When it comes to raising money for your brand new startup, which of the following makes more sense: Initiating a crowdfunding campaign or bootstrapping? As a long-time serial entrepreneur who has built several successful companies from the ground up, I’ve had plenty of time to study both methods—and bootstrapping appears to me to be the far superior option. Here are three reasons why.
Crowdfunding is impersonal
So you really want a crowdfunding campaign? Join the (literal) crowd. Although it might have made sense even five years ago, starting a campaign in 2019 means getting in a long line. For example, at the time of this writing, Kickstarter, according to its own statistics, has more than 432,000 launched projects. Meanwhile, Indiegogo has launched more than 800,000 campaigns as a combination of not-for-profit causes and startup businesses. What you may not realize is that your budget allows you to have access to the types of technology that will build your small business and streamline your operations. These best practices crowdfunding are a great option to implement into your business. Relying on contributions from a wide swath of the population is a shot in the dark compared with the way bootstrapping has traditionally worked: namely, reaching out and contacting a targeted list of potential partners and customers.
This is obviously a much more personal approach that consequently may result in a more successful financial outcome. Think of the comparison between receiving snail mail (addressed to “Resident”) from an organization soliciting your donations, compared with receiving an actual phone call from someone with whom you have a personal connection, who is asking you to chip into a project whose goals you have in common. With which approach are you more likely to feel a connection and contribute to accordingly?
Only a fraction of crowdfunded projects get funded
Looking once again at Kickstarter’s own statistics, in concise table form, again as of this writing:
Total projects: 432,000 Funded: 157,000
Amount raised for those 157,000 projects:
Less than $1,000: 20,000 projects
Less than $10,000: 90,000 projects
Less than $20,000: 23,000 projects
More than $100,000: 5,500 projects
Translation? Percentage-wise, nearly two-thirds were not successfully funded, and only about one percent raised more than $100,000. Those are not great odds. Although no one can predict the outcome of bootstrapping, you at least go into it knowing that those whom you have contacted have previously shown an interest in the same goals that are driving your vision. There is thus a higher likelihood of success with the latter approach. And even if those whom you contact are unwilling or unable to contribute directly to building your finances, they may be able to give you new perspectives or advice that allows you to pivot your approach—or even the nature of the goods and services you’re planning to offer—that could lead to a better potential for getting funded.
The cost to get crowdfunded is high
To be successful on Kickstarter, you need a really compelling video and a social media campaign to get people interested. That would cost between $10,000 and $20,000 to create. The same challenges apply for Indiegogo—it is expensive to create a good marketing campaign and your success is based on luck. With both services, you are basically using a shotgun approach and hoping for the best. You are putting all your eggs—up to $20,000 worth—into a promotional campaign in the hopes that it will generate far more than that, even though the odds are stacked against you.
It’s a bit like launching an app for the iPhone and hoping it will be wildly successful—even though there are already two million apps available for someone to download. (I am not even focusing on Patreon, which is more focused on entertainment-based creators, and for which you need a very large fan base to generate significant income.) I think you can only be successful by targeting your potential customers with rifle-like accuracy and putting all your time and money into working with a handful of people who truly need what you are working on developing. This is the substantial advantage that bootstrapping holds over these crowdfunding techniques.
As the head of your new company, you may choose to go any route you wish to raise money—but experience has shown me that bootstrapping is the far superior option compared to crowdfunding in the long run. Best of luck to you and your business goals!
Marty Schultz is Co-founder of ObjectiveEd, whose mission is to maximize educational outcomes for children with disabilities. He is also Founder and President of Blindfold Games, an app development company that builds accessible games for the visually impaired community.