Is Crowdfunding killing innovation among small business owners?

Crowdfunding and innovation might seem like they would feed off each other, but new research suggests they may not mesh together as well as people might think. The Research study from INSEAD business school, from the University of Technology Sydney (UTS), HEC Paris, and Singapore Management University suggests that truly innovative business ideas struggle to catch on with donors on the popular crowdfunding site Kickstarter.  Researchers inspected over 50,000 U.S.-based non-arts related projects listed on Kickstarter going back to 2009. They looked at the descriptive terms used in the descriptions, images, and videos for each of the projects and discovered something rather peculiar. When a project proclaimed that a product was “novel,” project funding surged by around 200 percent. Crowdfunding investors seemed to value novelty when looking for projects. When a project claimed that a product was “useful,” project funding skyrocketed by about 1200 percent. Usefulness appears to be in huge demand among businesses that attracted the highest number of investors.But when a project described a product as both useful and novel, project funding did not increase – but instead dropped by an average of 26 percent.

Based on the data, researcher Dr. Ping Xiao has advice for small business owners planning to launch crowdfunding campaigns, “Entrepreneurs, might be advised to frame a project as only novel or only useful, rather than both.” This information does debunk the premise of crowdfunding, which is to spur and support creativity and innovation.

Study co-author Professor Amitava Chattopadhyay of INSEAD offered the best hypothesis for this phenomenon, “Prior research has shown that products that are novel and useful typically succeed in the marketplaceBut when projects make both claims, backers either assume a product’s benefits are inflated, that it carries a high risk of failure or that it divides the crowd between believers and skeptics, making it hard for backers to pick a side.”

As entrepreneurs or small business owners are trying to crowd-fund a project often they want to provide as much descriptive information as possible about it. The takeaway? Less is more. It might be best to focus your content to attract investors on product or idea descriptions that highlights the benefits of using your product or service.

Other tips for people who are thinking about launching a crowdfunding campaign include:

  • Start the crowdfunding campaign early: Start your efforts several months before your product is live or ready to sell.
  • Target your campaign on a niche audience: Identify a specific subset of people who are most interested in it.
  • Do your homework: Browse crowdfunding site case studies to see if projects similar to yours were successful and which tactics or descriptors drew in the most money.
  • Invest in professional creative and video: Develop an eye-catching design and high production values for your logo and video.
  • Be conservative: Set your goal on the low side, and avoid overvaluing your campaign.
  • Tell a great story:Position yourself with crowdfunders so they can identify with you and will be interested enough to hopefully support you.
  • Leverage social media: Integrate your social media platforms into your crowdfunding campaign to increase your online footprint.
  • Donor relations is key: Communicate with your backers often, and be sure to express your gratitude frequently.

Crowdfunding can be a viable option to raise funds for small business owners but it’s a lot of work and the average campaign generates 10K. Make sure that you run a smart campaign by researching what does and doesn’t work – or else you run the risk of your project becoming an unappetizing mess on the platform and you won’t make your goal.

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