The Domino Effect of Crowdfunding – Good and Bad

The Domino Effect of Crowdfunding - Good and Bad

Crowdfunding is often viewed as a domino effect, meaning that if you are clear, engaging and promote in the right places, you can see a chain of positive engagement. But with this, one bad comment can cause the same effect, but the other way around.

“It’s everyone for themselves”, at least, that’s how pushing your own campaign can feel sometimes. But despite the focus on your own success, it’s important to look at how we use crowdfunding for everyone’s sake. 

After all, some of these budding entrepreneurs may have no alternative for funding. What do I mean by this exactly? Well here’s the deal.

Too good to be true

There’s nothing new in us telling you your pitch should look enticing and professional. But you can stumble across crowdfunding campaigns that, from a distance, look promising. But upon further inspection, are murky on the details. To summarise, they may be too good to be true. While that doesn’t mean it will be bad, or that it is a scam, they sure could’ve done a better job convincing us otherwise.

In any case, a campaign like this can still achieve success. The issue is that the backers, new and returning, are being taken for a ride. The brochure says we’re headed to Disneyland, but I don’t recognise this route. The road’s getting bumpy – they insist it’s a shortcut.

According to Fundera, the average success rate of crowdfunding campaigns in 2021 was 22.4%. But a ‘successful’ campaign does not correlate to a happy ending. It’s the conclusion that’ll determine your future in crowdfunding; the campaign’s aftermath.

Caught in the Act

It’s easy to find textbook examples of crowdfunding campaigns that fall on both ends of the spectrum. Incredibly successful campaigns which get ugly behind the scenes, and campaigns that plummet right out of the gate.

You’d be hard pressed to find a dodgy campaign that doesn’t get scouted out and posted on the appropriate subreddit. It’d be worth having a quick look through some of the culprits they’ve picked up. As mentioned above, this sub-Reddit documents campaign updates post-funding as well as the shifty campaigns that are live.

With that in mind, sometimes the unsuccessful campaigns are a blessing in disguise. The reasons why it failed could be an entire blog of its own, so let’s summarise instead:

  • Potential backers don’t understand what your product is;
  • Your product’s USPs aren’t enticing enough/fixing a problem that doesn’t exist;
  • Similar, more appealing solutions exist, even outside of crowdfunding;
  • The science behind how your product works is vague, or non-existent;
  • We don’t know anything about the team, the creator is unknown and untested;
  • You didn’t disclose why you need funding;
  • Your campaign isn’t getting enough traffic.

It only takes one bad egg to ruin the whole batch. When you launch a crowdfunding campaign, you act as a representative of the whole community. Hence the domino effect comment.

An unsuccessful crowdfunding campaign spares new backers from a potentially disastrous launch. Yes, you didn’t get the funds you wanted, but you have backers and followers to reach out to for feedback. With that, you can rethink your strategy, whether you stick with crowdfunding or not.

It’s not a Store

One important detail about crowdfunding is that backers are NOT purchasing a product, nor are they investing in the company. This is a crucial detail that both Kickstarter and Indiegogo make clear. When you pledge to a campaign, you are essentially donating to creators. Even at the point of payment, they make it clear:

'Crowdfunding is not shopping' disclaimer shown on Indiegogo Domino effect of crowdfunding blog
"Rewards are not guaranteed" Domino effect of crowdfunding blog

(NOTE: Kickstarter and Indiegogo do not allow charity fundraising campaigns. If you’re interested in charitable funding opportunities online, check out GoFundMe and JustGiving).

No matter how successful the funding part of the campaign is, there’s still no guarantee that they can deliver on their promises (technical difficulties, creative differences, management funding). This is where that domino effect can take effect; the bad kind.

Running a successful crowdfunding campaign and product launch can have a positive knock-on effect for the entire crowdfunding community, even if you’re still taking actions for selfish reasons. A well-handled campaign means that backers and followers alike are more likely to check out and support more campaigns. As of 15th November 2022, about a ⅓ of Kickstarter’s total backers are repeat backers.

Don’t forget – no refunds

Not being a store also means that refunds are also hanging in the balance. Backers are able to withdraw pledges made to a campaign while the campaign is live – no questions asked. However, the facility to do so is cut off once the funding period ends. It’s a good safety net for creators, otherwise campaigns would be at threat of dealing with fluctuating budgets mid-development. 

Forget crowdfunding; show me any business that’d be comfortable with a budget that can disappear beyond their control. So while you’re not obligated to honour refunds post-funding, we advise honouring refunds/compensation practice under certain circumstances.

People remember the aggravation caused by poor customer service (or what they perceive as poor customer service). The consumer can be vengeful and harsh when they want to be. 

If you wrong them, they will remember – especially when crowdfunding’s involved. Doubly so if they couldn’t get their money back from a failed project. They’ll make sure to avoid supporting you again, and potentially discourage others too (creating a domino effect of wavering trust). So it’s best to avoid putting yourself in that situation to begin with, if only for your own well-being.

Let’s say, hypothetically, you pledge to a crowdfunding campaign that seemed promising at the time, only for everything about it to go south post-funding. Production delays, poor communication with backers, drawn-out silence between campaign updates. Maybe some stretch goals or rewards causing complication, damaged goods, missing orders, backers crying out for refunds. Let’s not dance around it – maybe the campaign creators were ill-intent from the start (a scam!) Enough of a disaster that all you want now is to cut your losses and shut off backing campaigns ever again.

Imagine future campaigns that could have caught your eye. but despite the experience and legitimacy going into that campaign, that first negative experience has deterred you from checking out crowdfunding campaigns in the first place. No one can blame you for losing faith, you look out for your own self-interests. Why waste your time taking another shot in the dark. It’s a cruel reality of someone else’s negligence being imposed onto the innocent, or untested at least.

Coming back for more?

It’s not out of the ordinary to return to crowdfunding with a new iteration of a product that was originally crowdfunded. In fact, some of the most successful campaigns have come from creators who have launched several projects before. Not just that, on average, their success rate goes up after each consecutive campaign

If you plan to demonstrate the success of your previous campaign(s), you’ll obviously need to stay on good terms with your original. Even new backers can see past campaigns hosted by the same account / team (that includes failed / cancelled campaigns as well). By staying engaged with your backers and rewarding them for their support, they will choose to support you again, creating a domino effect of positive engagement.

Alternatively, even if a campaign fails, you can still garner a positive experience from it, which can fuel your return to crowdfund when/if you’re ready to start over. The campaign’s failure could be of no real fault of the campaign itself, but instead a sign of not enough exposure. A foundation of transparency and professionalism can salvage even a failed launch with crowdfunding.

Counteract the Domino Effect

With a community of backers, both new and old, good and bad experiences can leave potential backers unnerved. So whether you have an existing history with crowdfunding or not, your pitch should counteract that. Here are a few things you can address in your campaign pitch:

Wait, who are you?

Tell us a bit about yourself and your team, your name and professional background should be good. This is a multifaceted trick backers get the reassurance that they are real people working on this project. Also, in the event that onlookers want to do a background check on the team involved, they can do so with confidence. If you choose not to disclose who you are, that’s your choice, but it’s also a tell-tale sign that you’ve got something to hide. Not a great look.

Hello, anybody home?

During past campaign research, the amount of times we’ve seen backers left in the dark gives us second-hand embarrassment. Forget addressing their concerns; outright ignoring them will drive your reputation into the earth’s core. So don’t do that, for your own sake. If your followers/backers have questions, be ready to provide some kind of answer. Even if you don’t have a straightforward answer yet, at least respond and acknowledge the query. Else, they may assume the worst outcome.

What have you got so far?

Backers like to get a good idea of the project’s roadmap, past, present and future. Maybe show an early prototype and how it has evolved. Whatever it takes to show you didn’t cobble it together a few days ago. Prove that you’ve invested your own time, experience and money before seeking funding. This gives backers an idea of what’s left to do and what their own pledge money is going towards.

I’ll run the numbers

Poor funding management, a true classic. How about providing a comprehensive breakdown of what the funds are going towards? It demonstrates that you’ve taken into consideration what’s needed to deliver, the specific numbers and percentages. (Development and prototyping, reward fulfilment, distribution, platform fees and taxes). Be sure to think through your funding goal realistically. Don’t forget any stretch goals either.

Give me a status report

Keep everyone on the same page by posting campaign updates to keep your backers assured the project is moving forward. On the other hand, in the event of delays, let them know what’s going on. You can include images, or short videos as exclusive content on how things are coming along. It’s the small gestures that make your backers feel like they’re part of the journey.

Broken promises

Some uncertainty is to be expected, especially if you’re talking about steps that are much further into the project roadmap from present time. With that in mind, do your best to avoid making promises that you may not be able to keep. This ties into the budget management point somewhat, so make sure your messaging is consistent with what you’re feasibly able to deliver. Although another example could be related to specific launch dates. After all, delays are very common with crowdfunding. So do what you can to keep your backers’ expectations in check.

On the Bright Side

As mentioned earlier, despite the notoriety of some campaigns, the percentage of returning backers still grows steadily. A classic case of vocal minority skewing our perception of a trend. Plenty of campaigns move along smoothly, frequent updates, clear communication, reimbursement when appropriate. 

According to a study by the University of Pennsylvania, crowdfunded projects that fail to launch still get some positive response and go on to support other campaigns. A small percentage agreed they’d be willing to support the same creator despite the failed outcome. Another sign of respecting the backers and followers, despite the ultimate outcome. Especially in the age of media, positive responses = word of mouth recommendations, encouraging a domino effect of new backers too.

Keep in mind that even though the percentage of returning backers is always increasing, that’s no reason to rest on your laurels. 

If you are considering crowdfunding, but are uncertain on how to approach the space, we are more than happy to have a discussion with you. Contact BrandRefinery today.