If you have an entrepreneurial spirit, chances are you have had an idea for a new business.
But most of those ideas never go anywhere because they require an infusion of startup money.
Traditionally, that would have meant seeking out wealthy investors or selling your idea to a bank.
But just as social media have changed the rules for how we do just about everything, they also can provide the positive cash flow needed to advance a business.
The concept, crowdfunding, is recognized by the federal government as a viable means to raise business capital.
Robyn Jasko, 39, owner of The Hive, a vegetarian and organic cafe in Kutztown, and the Homesweet Homegrown brand, has conducted multiple Kickstarter campaigns for hot sauces and hot peppers brand.
Jasko, who contributes to the Reading Eagle’s Berks Country section, said she first discovered Kickstarter in 2013 after she co-authored the “Homesweet Homegrown” book.
“I had never heard of Kickstarter until my publisher mentioned it to me,” Jasko said. “I thought it’d be fun to try and raise funds to go across country to hold book signing events.”
‘Power back to the people’
Jasko’s most successful campaign was to fund her Chili Peppers community supported agriculture, or CSA, organization, where she raised $29,837 from 249 backers.
“I love that (Kickstarter) really democratizes everything and gives power back to the people,” she said. “A product or idea that wouldn’t traditionally make it to the forefront can gain traction because people sincerely love the product.”
Jasko said her backers serve as the ultimate focus group.
“They chime in on the product name, give me amazingly helpful feedback and are some of my best repeat customers,” she said. “I definitely could have gone the traditional route (for financing), but I never would have reached as many people all around the world.”
Dr. Robert McNamee, academic director of entrepreneurship at the Temple University Fox School of Business, said crowdfunding provides a definite opportunity for entrepreneurs.
“This is a quick and relatively inexpensive way to gain customer feedback on your product offering,” McNamee said. “One of the most valuable aspects of crowdfunding is that it lets you test the demand for your product offering.”
McNamee said that crowdfunding also serves as a gateway to traditional funding methods because investors look for evidence that customers want to buy a product.
“Innovation and positive social impact are both important things to consider,” he said. “People need to take notice, and they need to see your offering as valuable above and beyond what exists.”
Katie Kozloff-Banks, 36, Wyomissing, creator of Katie K Attire, has had considerable success with her fitness attire business and has been featured on TV’s “The Biggest Loser” and “Good Morning America.”
“I have had luck over the years growing the business,” Kozloff-Banks said. “The demand is there, but in order to grow and expand, I needed more capital.”
Katie decided to move production to New York from overseas to support the U.S. economy.
Knowing she had loyal fans, Kozloff-Banks decided to reach out to them in a Kickstarter campaign to fund the next season of production.
“This Kickstarter will help us expand our business, so we can add new styles and offer more options,” she said.
The campaign goal is $25,000. As of day 10, Kozloff-Banks has $3,288 pledged from 48 backers.
According to the rules, no one gets charged unless the goal campaign is reached.
Offer premiums
Most Kickstarter campaigns for business offer premiums, much like fundraising on PBS TV, with different levels of giving.
Kozloff-Banks decided to create a limited edition print for headbands, scarfs, T-shirts and leggings.
“You can think of the rewards as prepurchasing a product,” she said.
Jasko also defines her rewards as pre-ordering her new offerings of hot peppers or hot sauces.
Don Schalk, director of business and corporate development at the Center for Entrepreneurial Leadership, Alvernia University, said while he has heard of some wildly successful stories, he believes the success all depends on how good of a business plan is presented.
“Most startups fail not because it’s a bad idea, but because of how they are marketed,” Schalk said. “The success of crowdfunding depends on how compelling the business plan is and that you understand who are your best targets.”
Schalk said it is important to understand the profile of the potential investors.
He also said its important to be clear of what it means to be a backer.
“If I invest, what, if anything, am I to the business?” Schalk said. “A lot of people may think they all have a stake in the business.”
Definite pitfalls
McNamee also said there are definite pitfalls to be concerned about.
“To properly launch a crowdfunding campaign, you effectively have to create your product and company, and you need to assure the cost feasibility of manufacturing and selling your product at the price point you come up with,” McNamee said. “Some of the biggest and most successful crowdfunding campaigns wound up being dramatic failures as companies lost money of each unit sold or made.”
McNamee said the key is to tap into a large audience of potential funders.
“If you can ship your product to anyone in the world, that works well,” he said. “If you have a loyal following of local customers who will put their money where their mouth is, that can also work, but requires effort and reputation.”
Contact David A. Kostival: money@readingeagle.com.