It has been a well established fact among entrepreneurs that you don’t get money from a commercial bank for your business unless you don’t need it. What is meant by that seemingly paradoxical statement is that banks typically want to see that a business has collateral that can be seized if something goes wrong. While that is true, the barriers are even higher for startups even while their needs are greater. Startups don’t merit a second look from commercial banks, as their standard policy is that funding will never be made available for them.
Unfortunately, this is not something that a company seeking funding can fix easily. While an industrial marketing consultant can assist in making sure that the business has a well thought out plan in order to generate consistent earnings, that alone will not fix the fundamental problem of a startup’s request for funding. The company is truly not a good candidate for lending.
The fact of the matter is that although their need for capital may be great, the company will not have been in operation. There is no way of knowing whether or not the company’s product or service will be a good one or whether or not management will be able to consistently deliver what they are selling. If that doesn’t happen, it is unlikely that they will be able to repay a loan on a regular basis. It would not be prudent for a bank to absorb a loss with an unproven concept, untested management and undocumented ability to generate consistent cash flow.
Alternatives to Investor Funding
Startups have traditionally relied on venture capitalists and angel investors to fill this gap. However, in the years following a substantial decline in economic activity in the United States, both venture capitalists and angel investors have been reluctant to invest in companies new to the marketplace. They have assumed, prudently in most cases that buyers have not yet demonstrated the kind of enthusiasm necessary to support new concepts. And in the cases of smaller businesses, their projects typically aren’t large enough for these investors to partner with them.
But the fact that their project is smaller in absolute dollar size doesn’t make their need and/or opportunity any less important. The need for capital is exactly the same of any large private business that can attract venture capital. The need for these smaller companies mirrors large publicly traded companies that are capitalized by stockholders. There is a market opportunity that they can seize, if someone will shoulder the risk with them on the startup costs to get their idea to market.
How Crowdfunding is Changing the Financing Landscape
What can a company in this situation do to move their project forward?
An interesting new development has taken place over the last five years filling the financing void for new concepts, called crowdfunding. Crowdfunding is basically the establishment of a network of individuals who believe in a project and are willing to contribute toward its success. Instead of a project having hundreds of shareholders or even one venture capital firm, it could have tens of thousands of investors contributing smaller amounts to get startup capital to an entrepreneur. The most prominent name in the industry is the company Kickstarter, although there are many others such as: Indegogo, RocketHub, GoFundMe and Peerbackers.
The key to the success to any crowdfunding project is developing a network of interested investors. Companies will need to apply traditional industrial marketing principles in order to attract attention including public relations, whitepapers and conference attendance. However, just as marketing for manufacturing has changed since the 1990’s, so to has building a successful network of stakeholders.
While companies will need to attract individuals who may be interested in contributing toward the success of new projects, companies should also leverage their existing client base. Those who have had a good customer experience will be easier to convince of a company’s ability to develop the systems necessary to deliver excellence in a new marketplace. Businesses should expand the scope of their industrial marketing plan to include the possibility of adding new investors to new projects.
How then does a company reorient itself to capture this new source of capital to undertake new projects? Is there something that companies can do to work with the ‘crowd’ to fund these new ventures?
5 Ways to Become Attractive to Crowdfunding Investors
Marketing for manufacturing should now include the possibility that those within the company’s stakeholder group could be potential investors. Their line of thinking should be modeled after the commercial banking parameters. In other words, the best time to begin crowdfunding is before the capital is needed. Industrial marketing can and should include building a network of interested parties. So what should companies do to begin building their network?
- Companies should be active in building relationships with those in their contact database. This means providing regular education on the state of the industry, problems in the marketplace and new opportunities to exploit. Companies should share research that is of interest to those who are part of the universe in their email database.
- Companies should utilize public relations with news and community appearances with an eye not only to attract potential customers, but also to attract potential small investors.
- Companies should begin establishing a YouTube.Com channel creating videos of everything that a potential investor would want to know about the company, including new projects, current research, customer testimonials, executive commentary etc. The YouTube channel should be created with potential investors in mind as well as customers.
- Companies must create interest in social media not only with potential customers but also with potential investors. This is especially true with industrial companies that do not always have a need to interact with individuals at the consumer level. Even though their customer base will probably remain other business customers, their investors could come from those who have followed them on social media.
- B2B companies should have a home for all of this activity apart from its company website. A blog could serve the purpose of categorizing all of its YouTube videos, its research, its education and news that is not directed toward selling. This provides organization a holding place as time passes so that when the need for funding comes, they will be able to point to one location for investors to find the information that they need.
Business can prepare for potential crowdfunding projects before there is a need. In most cases, they can do so utilizing the existing industrial marketing framework they have in place. Today’s marketing for manufacturing should be executed to attract customers and prospects for purchases as well as for potential investment. A company confident about a funding source can evaluate new market opportunities with confidence knowing that their network of investors is growing. They can do this irrespective of the fact that they do not have the traditional sources of financing needed by publicly traded companies or large independent businesses. The question every executive should be asking is: does our company proactively build relationships with potential investors?
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