Three Ways Crowdfunding Can Enhance Business Success (Besides Provide Financial Backing)

It is common knowledge that crowdfunding platforms can help achieve start-up success. But besides being a source of financial help, what other ways can crowdfund backers be tapped upon to generate a positive impact for entrepreneurs?

In eras past, the only way to finance a new venture was by pitching it to old-school investors or loan approval officers at the bank. However, the rise of crowdfunding platforms, like Kickstarter, GoFundMe and Campfire has helped raise capital from everyday consumers, as well as awareness for innovative, new products, all without the need for lengthy business plans or fancy financial projections.

Serving as a point of connection between project creators and backers, crowdfunding platforms have been steadily gaining widespread visibility and acceptance over the last decade. The 2015 MassolutionCF The Crowdfunding Industry Report stated that these platforms have grown from a US$880 million business in 2010 to a US$34.4 billion one in 2015, with a potential to reach US$196.36 billion by 2025.

It is common knowledge that backers are imperative to a project’s success, but does it matter how influential these backers are? How can one tap on a backer’s influence to impact a project?

According to a paper co-authored by SMU Professor of Marketing; Director, Centre for Marketing Excellence Srinivas K Reddy and his doctoral student Dr. Yee Heng Tan (currently Assistant Professor at Tokyo International University), crowdfunding platforms are not only great tools for entrepreneurs to raise financial backing for their businesses, but they also give rise to key backers with strong online influence who can be pivotal in business success; not just by their financial contributions, but also by influencing other backers to contribute to a project.

Crowdfunding hinges on the premise of many people contributing relatively small amounts of money to a business idea. However, not all backers are made equal. The study identifies the role of a central backer — much like a top-tier social media influencer — as someone who either has many direct connections to other backers or has a lot of activity taking place between a select few connections.

Here’s how project creators and platform managers can tap on central backers and their influence to impact the success of a project.

#1 Leverage central backers as content marketers

Although influencers have been tapped upon to attract potential backers to crowdfunding projects, they largely served as marketing tools rather than business investors. Conversely, the study found that central backers were influencers in their own right, with the ability to draw further funding for projects based on their following and reputation.

Such central backers were found to be particularly impactful on forums and blogs – sources of media that tend to be longer and require more message elaboration. Forums include online discussions via its threads or pages that allow users to post responses or comment on various topics, while blog posts, though written in a more conversational style, can include descriptive details.

The information shared on these sites help central backers better understand that project and its potential, which in turn can contribute to its funding success. Thus, it is important for project creators and even crowdfunding platform managers to reach out to central backers via blog posts and forums because once these central backers are interested, they will also be more likely to share this interest with other backers in the platform.

#2 Bank on central backers' social media influence

While central backers were not easily persuaded on social media due to a lack of message elaboration, as compared to longer-form content on forums and blogs, the authors did find that social media buzz has a positive impact on crowdfunding success.

In fact, the authors add that a simple tweet on Twitter that shows that a central backer is backing a certain project, along with a link to the proposed project, is enough to get other backers interested and onboard. At the same time, more 'likes' on a social media post, such as Instagram, can also affect a backer’s perception of the project quality, which in turn may propel the success of a crowdfunding project.

To do so, project creators will need to seek out central backers within the network, encourage them to use their social media platforms to generate digital buzz that can then in turn, provide incremental benefits to the crowdfunding projects.

#3 Select backers based on quality, not quantity
Despite the obvious option of picking central backers based on the number of projects they have funded, the study found that backers who indiscriminately back many projects have little influence on project outcomes.

Instead of investing resources on such backers who do not contribute significantly to the crowdfunding project’s success, it helps to be selective and target a small group of top central backers who may wield a disproportionate amount of influence. Crowdfunding sites can therefore play a bigger role in helping project founders identify the right central backers by providing more information on the latter’s track record and background.

#4 Bank on backers' intel to maximise influence

With great power comes great responsibility. And while project creators would benefit from central backers identified by crowdfunding sites, this transparency of information can also potentially lead to negative impact — the loss of privacy for key backers. Thus, there is a need for crowdfunding platforms to exercise a delicate balancing act and ensure that while personal information of a central backer is shared with project creators, it is not overly invasive, to avoid the central backer withdrawing from the platform.

To mitigate this concern, the authors have two proposed solutions. Firstly, crowdfunding platforms can allocate serial numbers to the users instead of using usernames, alongside the introduction of “centrality scores” and the creation of “influence points” that be used to indicate if the user is a central backer on their profile page.

The second option is to create an artificial network. Through this, platforms can use a simple identification criterion to identify the central backers, which can then be listed onto the platform itself, thus limiting the information shared with all users. Such a move can also allow platform managers to identify active individuals in each category, or even further segment them into subcategories. More importantly, this gives the central backers peace of mind as it preserves their anonymity while networking and observing their backing decisions.

According to the authors, platforms that can manage these tools will be able to benefit from the central backer network to generate positive project outcomes.

Ultimately, the study has shown that there are other ways for crowdfunding projects can be successful, and it may not always be associated with financial help. Through these strategies, highly influential central backers can have a significant impact on crowdfunding project outcomes, and thus should be accounted for when modelling crowdfunding success.