Market Research Blog

How Market Research Aids Crowdfunding

Posted by Richard Washington

Jun 4, 2013 6:46:00 PM

Mouse on moneyWho hasn't heard about the millions of dollars being raised through crowdfunding initiatives? It certainly indicates demand for a product and encourages brand advocacy, but if you're looking at crowdfunding for any sort of business intelligence, you might be counting your chickens before they are hatched. 

Crowdfunding has been wildly successful since it's mainstream debut in 2006.  According to research firm Massolution, its market size is projected to grow to $5.1 billion by the end of 2013 and it's geographic expansion is isolated to the United States and Europe.  According to Go Get Funding, the U.S. and Europe account for 59% and 35% of worldwide crowdfunding capital.

One of the more noted successes was the pebble smart watch which raised over $10 million in crowdfunding.  Using the popular website Kickstarter, Pebble was able to raise money to develop a platform to design a watch face.

Here's a video of creator, Eric Migicovsky, explaining the smart watch:

Various industries are using crowdfunding to achieve their goals to great success.  For example, Microsoft is launching a platform to allow friends and families to donate money to purchase Windows PCs for college students.  Actor, Zach Braff, is crowdfunding to produce the sequal to his movie Garden State.  Turkish protesters are crowdfunding to raise enough money for a full-page ad in The New York Times or The Washington Post to inform the world of the police violence they have experienced since the tearing down of Istanbul's Gezi Park.

Crowdfunding is very good at building brand advocacy, assessing demand, and creating acquisition opportunities for entrepreneurs and startups looking to be bought by a bigger corporation.  Socially, it can also raise awareness to issues if used correctly.  The key is to narrow your focus and clarify your funding objectives.

With all the inherent opportunities provided by crowdfunding, a large gap exists between knowing the target market and tailoring your product to your target. 4,800 companies spend $17 billion annually on market research because consumer insight results in increased sales and cost savings.  Crowdfunders have shown a willingness to financially supporting an idea, but they do so with intent to yield a return from their investment. 

The blind spot in crowdfunding comes from lack of targeted understanding.  The scope is so narrow that you can see only a portion of the entire picture.  It's the equivalent of being part of the popular kids in junior high.  You think you're universally loved because your small circle of friends say so, but you are totally oblivious to the fact that you only spend your time with a very small group and have no real insight to thoughts of the majority of the school.

Crowdfunding tells you what is good about your brand, but it doesn't tell you if your brand has any chance for sustainability, or if you're barking up the right tree.  A great product is determined by the market.  And serving oranges to only orange lovers will undermine the whole market for citrus fruit. The risk is even greater for small businesses.  According to Small Business Trends, 40% of small businesses fail, 30% continually lose money, and 9% have a chance to survive 10 years.  It's essential to know the full breadth of the market you're investing in to gauge the true value of your product relative to the demand for it.

This is where good sound market intelligence comes in. It mitigates risk and improves your long term potential for success.

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Thanks for reading!

Richard Washington

Richard Washington
Marketing Manager
MarketResearch.com 

Topics: Market Research Strategy, Market Research

    

 

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