Recent business school graduates launching a startup typically go after “traditional” investment from angel investors, VCs,
business plan competitions, tech incubators, and, increasingly, social venture funds. But Rich Grousset and I learned that BizeeBox, our reusable take-out container service, needed more credibility before it could attract these types of investments.
We were certainly not the first entrepreneurs to run a crowdfunding campaign for a sustainability-focused startup, but we do believe we were the first Erb Institute graduates to do so. There is much more to the story than the final dollar amount raised, and along the way we learned that the crowdfunding experience is hard work, more art than science, filled with opportunities, and presents many risks.
Why choose crowdfunding?
In contrast to the investor community, our friends, families, and colleagues have consistently told us that the reusable takeout container idea sounds very promising. Given this enthusiasm, we decided to pursue the crowdfunding option, in which we would seek small amounts of money (contributions) from a large number of people. We would then use this seed capital to build our credibility by successfully launching a small-scale pilot program.
How does one select a crowdfunding platform?
There is an overwhelming list of crowdfunding platforms to choose from. We picked Indiegogo because:
- It has a well-known, reputable name, removing any doubts about fraud.
- It will accept virtually any type of project. This is in stark contrast to Kickstarter, the leading crowdfunding platform, which has stringent project requirements.
- It allows campaigns to choose the flexible funding option, meaning we could keep the money raised even if we didn’t reach our goal. As a lean startup, we could put any money we raised to good use, unlike other campaigns that might need the full amount just to get started (such as a product manufacturer needing a minimum for a production run).
We settled on a campaign target of $30,000, which was high enough for us to get a good start on our business but low enough to be reasonably attainable. Fortunately, Indiegogo provides some great documentation on setting a target.
How does one actually run a crowdfunding campaign?
Crowdfunding is not a science. Our success was a mix of strategy, luck, a solid idea, and an incredible network. There are countless resources available to learn best practices, but here is the advice we found to be the most valuable:
- Make a short, professional quality video
- Tell your story, what drives you, and what you will do with the money raised
- Design effective and relevant rewards (a.k.a. perks)
- Develop a campaign timeline to keep yourself on track
- Build a social media following well in advance of the campaign launch
- Contact press prior to and during the campaign
- Post frequent updates and keep your followers engaged long after they’ve contributed
Thanks to a combination of hard work and incredible support, our campaign successfully reached its target. But we gained so much more value from the campaign than simply money, much of which will continue to help us well after we’ve spent the money we raised.
Learning how to tell and share our story
When we launched our campaign, we were coming out of the blue with a slightly wacky idea. We had no cool gadget to offer in exchange for contributions, nor had we spent years building up a following (like our friend and fellow Erb alumna Vienna Teng, whose own crowdfunding campaign was a resounding success).
Launching the campaign forced us to figure out who we were and why people should care about us. That meant taking time out of our typical startup activities to actually craft our story and brand. It led us to get help establishing a Facebook and Twitter presence, both of which have led to helpful connections.
It also led us to find a videographer, which in turn taught us the benefits of video marketing. People don’t immediately understand the reusable takeout container service concept when we try to explain it to them, but now we can simply point to a 30-second animated video that does the work for us. (A huge thank you to our awesome videographer, Will Chodos, for making this dream a reality!)
Getting support from the crowd
One major benefit of crowdfunding is that it comes with virtually no strings attached – no shareholders to answer to, no need for detailed reporting, etc. You simply pay platform and credit card transaction fees, and deliver the perks you promised.
In addition to money, crowdfunding allows you to crowdsource ideas from our networks and beyond. We received countless suggestions for ways to improve our business or think about new restaurants or markets we hadn’t considered.
Crowdfunding also got us exposure. In today’s incredibly competitive world, it’s hard to make the case that your social venture is newsworthy. The campaign gave us a reason to share our story with the public, leading to exposure in several news outlets including national publications like Fast Company, Grist, and PSFK. Without the campaign, we would not have had any news to promote or successes to share, and we likely would not have gotten the press that we did.
Perhaps most importantly, we feel validated by the fact that the hundreds of people who contributed to our campaign have all experienced takeout container waste and agree on some level that there must be a better way of dealing with it.
Some that glitters is gold
Naturally, crowdfunding is not without its drawbacks. We had to put our entire business model on the web for the world to observe and critique. At the same time, anyone can see in real-time how close you are to achieving the goal you publicly and confidently stated was “within your reach.” As we monitored our goals alongside our supporters, we were also well aware that a majority of crowdfunding campaigns fail.
We underestimated how much of our funding would come from our immediate networks of friends and family. The Erb community alone accounted for 18% of our contributions! Although we reached our goal and received support from a substantial number of people we did not know, we never would have gotten there without the initial support of a small group of people who helped us launch with momentum and got us through lulls in the campaign.
Ultimately, these turned out to be minor drawbacks. We are fortunate to live in a world where crowdfunding is an option for businesses like ours, and we’re excited to move forward thanks to the funding, support, and momentum our campaign gave us.
Phel Meyer and Rich Grousset are both graduates of the Erb Institute for Global Sustainable Enterprise’s MBA/MS dual-degree program at the University of Michigan’s Ross School of Business and School of Natural Resources and Environment in Ann Arbor, MI. Phel also holds a BS in Industrial Engineering and Operations Research from UC Berkeley.