal law has made it legal -- and lucrative -- for law firms to recruit disabled plaintiffs to sue businesses for infractions of the ADA, then press business owners to settle out of court. The sums typically run into the tens of thousands of dollars, though they’re still only a fraction of what it would cost the business owner to go to trial.

Manitoba says he would gladly have fixed any violations on the spot if he’d been given the option. “It was a scam, and a chance for a lawyer to put $20,000 in his pocket. And that’s what I did, and then he went away,” Manitoba says, with some heat. “I don’t have $20,000 cash sitting around to hand someone. It eats me up; it really eats me up.” 

So he launched a Save Manitoba’s! campaign on Indiegogo, with a goal of $25,000. The description of the bar’s predicament was vague, alluding to the owner being “forced to reluctantly settle a case with a private individual,” but the message was clear: We either pay or shut down.

To sweeten the pot, Manitoba put up a grab bag of rewards for backers: Dictators swag, bobblehead dolls, T-shirts, posters, even a couple of guitars autographed by Joan Jett and Debbie Harry. In a month, the campaign blew past its goal, raising more than $32,000. 

At first, Manitoba says, he was nervous to reach out. “In the beginning, my gut feeling was, it’s tough asking people for money. People might talk shit,” he says. “If I was a bad businessman and I couldn’t pay my bills, I wouldn’t say, ‘Save Manitoba’s.’ If I couldn’t run my business well enough, I wouldn’t run my business.” 

The depth of the community’s support stunned him. “I knew people liked us. I knew people had a good time. But the outpouring of caring -- people said, ‘You know what, dude, you gave your heart and soul to this culture we love so much. You need a few bucks, you got it,’” he says.

Besides settling the lawsuit, Manitoba hired a consultant to come in and go over every last inch of the bar, every doorway and faucet and table and fixture, and fix any potential ADA violations that might still be lurking. Now that the bar is out of financial danger, he’s thinking about making a few cosmetic upgrades in keeping with the spirit of the place, and the people who helped save it.

“I want to fix the bar up a little. Not with white couches, like some of these assholes in the neighborhood -- like you’re not cool enough to come in here,” he says.

While some owners are forced to turn to customers for a one-time bailout, others try to take their campaigns even further -- using the crisis to try to raise capital to not only save their faltering businesses but scale them.

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One of these businesses is Philly’s Black and Nobel, one of the last remaining black-owned independent bookstores in the country. Earlier this year, founder Hakim Hopkins was on the verge of shutting down the hulking, 14-year-old shop. Book sales were down, and the bulk of Black and Nobel’s revenue -- currently about three-quarters, Hopkins says -- came from shipping books to prison inmates, a business that can be run without a pricey brick-and-mortar location. “That’s why we’re still here. They’re still reading in prison. They still have time,” he says.

There was only one problem with Hopkins’ plan to wind down the business: His customers wouldn’t let him. “I’ve been fighting for the past few years to keep the doors open. The younger people were like, ‘No! This place saved my life!’”

So in June, he launched an ambitious $250,000 campaign on GoFundMe to keep Black and Nobel’s doors open and maintain the bookstore’s vital role as an event space, supporter of independent black writers and artists, and community hub. The campaign has gotten plenty of local press, and support from a few high-­profile local artists and athletes. But by the three-month mark, Black and Nobel raised just shy of $10,000, a far cry from what Hopkins was seeking.

At a glance, the Black and Nobel campaign appears doomed. But Hopkins says he’s just getting started. He is planning a neighborhood block party to raise more funds, and he wants to launch a series of promotional videos. “I’m not just gonna brush it off after six months,” he says.

If he can make it to the $250,000 goal, Hopkins has big plans: buying his own building, renovating and expanding the bookstore space, buying a tour bus to put Black and Nobel’s programming on wheels and take it around the country. And although the campaign has a long way to go, he’s heartened by the progress he’s made. “Mainly we started it to keep up with rent,” he says. “It’s getting to the point now where I feel like we’re going to be open, because we do have people who care.”

Promoting the fund-raising campaign is a bit like having a second job, Hopkins says -- a sentiment shared by many campaign founders. “It’s very draining. It’s like begging. And I’m an earner,” he says. Hopkins, who started his business as a street vendor with a table and a box of books, says he’s never had a bank loan, or even a credit card. Every dollar he spends on his business is a dollar he earned.

But Black and Nobel is too important to give up without a fight, he says. He’s watched elementary school kids who saw the bookstore as a haven grow up and graduate from college, and he feels his store made a difference in their lives.

“We helped build the community,” he says. “It’s more than a bookstore.” 

Image Credit: Shout

Crowdfunding campaigns frequently fall far short of their goals, research shows. Estimates of failure in the industry vary, but study after study reveals that more than half of campaigns fail -- and those that fail, fail hard. A 2014 study by the Wharton School’s Ethan Mollick of about 48,500 Kickstarter projects found that among the failed projects, the mean amount of funds raised was just north of 10 percent. Only 3 percent of the projects that failed to reach their goal made it to the halfway point. 

On its face, the campaign to save Brasslab, a New York City musical instrument repair shop that operated for almost 35 years, was a failure. The company was founded in 1983 by Chuck McAlexander, a master mechanic in the art of brass instrument repair, and his wife, Cynthia Keane. 

For decades, Keane says, Brasslab’s success rested on McAlexander’s reputation in a small, elite, tight-knit community of professional musicians. He was the best, and that was all there was to it. Wynton Marsalis went to McAlexander. So did Joe Alessi, principal trombonist in the New York Philharmonic. McAlexander fixed horns for the evangelical church House of God, the United States Marine Band, the Salvation Army. People mailed horns to Brasslab from Greece and Scandinavia and Australia and Japan. Once, Keane says, they got a tuba in the mail that had been accidentally dropped off the side of a bleacher on a Tuesday and had to be shipped back uncrumpled and good as new for an event on Friday. 

“We didn’t care who was famous. It would sometimes get us other customers, but they didn’t get special treatment,” Keane says.

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The first inkling of trouble arrived in 1989. Keane, who had been handling Brasslab’s tax forms, got a notification from the New York State Department of Taxation and Finance that they owed several quarters’ worth of back sales taxes, plus penalties and interest. There was an ultimatum: Pay $10,000 within 24 hours or they’d close the business immediately. 

Keane knows that she missed a few quarterly filings early on; she chalks it up to inexperience and lack of a business background. But by the time she realized the business owed back tax, she says, the interest and fees had begun to snowball beyond her ability to keep up with them. In the end, she says, the bill came to $94,000, only about a third of which was the original sales tax. 

Making things worse, over the years of wrangling back and forth with the tax office, the people assigned to her case kept disappearing. Every time she got a new agent, she had to start again from square one. “I lost count at six agents,” she says. “I’d set up deals and payment plans and they’d go away, get transferred, fired, change jobs. I would never hear from them again.”

Her long tax battle with the state has left her with tanked credit and a suspended driver’s license. Keane, who is also a lawyer in solo practice, is assembling an appeal. But before she could even begin to bring a case against the state, she says, she had to pay off the outstanding balance. So Keane, desperate and at the end of her rope, reached out for help on GoFundMe last December. And Brasslab’s customers came to her aid. 

“It was fast. It was easily $5,000 the first couple hours,” she says. “I was just stunned.”

In the end, the campaign collected about half of its goal -- $26,000, enough to pay off the back taxes -- but not enough to save the shop. In April, Brasslab closed its doors for good, and McAlexander and Keane sold off much of their equipment. They are still operating an online store, where they sell a handful of small, hand-tooled instrument parts and McAlexander is still taking on a few smaller jobs, like making custom valves for trombones -- something he’s known for.

The campaign’s failure, however, was in its way an unusual success. A business with no events and no gathering space for customers was able to rally its clientele to the cause, even though they were spread across the globe, and some of them had never even met the owners in person. The fundraiser brought back long-lost customers and made potentially valuable new connections. McAlexander was recently approached by an old customer, an instrument mechanic who now works at the brass repair shop in West Point. He’s interested in striking out on his own, Keane says, and he wants to hire McAlexander to come upstate and work with him on weekends. If the situation upstate comes together, McAlexander
can pass on some of the skills he’s spent a lifetime refining.

“He’ll finally have a place for his legacy,” she says.

Even though the company didn’t make it, Keane is still moved today by the outpouring of support. She says the fundraiser brought in donations from people they hadn’t been in touch with for years.

“You find out, when you’re in trouble, who your friends are,” she says.

It wasn’t long after Johansen’s successful bid to keep Sunny’s open that another storm started brewing. A bitter dispute between Johansen and the 17 other owners of the building -- all members of Balzano’s family -- had begun to simmer after the Sandy flood. The cousins thought the building would be condemned, and they wanted to sell. They brought the first potential buyer to look at the building while Johansen was showing a New York Times reporter around her flood-wrecked basement, hoping to drum up some publicity for the bar’s battle for survival.

“They listed the building without our consent,” she says of the cousins. “You just have to kind of try to keep it as cool as you can.”

In 2016, Balzano died of a brain embolism, and his death only intensified the dispute over the property. Soon after, Johansen -- whose stake in the building amounted to about 4 percent -- was faced with a choice: Watch as the family forced a sale of the building at the auction block, or come up with a way to buy them out. 

“Then started a whole new battle -- the battle to do as much business as humanly possible, to grow the business as fast as I could, so I could show our earnings potential to the banks,” Johansen says. 

Johansen reached out for help to the business community first. A major bank wouldn’t touch it, so she forged relationships with a few smaller community banks, including the Harlem-headquartered Carver Federal Savings Bank. With help from an adviser at the local Small Business Development Center and a business consultant working with a Sandy flood-aid group called Restore Red Hook, she crafted her first real business plan. 

“I hardly knew what a profit-and-loss statement was before this,” she says. “I don’t come from a business background; I’m an artist. I realized if I was ever going to be taken seriously by financial institutions, I needed to show that I was serious about what I was doing. And I feel like that was invaluable. It’s almost like business therapy, more than anything else.”

About six months after Balzano’s death, Johansen and the cousins came to a detailed agreement to sell. Then they raised the asking price by $1 million. “That was their last attempt to push me out,” she says. 

Johansen figured that if she could come up with the down payment, the business’s cash flow could handle the higher mortgage. She didn’t have 10 percent of $1 million in her back pocket. But the deadline was looming, so she said yes, figuring she could find a way. 

That’s when the second fund-raising campaign to save Sunny’s Bar was launched: a last-minute, seat-of-the-pants effort to meet the family’s terms. Johansen didn’t even have time to craft an online campaign video. On the advice of her bar manager, she decided to take payments over Venmo. 

Related: The 12 Invaluable Lessons Learned Enduring Hardship and Stress

The campaign got an assist from a few prominent local personalities. Johansen, a sculptor herself, got Duke Riley, Steven Skollar and Paul Jacobsen to donate works for an art auction. Gersh Kuntzman, a reporter for the New York Daily News, declared, “New York is not losing Sunny’s Bar -- not on my watch” and challenged other local journos to take up the cause.

When all was said and done, the second campaign to save Sunny’s raised $68,000. On July 25, in a complicated $2.6 million transaction that involved 13 deeds, three banks and a 1031 exchange, Johansen closed on the building at 253 Conover Street. 

“Imagine you’re pretending to be a robot, signing papers for five hours straight. That’s what I did,” she says.

It was the end of almost five years of nonstop hustling, which had taken a toll on Johansen both physically and spiritually, and had at one point driven her into the arms of a Catholic relief organization offering free counsel for PTSD-afflicted flood victims. After the closing, Johansen went home, drank an entire bottle of Champagne and fell asleep with her clothes on. A few days later, her real estate attorney confessed to her that she’d fallen asleep in the cab on the way home from the closing and had to be woken up by the driver.

Now, when Johansen gets up in the morning on Conover Street, the building is all hers, although that hasn’t quite sunk in yet. After all the drama and toil, just leading a more or less ordinary life with her teenage daughter feels like a miracle. 

“Normal is just the most beautiful thing ever,” she says. “There’s food in the fridge. I open the fridge. I make her a sandwich. I ask her what she wants on the sandwich. All of those things are so beautiful.”

To business owners in her predicament, she offers this advice: Don’t give up easily.

“If this means something to you, fight. Fight tooth and nail. And this has been the good fight,” she says. 

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