Category Archives: Sales

Startup Surprise! Crowdfunding is Not Free

NotFree

As Milton Friedman once said, “There is no such thing as a free lunch”… and this certainly applies to Crowdfunding.

Crowdfunding has come on at such a rapid pace, many are still trying to understand how to correctly crowd-fund. The allure is for good reason: Crowdfunding grew from $16 billion in 2014 to $35 billion estimated at the end of this year. So officially, if this trend keeps up, Crowdfunding will pass VC investment which is estimated at $30 billion. Some say that Crowdfunding will double over the next few years which would mean that Crowdfunding would surpass all other forms of venture or angel funding and approach north of $75 billion in 2016.

Now before we all declare this as easy money, we need to understand what goes into a crowdfunding campaign. In this article I’m going to talk only about rewards-based Crowdfunding (versus equity, or debt), but this could apply to donations based Crowdfunding as well.

I get a few calls a week from small companies that want to use Crowdfunding as a vehicle to get their company off of the ground. Sounds fine at the outset. What most do not realize is Crowdfunding is not a “list it and they will come”, no more than “build it and they will come” (referring to websites) back in the late 90’s was true. Most crowdfunding sites require no upfront investment and take their fees out of the capital raised. So many are fooled thinking that Crowdfunding is therefore free. This could not be farther from the truth. While it is certainly true that there is very little investment in listing a crowdfunding campaign, there are dozens of activities in addition to tools and paid services that need to be deployed for an optimal campaign.

Fact is that if you’re going to run a successful rewards-based Crowdfunding campaign, you need to deploy a massive marketing campaign. This article is not designed to go in depth into all aspects of running a crowdfunding campaign, but here are some of the things you need to think about that will take money and our resources:

Staff – you will need staff to reach out to all of your constituents across all possible mechanisms. This includes social media, email lists, friends of friends, and more. Additionally, staff will need to quickly address any and all incoming comments or questions to make sure that your crowdfunding campaign is successful. On average, successful Crowdfunding campaigns run 30 days to 45 days. So if there is any delay in your communications, you’re wasting valuable time while the project end date is coming. We recommend that you think in terms of having a minimum of 3 to 4 full-time staff members working all angles of constituent communication during Crowdfunding. While they’re not communicating, they will be posting articles and other interesting blog posts to keep the crowd engaged and active. You will need this team available for about 90 days.

Ads – when Crowdfunding, you should really prepare and launch your initial outreach 45 to 60 days before your campaign starts. Additionally, you should use advertising mechanisms to increase your reach. Statistics show that 50% of your crowdfunding constituents and dollars will come from Facebook. So running Facebook ads to find new fans, friends and likes is a smart move. You’ll probably want to have $2000-$5000 for Facebook ads to bring more people into the fold so that when your campaign starts you hit the ground running with maximum participation.

Tools – you should deploy some tools to help manage your crowdfunding campaign. These include email systems like Mailchimp, social media tools like Hootsuite, PR tools like InkyBee or PR Web (don’t forget that you will need money for press releases as well), communication tools like Aweber, and more. There are dozens of crowdfunding tools and picking the right tool for the right job is important. But nonetheless, you should budget at least $1000 for these tools and between $300-$400 per press release.

Website and Social Site Design and Build– you will need to budget for website development and social site development. You’ll need a good developer or a team to build out all of your online properties. These costs can range from under $1000 up to $10,000 depending upon the type of sites you have and the teams you use. Professional web and site development firms are more expensive than individuals but generally their more reliable.

Video Production -every great crowdfunding campaign requires a rock-solid video. It needs to be informative, interesting, and well produced. Depending upon your skill set, your staff and your associates, videos can cost a few hundred dollars all the way up to $10,000 plus. It just depends on the quality.

Contests and Sweepstakes – I was speaking with a few crowdfunding experts who recommend running contests or sweepstakes prior to launching a crowdfunding campaign. These are designed to generate more traffic and engage users beyond all of your existing constituents. If you choose to do this, you will need money for prizes that could include things like an Apple Watch, and iPhone, and/or prizes like free products. So you will need money to buy these in order to give them away.

Crowdfunding can be an amazing way to generate capital. But realize that if you’re going to run a crowdfunding campaign, you should probably budget about $10,000 to start. If your staff are all volunteers, or working for equity only, you can probably look at a smaller budget of between $5000 and $7500. Without this investment, you campaign could be suboptimal and unfortunately it is difficult to circle back and run another campaign after you’ve gone through communications with all of your constituents. So this is, for the most part, a one-time chance, and you will need to get it right the first time. When done right, Crowdfunding can generate hundreds of thousands and even millions of dollars. Think of crowdfunding like an intense marketing investment.

And as Henry Ford once said, “A man who stops advertising to save money is like a man who stops a clock to save time.”

What can be Crowdfunded?

We get asked a lot about the types of businesses that can be crowd-funded. It seems these days that nearly anything is crowd-fundable with the right set of campaigns and on the right platform.

For instance, Kickstarter, one of the most popular crowdfunding campaigns has a list of items or companies that cannot be Crowdfunding on their platform.

Of course illegal or illicit businesses cannot be Crowdfunding. Pornography, drugs, cannabis paraphernalia, weapons, and even financial or money processing businesses are usually not crowd-fundable.

Here are a list of Crowdfunding categories:

  • Art
  • Comics
  • Crafts
  • Dance
  • Design
  • Fashion
  • Film and Video
  • Food
  • Games
  • Journalism
  • Music
  • Photography
  • Publishing
  • Technology
  • Theater

If your business falls in the above, then you have a chance at Crowdfunding. Make no mistake that Crowdfunding takes an enormous amount of work as well as a little bit of capital. For instance, we recommend that you spend some money on Facebook ads to help generate more audience. Additionally you want to hit all of your social media very hard to make sure that everyone you know can help your cause.

We offer Crowdfunding consulting and execution. If you’re interested please contact us.

 

 

 

Startup Validation – Ignore This at Your Own Peril

Plan A better

I see this mistake all the time… Build your product and automatically customers buy it at the exact price you originally intended.

Wrong.

Many entrepreneurs make a fatal mistake of believing that just because they see the vision and value for a given product, the rest of the world, or at least enough market share to support their company, will see the same. This could not be further from the truth. Now in some cases, people and companies get lucky, but we may as well not deal with luck here, rather solid market insight which should provide a more predictable outcome.

Test Test Test

When you are thinking of launching a product, and you’re in the visionary state, begin to discuss the idea with some trusted, confidential advisers. Find smart business people who can give you their opinion on whether or not it’s a good idea, or will suggest changes that might make it a great idea (I have a whole section on advisers and advisory boards here). I find entrepreneurs are very protective of their intellectual property, which is justified in many cases, but when you’re thinking about whether or not a product will work in the market and sell at the price you need to justify your margin, you need to figure out if this is feasible ahead of time. Entrepreneurs that go about it backwards, launching, taking capital, hiring (and thus taking on liability), and find that their product could flop in the market.

Once you have run your ideas by your initial advisers, and you’ve received enough positive feedback  to proceed, the next  and immediate step should be to reach out to prospects and ask them if they would have a confidential, early-stage conversation with you. Talk with your would-be customers to understand if your product is going to add value, and even better, what changes or enhancements should be made, and what price is acceptable?

Don’t Fool Yourself

One of the biggest mistakes I see with entrepreneurs is even if they get the product right, they don’t have any indication of what the customer will pay. It’s easy to fool yourself when customers say they would love to have it. It’s harder to fool yourself when after customers say they want it, you then ask them if they’re really willing to pay the price you want to charge. Everybody wants the Ferrari, but most don’t want to pay the cost. So you have to be careful here. When asking for feedback from your prospects, be sure to discuss pricing. Tell them that it will be X amount to purchase the product, or per month or per year, and really understand if they are willing to pay that price for that value. Many entrepreneurs don’t want to have this conversation because they aren’t sure how to do it.

Make It Hypothetical.

Ask them in a manner that allows them the ability to creatively imagine how they would use the product and subsequently ascertain the value, and then compare that to the cost. Something like this might work, “suppose I could bring this widget to you that would change your life in this way. It would make it much easier and less expensive for you to do business, and it would have a return on investment estimated at this. Would you pay $1200 a year for that?” By using a supposition, the customer feels relieved that they don’t have to commit to anything because it is all imaginary. However the insight you gain is valuable.

Ask Enough People

Be sure that you take the above scenario to enough customers and advisers to gain the feedback you need. Using social networking or business networks like LinkedIn, reach out to people and ask for a phone call or presentation. Don’t rely on email to gain your insight as it’s impersonal and asynchronous. But rather talk on the phone or meet in person because you might learn more through the customers intonation and tone, than you will from their words.

Competitive Information Avoids Competitive Decimation

Or, we find that we have a great idea for product but we didn’t know that a company like Google might be developing the same just to launch it for free. Look at what happened with digital maps and mapping. Google Earth, and Google maps essentially put many companies out of business. By giving away mapping for free and then integrating it everywhere, mapping companies got blindsided. I’m going to guess, and I don’t have proof, that there may have been some mapping companies that were thinking about launching right around the time that Google gave maps away for free. I’m hoping that those companies sought advice, and made the appropriate changes so that there wasn’t significant loss.

By testing in the market, and speaking with your advisers, you may gain competitive information which would lead you to a new approach for your product, or may have you scrapping the product altogether. You’d be amazed at what your customers or potential customers might know about other solutions. Your advisers may have insight on potential competitive products.

 

Be a Marketing Madwoman

By aggressively reaching out to dozens of potential customers far before your product is ready, you accomplish all of the above but additionally, you are seeding your market and you can re-approach the same prospects when your product is in beta or ready for market. You might want to try rewards-based Crowdfunding for your product. I worked for the company that successfully launched a crowdfunding campaign prior to raising their series a round of capital. They pre-sold the product and then shut the campaign down once they hit the numbers they needed and this proved there was demand for the product at specific prices. Again, you’re reducing market risk if you have prepaid orders. For more on Crowdfunding click this link.

Investors Love This

I recently I spoke with the company who successfully deployed the above strategies. They went out to over 100 customers, gained enough positive feedback and validation that when they went to investors, they actually had prospects who would give them hypothetical testimonials. In other words the prospects were so excited about what was coming, they were willing to let an investor know via phone that they would buy it when it was ready if it delivered on the product marketing promises, and was at the discussed price. Of course the investors found this extremely valuable and investment capital flowed easily to this company. Generally investors look to reduce risk and increase upside. When you can reduce market risk, then you’re left with technical risk management risk and a few other types of risk. By using the above strategies, you’re making it easy for investors to invest, customers to buy, and most importantly you’re justifying that you should launch.

Negative News Can Be the Best News
You might also find that you cannot get customers to care about your product. Or they care but they’re not willing to pay the amount you plan on charging. Better to know this early so that you don’t waste an enormous amount of time and effort, along with investor capital. It’s critical to understand your customer traction and the earlier the better. Again my suggestion is to got your customers before you even start building your product to understand whether or not you should launch the company. The fact is that 90% of businesses fail. By deploying early market validation strategies, you can be part of the 10% that succeed.

Sales 101

What is a company without sales? Answer: it’s not a company.

While it may seem obvious, sales is the lifeblood of any company. Without someone to buy your product or service you are not in business. Now there are a lot of ways in which consumers can spend money on your goods or services. In some cases they can go direct to your stores, or your website. In other cases you might OEM your technology through large partners. No matter what, you have to have sales.

My theory on companies is that if you have a strong sales pipeline with happy customers, you can figure out how to run the business profitably. There are a thousand and one ways to extract more revenue from your existing customers to ensure that you have higher profit goods or services. With strong sales, you can find a way to keep costs at such a level that you make a gross and net margins that you need.

Strategy One – Start Talking with Customers before You Have a Product or Service

One of the first things I recommend doing for any entrepreneur is to go out and find customers for your product or service. Even if the product or service is not ready, you can still talk with prospective customers to gain their insight on what might work. Too many entrepreneurs have a “build it and they will come” philosophy which means simply build your product or service and the customers will be there. However, especially in technology, a lot of software has been shelved due to a lack of customer demand. One way to make sure that you have a product or service that will provide value to your customers is to open discussions early with them and understand one very important thing: what are they willing to pay for?

The idea is not whether they like your product or service, but rather when will they part ways with their money? Without a strong answer to this question, I would suggest that you don’t launch your start up.

Strategy Two – Go Get Letters of Intent

Start talking with your potential customers before you launch your product or service and try to get letters of intent to purchase your goods. These letters of intent, or LOI’s will serve as validation for your idea. Not only will they enable you to attract employees and investors, but also board members and advisory board members. Everybody wants to be in front of the next good idea and by gathering letters of intent you will be proving (to some extent) that your idea is viable. Then, when you approach any of your potential constituents or customers, you can show them these letters of intent which should help them make a decision in your favor.

On the other hand, the LOI process might be a lifesaver. With your idea, if you begin to solicit LOI is and they are not forthcoming, there is a clear message there. If people who are close to you, our acquaintances, or potential business associates do not care to issue an LOI in your favor, the message might be that your idea is not that interesting. however painful it may be, it is better that you know your idea is mediocre before you launch your startup and invest your time, money, and emotions. Let alone, before you take money from others and bring people into your startup fold.

Strategy Three – Everyone Sells

Don’t launch a start up unless you are willing to sell. I hear it all the time… “but I don’t like to sell… or I’m not good at sales.” As the founder and possible CEO of your company, you have to be willing to tell people about your product or service and its benefits. If you’re not willing to lead the sales charge in the initial stages of your company, you will fail. Look at it this way, if you’re going to risk a great deal of your own resources on a startup, you deserve the rights to tell everyone you meet about your company and its products and services. You have to be fully committed to the cause so that whomever you speak with understands your enthusiasm for your company and its products and services. Many believe that sales is an extremely difficult thing to do since it involves rejection. However, as an entrepreneur and founder of startup, you needn’t worry about that. Your product will be for some and not for others but your goal is to tell all who could benefit from the value of your product and services about your company.

At the same time, every one you bring into your company needs to be a will to tell your story. What I mean by this is they must be able to talk about your products and services with some level of enthusiasm. It doesn’t mean that they all have to prospect for a living, or be significant lead generators, but they need to understand the products, services and brand of your company to the extent that if they get stopped on the street they understand your value. the most successful companies that I’ve seen deployed a strategy of making sure that all employees, partners, vendors, suppliers, and other interested parties know all about the companies products and services so that your message is consistent and is delivered far and wide. This all helps build the brand.

On the other hand, I’ve seen companies who don’t care to pass along some of the most important information about your products and services and subsequent benefits, to the extent that they miss out on significant selling opportunities. Everyone from your board down to line level staff need to understand the company mission, vision, values and products or services so that your brand continues to build in the marketplace.

Strategy Four – Hire a Good Sales Leader When You Can Afford It

It may take awhile before you can afford a VP of Sales or Chief Sales Officer. However, there will come a point in time where you can no longer handle all of the sales yourself and you need someone who can not only take over the duties but might add significant sales expertise. While sales is relatively simple, explaining the features and benefits of your product to as many potential customers as possible, you will still want a structured sales program to make sure that leads are flowing correctly and you understand the sales pipeline. But a true sales professional will be able to run the sales pipeline with your sales force to ensure that it is maximized.

Strategy Five – Be Sure to Measure Sales Each Week

The top sales organizations that I’ve seen have sales meetings each week where they cover the prospective pipeline and recent sales closures. during these meetings, it’s important to cover sales activity and sales process as well as the sales pipeline. If sales activity is high, and the right messages are delivered to the right prospects, the pipeline should work out just fine. There are a lot of reasons why sales may be low, but by meeting each week you will certainly keep on top of the situation. On the other hand, if he only meet and speak to your sales team once per month, it may be too late to save the month if there were some problems you didn’t know about.