An article by Linette Heimrich (Chamber of Commerce and Industry for Munich and Upper Bavaria) from the MUCrowd Blog
From knitted beer coolers to potato salad to crazy high-tech gadgets, the crowd has funded a wide range of things. Nothing seems impossible, and that's precisely what makes it so appealing to many project starters. However, not all projects funded by the crowd ultimately deliver on their campaign promises. Crowdfunding isn't an online shop: But how many projects actually fail in implementation despite successful funding? The US platform Kickstarter asked itself precisely this question and commissioned an independent study.
As part of the study, a team of researchers from the University of Pennsylvania surveyed 500,000 backers who had funded projects on Kickstarter about their receipt of promised returns. A project was considered a failure if backers did not receive any returns, regardless of whether the project was ultimately implemented.
In one out of ten projects the supporters go away empty-handed
According to the study, one in ten project initiators fails to repay their backers. The frequency of failure is relatively similar across the various project categories. Backers of projects in the technology, film & video, and theater categories were slightly more likely to be dissatisfied with the repayment received and to describe the project as a failure. Interestingly, projects that raised smaller amounts were more likely to fail to repay their backers.
Communication creates understanding
Despite the disappointment of not receiving a thank you, the majority of backers would continue to support crowdfunding projects. It also showed that failed projects don't necessarily have to be a huge disappointment. Project founders who communicate transparently why a project couldn't be implemented as promised or who compensated their backers can often hope for understanding.
However, in the event of a foreseeable failure, project initiators should react quickly and communicate honestly with their backers what went wrong. The use of the raised funds must also be transparent. Ideally, a (partial) refund of the funds to the backers can be made, or the project can be implemented in an alternative form.
How project starters avoid the most common pitfalls
It's best to avoid it in the first place. Of course, not every failure is self-inflicted, for example, when external circumstances like illness prevent implementation. But many "risk factors" can be safely avoided with good preparation.
- Calculate the target amount correctly and plan for a buffer
Many projects fail because the required sums were calculated incorrectly or too narrowly right from the start. Then, gaps in the financing must be filled with your own resources. This is often difficult. Those who embezzle costs or "fancy the math" to make reaching the target amount easier not only end up harming themselves but also squandering the trust of their supporters. Instead, it's better to calculate honestly and set aside around 10 to 15 percent of the target amount as a buffer for emergencies. Then you'll be well prepared for the unexpected. And there are always surprises. Very important: Even if it's tempting and looks great to exceed your target amount tenfold, if you raise ten times as much, you must also deliver ten times as much. And here, especially when it comes to the manufacture of tactile products, completely different calculations are necessary (e.g., due to wear and tear on production equipment, material costs, higher logistics costs, etc.).
- Keep the focus
Crowdfunding campaigns often bring in not only money, but also ideas and wishes from supporters that the project initiators would like to fulfill. However, one should be careful not to become a wish-fulfillment machine. This runs the risk of getting bogged down and jeopardizing the entire project. It's better to focus on the essentials for now. Special requests can only be fulfilled if the budget and the set schedule allow it.
- Choose the right time
Successful projects are also a matter of timing. Anyone who still has a long way to go before their project becomes reality should consider whether a crowdfunding campaign might be more appropriate at a later date. Many hurdles lie ahead from the initial idea to actual implementation. Anyone who repeatedly postpones the delivery of the reward puts unnecessary pressure on themselves and increases the communication effort enormously. The patience of backers also has its limits.
Project starters should always be prepared for "emergency situations" and know what to do if things go wrong. And never forget, as in life, the same principle applies to crowdfunding: Honesty is the best policy. Openness and transparency with backers are only fair; after all, they've given you not only their money but also their trust. And the crowd is understanding, but only if you don't fail to explain.
If you have specific questions about crowdfunding, please contact us directly by email. crowdfunding@muenchen.ihk.de. You can also find out about current topics related to crowdfunding and crowdsourcing in the MUCrowd blog.
If you are planning a crowdfunding campaign, you can book a consultation with Linette Heimrich and get valuable tips and information about crowdfunding. Three to four times a year, the Crowdfunding Night In addition, the crowdfunding Facebook group current topics discussed and questions about crowdfunding answered.
