Crowd Funding: Teaching By Doing
My name is Mike Young, and I am the Assistant Director of the Cache Valley Small Business Development Center (SBDC). Many people come to the SBDC with great ideas for new products, but they lack adequate funding and have no solid idea how the market will react to their product. Crowd Funding and Social Media provide many new opportunities for developing startup companies with limited resources. To help people better understand how to take advantage of this innovative funding source, I, along with some friends, decided to go through the process myself and document the experience.
The first step in the process was to come up with a simple idea that we could feasibly produce and market. My friends and I who have young children change a lot of diapers. Because of this, we came up with the idea to produce a Diaper Changing Mask. We named the set of masks the "Scat Cat & Pals Diaper Changing Masks" and began work on our first model, Dung Dog. It is important to note that although I am an SBDC Councilor, this product is not endorsed by the SBDC network or the SBA. After we designed our initial prototype, we contacted a production company in China and began the process of developing a production prototype.
This is our current production prototype - the final model of the face will be embroidered on to the mask.
From this point, we created a simple video about the product as well as a facebook page, a website, and a blog we are using to document the process in detail. While all of these activities require a time commitment, we didn't spend any money putting them together. The quality of our camera and editing job wasn't amazing - it was our first time making a video - but we still have had over 600 views on youtube in less than a month.
To initially help build interest in the project, we entered the product into Walmart's "Get on the Shelf" contest. The contest allows participants to create a short video about a product they would like to submit to receive shelf space at Walmart. The video is then posted to Walmart's contest page and viewers are allowed to vote for products they like once per day from March 7th through April 3rd. The top winners will receive help from Walmart to produce their product and sell it through Walmart's massive distribution channels (you can click here to visit the competition page and you can text the code 5060 to the number 383838 to vote for the product).
Once the production prototype is finished (which will hopefully happen in the next 30-60 days), the product will be placed on Kickstarter.com, a popular crowd funding website. Crowd funding is an innovative new way to raise money for projects through the internet. The way it works is that people post videos and other information about their projects which can cover a wide array of different topics. The project creator outlines a predetermined amount of money they need to raise over a specific time period - say $5,000 over 60 days. The project creator then outlines non-equity rewards for people who are willing to provide financial support for the project. For example, with the Scat Cat & Pals masks, we will send a mask to everyone who makes a small pledge for the project - we don't know the exact amount yet, but perhaps $20. When a person makes a pledge, they enter their credit card information, but their cards are not charged unless the project reaches its funding goal within the specific time period. If the funding goal is not reached, no money is transferred, and the project creator is not required to fulfill the rewards.
To promote a crowd funding project, social media is used. Although this requires a significant investment of time, it does not need to cost anything. One of the important factors here is to make sure that you have content that is interesting to people - content that tells an engaging story. If all you do is try to sell your product, people will quickly lose interest. To help address this issue, we have done a number of things with our product such as creating an entertaining video and entering the Walmart contest. The more you can do to tell the story of your product and your journey in creating it, the better.
Through the use of crowd funding and social media, you can raise money to help launch your product and determine the market's level of interest in your product. These powerful tools help to significantly reduce the risk faced during the early stages of bringing a product to market. If we are successful on Kickstarter with the Scat Cat & Pals masks, not only will we have money to fund inventory, but we will also be able to show that the market is interested in the product when we approach other potential distributors. If the product is not successful after going through the crowd funding process, we will mostly just be out our time and a small amount of money. Either way, it will provide a fantastic learning experience that we are excited to share with others. To learn more about the process we have gone through, please like our page on facebook and follow our blog.