Can Crowdfunding Help Reduce Some Risk?

When creating a new product or service, one of the most difficult things to gauge is the level of market interest, if any. You, your family and friends may think you have a fantastic product, but how can you be sure that potential customers will think so too? More importantly, how can you test the viability of your product or service without spending a lot of money??

In the past, the way to test the market was to create the product and see how people responded to it. This meant committing upfront costs to manufacturing a small batch of the product – denying you economies of scale – and either going back to make more (if it did well), or losing the investment (if it did not).

Crowdfunding, however, helps reduce SOME uncertainty around market interest in a product or service. Depending on the crowdfunding platform, you may be able to raise capital simply based on a drawing/rendering or design-prototype. It is extremely important to note that capital raised via crowdfunding does NOT have to be paid back and you do NOT give up equity or go into debt.

In September 2012, Kickstarter, a leading crowdfunding platform, changed its policy and banned project renderings and simulations from starting crowdfunding campaigns. If this trend continues amongst other crowdfunding platforms than entrepreneurs may have to revisit committing to some small upfront manufacturing expenses.

What are your thoughts about crowdfunding?

@AndrewHazen

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