A New Way to Kickstart a Business

This PROFITguide.com Editorial Report is brought to you by

Most first-time entrepreneurs have to cold-call retailers and beg them to carry their inaugural product. But Jamie Kasza is already receiving enquiries from excited retailers clamouring for STACT, his innovative, wall-mounted wine rack—and it’s not even in production yet.

Kasza is one of a growing number of entrepreneurs bringing his product to market through “crowdfunding,” whereby a business or individual uses a web platform to raise big money in small increments from regular people. Kasza met his original funding goal of US$20,000 within 40 hours of posting his investment opportunity on Kickstarter, a popular U.S.-based crowdfunding site. In 27 days, Kasza managed to raise more than US$58,000 from 207 backers.

“As a startup, you’re an unproven entity trying to get into retail, and you’re not in the position to have any leverage,” says Vancouver-based Kasza. “With Kickstarter, you can build that up very quickly and harness it.”

Artists, authors and filmmakers have been crowdfunding online for several years, but three-year-old Kickstarter made headlines as a viable method of bankrolling a new product when funding amounts reached the $1-million mark earlier this year. Crowdsourcing.org, an organization that monitors crowdfunding and crowdsourcing activity, estimates US$2.8 billion in capital will be crowdsourced in 2012, double 2011’s figure. By turning to the crowd, entrepreneurs are finding a low-risk way to test the market for their products and fund production without having to take on debt or source venture capital.

Each crowdfunding site has its own guidelines, but most follow the same basic framework: founders post a description of their project, describe how they’ll use the money and set a funding goal with a 30- to 90-day deadline; backers pledge money to the projects they deem worthy and, in return, receive rewards that can range from a simple “thank you” to one of the finished products. Some sites let founders keep the money they’ve raised, regardless of whether they’ve met their deadline goal. Others, like Kickstarter, take an all-or-nothing stance, refunding pledges if the deadline goal isn’t met. The sites earn revenue through a small commission on the money raised, usually less than 10%.

$10 million: that’s what Kickstarter’s most-funded project raised in May

Marquis Côté, president of Ottawa-based marketing company UniForge Inc., saw Kickstarter as a way to finance his company’s entrance into the board game market without dipping into company coffers. He kept the costs of his first game, Franken Die, low to test the waters, and the campaign exceeded its $9,500 goal by $3,600. For his next game, Top This!, Côté raised the stakes to $15,000 and again beat his goal—this time by about $1,500.

“When we did our research, we saw that once someone is 30% successful with time left on the campaign, people are more willing to pledge because they know it will succeed,” he says. To reach this benchmark, UniForge offered the first 100 backers a discounted copy of Top This! with bonus pieces. They got 100 backers in just two days, meeting 20% of the goal.

Kasza boosted his chances of success by approaching his project like a traditional product launch. In advance of posting STACT to Kickstarter, he sent a press release announcing the launch of his Kickstarter project to high-profile design and wine blogs. STACT was featured on the Huffington Post’s “Style List” and the prominent wine blog Uncrate.com, which Kasza credits with reaching his goal so quickly.

Like most successful projects, STACT’s project page features a video highlighting the many ways the rack can make wine the focal point of a room. A voiceover describes in detail the aircraft-grade aluminum prongs that hold the owner’s wine; something Kasza says is key to reflecting the product’s quality to backers.