Get All Access for $5/mo

Is Crowdfunding Right for You? Answer These 7 Questions to Find Out. Less than a third of crowdfunding campaigns reach their financial goals. Will yours be one of them?

Edited by Dan Bova


Say you have an awesome idea and you need some money to get things started. Have you considered crowdfunding?

Related: 6 Tips for Successfully Marketing Your Crowdfunding Campaign

Crowdfunding is a popular and increasingly accessible way to put your prospective product or business in front of millions of people. And, thanks to the visibility of massive success stories, there's a public perception that most crowdfunding campaigns end up being successful.

Unfortunately, it's not true: The reality is, less than a third of all crowdfunding campaigns end up reaching their financial goals. Why? Some campaigns aren't right for crowdfunding. Some aren't properly planned. Some aren't properly supported.

There are a lot of things that can go wrong, but you can start out on the right foot by making sure you understand what crowdfunding is, and whether your concept is a good fit for it. Answer these seven questions to find out whether crowdfunding is a good fit for you.

1. Do you have a solid plan?

First, take a look at your product and business plan. Do you have a fully fleshed-out idea of what you're going to do once you get the money? Do you have a prototype, or some tangible example that your idea has the potential to succeed? Contributors want to know that your idea is a legitimate one, or they aren't going to donate. Plus, the last thing you want is to hit all your financial goals and then have no idea what to do next. Create a business plan before you even start thinking about crowdfunding.

2. Do you know how much you need?

You can't just launch a generic crowdfunding campaign and start asking for money. You need a financial target, one that's grounded in reality. You need to know exactly how much money you need to make your idea a reality, and that requires a ton of research, number-crunching and budgeting. You also need to show your prospective contributors exactly where their money is going to go, with a detailed plan of how and when you're going to spend it.

Related: 10 Top Crowdfunding Websites

3. Do you have a valuable offer?

Most people won't donate to a campaign unless there's some kind of reward for it. What are you going to offer your users in exchange for their investments? Is it valuable enough to warrant their contributions? Multiple contribution levels are a must, so don't be afraid to get creative.

4. Will your target market bite?

You need to have a strong understanding of your target market's members before you can hope to persuade them to fund your campaign. What are their wants and needs? Why would they contribute to you? Do they have a strong incentive to support your brand? This information is a prerequisite.

5. Do you have a runway established?

Most crowdfunding campaigns have a hard time limit, demanding donations within the span of a few weeks or months. That means you need to hit the ground, running. You need an existing audience who might be willing to contribute to your campaign, or at least spread the word about it, and that requires prep work. As a minimum, you should have a website, a blog and a social media following before you start your campaign page.

6. Are you willing to invest significant time and effort?

Crowdfunding campaigns don't become successful magically, and they rarely become successful based on the strength of their idea alone. Instead, they should be supported by passionate, dedicated founders who make videos, engage with users, share new content and use marketing campaigns like SEO and social media to promote their crowdfunding pages. It takes a great deal of time and effort to nurture a crowdfunding campaign to success; are you willing to make that investment?

7. Do you understand the financial limitations of crowdfunding?

Crowdfunding isn't as simple as it appears on the surface. For starters, some platforms, like Kickstarter, won't dispense earned funds to you unless you hit 100 percent of your financial target. Most platforms will take a percentage of contributed funds as payment for using the platform. There are also different types of crowdfunding available now, including equity crowdfunding, which carries some heavy implications for the management of your company in the future. Be aware of these limitations and what they might mean to your business.

If you can answer all seven of these questions confidently, with specific plans in mind for each one, you're probably ready to start crowdfunding. Unfortunately, the research and decision-making don't end there; you'll need to choose the right crowdfunding platform out of dozens of prospective options and then adjust your marketing and engagement efforts throughout the campaign to ensure maximum visibility and donations.

Related: The 10 Most Funded Kickstarter Campaigns Ever

In all, crowdfunding is not a get-rich-quick scheme; it's an element of business development that requires time and diligence. Understand that, and you'll be well on your way to reaping its full value. For help choosing a crowdfunding platform, setting up your campaign, and marketing it, see The Comprehensive Guide to Marketing Your Crowdfunding Campaign.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick


ChatGPT is Becoming More Human-Like. Here's How The Tool is Getting Smarter at Replicating Your Voice, Brand and Personality.

AI can be instrumental in building your brand and boosting awareness, but the right approach is critical. A custom GPT delivers tailored collateral based on your ethos, personality and unique positioning factors.

Business News

Apple Reportedly Isn't Paying OpenAI to Use ChatGPT in iPhones

The next big iPhone update brings ChatGPT directly to Apple devices.

Business Ideas

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.

Business News

Is the AI Industry Consolidating? Hugging Face CEO Says More AI Entrepreneurs Are Looking to Be Acquired

Clément Delangue, the CEO of Hugging Face, a $4.5 billion startup, says he gets at least 10 acquisition requests a week and it's "increased quite a lot."

Growing a Business

He Immigrated to the U.S. and Got a Job at McDonald's — Then His Aversion to Being 'Too Comfortable' Led to a Fast-Growing Company That's Hard to Miss

Voyo Popovic launched his moving and storage company in 2018 — and he's been innovating in the industry ever since.

Business News

Sony Pictures Entertainment Purchases Struggling, Cult-Favorite Movie Theater Chain

Alamo Drafthouse originally emerged from bankruptcy in June 2021.