Crowdfunding as Market Validation

Creators and entrepreneurs know how challenging it is to launch a new product or concept, even if you have an established brand or business behind it. A well planned and executed crowdfunding campaign is a great way to validate interest live in the marketplace – where you can spend less, test more, earn enough and build an interesting tribe to follow your product.  

Having a crowdfunding campaign as part of a product launch or test strategy can give you the early data you need to overcome the challenge of product development, by improving your understanding of what is important to your clients. Crowdfunding enables you to foster a strong following around a product or concept with fewer resources than traditional testing, broad market researches, vague surveys, concentrated focus groups, and doctored interviews. The ability to pitch, stage and exhibit your product via crowdfunding online provides for a unique opportunity to answer the key question: will anyone be willing to pay upfront for what I have to offer? If you ponder about the investment required for a successful product launch, this is a far more affordable channel to test your plans in the real world. Additionally, if you incorporate the lessons learned from your campaign, you can be more confident that your efforts will be more effective and precise when taking your product to your online shop, retailers or distributors.

Another crucial hurdle crowdfunding can tackle is manufacturing your new prototype at scale. If you do not know how the market is going to perceive or react to your new product, crowdfunding gives you the chance to test the idea by setting minimum pre-order goals and observe if it takes off before you commit to bulk orders to produce your product. The crowdfunding platform acts as an active third party by verifying the concept, pricing, category, product bundling and people behind it. The platform also gives your business the confidence to develop your next new idea or innovation, even if it appears to be too bold.

Pushing publicity and traffic

As you launch, you will rely on pushing campaign updates through social media platforms and likely have some paid digital advertising to drive traffic towards your campaign page.

Campaigns can generate significant publicity for your business and for the specific product you’re testing or raising funds for. The hype is invaluable for elevating your profile to potential partners, investors, collaborators or retailers while developing trust with your potential customer base. Well executed media outreach means researching journalists beforehand who have covered similar or comparable campaigns and contacting them either at launch, once you’ve raised 25-40% or when you achieve a set milestone on your campaign. Certain journalists are more attracted to successful campaigns than brand-new campaigns, this is where the early research can pay off by targeting your outreach for success. Lastly, always make it easy for the journalist to write about you by giving them whatever materials they need to tell your story, high-resolution images, a link to your campaign and several methods to contact you.

Crowdfunding used to be seen as only suitable for startups and early-stage businesses however, it has now become clear that it’s a great and relatively affordable tactic for any business to perform market validation. From SMEs to multinational corporations, crowdfunding is a unique opportunity to generate buzz for your product while providing invaluable insight through market validation.

What is Direct-to-Consumer (D2C) and is it for me?

If you are starting a new business, you are probably studying and exploring about the various ways you can sell your product on eCommerce platforms or marketplaces (e.g. Amazon, Etsy, Tmall or Rakuten) versus your own online shop. Massive website traffic may be attractive and being on a massive branded platform can feel like a safe and obvious option. However, some brands are turning towards a new model with strong margins, higher customer engagement with more room for creativity to fuel brand development – Direct-to-Consumer (or D2C).

Here are 3 aspects to consider before you start selling on an eCommerce platform or marketplace:

1) Increased distributor fees

When you don’t have control of your selling space, there are fees and costs you can’t choose or disregard. Some are hidden, some are disguised, some are rates while others are only revealed when transactions are close to completion. When you start to summarize all the fees, rates and charges that an eCommerce platform may charge, you will find that they amount to a substantial portion of your sales margin. If you add shipping and fulfillment, you’re looking enough of a reason to consider an alternative.

2) Managing multiple sales channels

It’s likely that you’re selling via multiple channels such as eCommerce platforms, your website, distributors or bricks-and-mortar stores. Managing sales across different channels can be challenging as each presents itself with different requirements and can put a strain on resources in terms of time, cash flow, inventory, processing or shipping. Not owning the transaction process has its risks as well, as any errors or challenges experienced on other channels can impact brand reputation and customer satisfaction. From the outside looking in, it may appear that businesses have a far-reaching empire selling its products however a multichannel approach can also be dilutive to a brand and the way it engages with customers.

3) Is competition too close for comfort?

Presence on large platforms or marketplaces would mean selling side by side next to competitors which can help a product’s features outshine the rest, but it can also be a risk if inferior or substitute versions are sold on the same webpage. This downside needs consideration if your product can’t easily stand out, as customers are just a click away from the next option.

D2C provides brands with true autonomy

It may appear to be more time and resource consuming, but having your own online store is a long term strategy to establish a brand’s very own digital property on the ever-expansive internet. Having a website online is more than just a static placement or window to your digital shop but more a medium to deliver your brand in its entirety using design elements, user experience, customer interactivity and connectivity to truly heighten the presence of your business and harness the relationship consumers have with your brand. Essentially, D2C enables a brand to master more of its own fate, personalize its engagement with customers and hold significant autonomy amongst its peers on the internet.

For example, Warby Parker is well known to have challenged industry incumbent Luxottica by directly offering consumers a well crafted and strategized alternative to the reading and sunglasses retail ecosystem, going as far as delivering several frames to try on at home and eventually even launching bricks-and-mortar concepts on its own terms. Without the autonomy that D2C provides, Warby Parker could never have carved its own slice of market share within a competitive product category.

Selling through your own online shop also provides more control over your margins by removing the middlemen and going directly to your customers. However, to drive sales on your online shop and rival those of eCommerce platforms and marketplaces, you need to invest in your online presence. Luckily with the D2C model, the healthy margins and autonomy over your online shop allow you to take charge and invest in your own digital marketing strategy. Having your own digital marketing strategy has significant advantages including the ability to invest in generating traffic, nimbleness to take on competitors, control over budgets, pace your own growth and flexibility to engage with customers.

The adaptability that D2C provides is extremely valuable to a growing business and as technology continues to develop, it never ceases to create and thrive off new opportunities in the evermore digitized world.

Balancing Cash Flow and Growth

Balancing Cash Flow and Growth

Many businesses face a difficult choice. To stay competitive, they need to invest in marketing but worry it will harm their cash flow. However, is it possible to do one while protecting the other?

Most businesses will run into cash flow problems at some point and, when they do, the first thing to get the chop tends to be the marketing budget. That’s a shame because good marketing can help you avoid these problems in the first place and may also offer a way out of trouble. Better still, in the digital world, technology allows you to access marketing in a more affordable way which dramatically expands your reach.  

Cash flow management is one of the biggest issues facing businesses of all sizes, but particularly small and medium-sized enterprises (SMEs). A study from the payments platform WePay found that just over 40% of businesses said they had experienced cash flow problems over the past year. For many of them, a cash flow crisis can sound the death knell even if the business is going reasonably well. Around 80% of those businesses which do fail do so because of poor cash flow management.

Most of the resources dedicated to helping businesses avoid these problems focus on the accounts department, better planning and gaining a real-time view of your true financial position. These are all good pieces of advice, but these often have a glaring gap – marketing.

Designing your cash flow strategy

All of this is very easy to say but managers must work within financial realities. Sometimes it feels that they simply do not have the money or margin available to invest. Much as you would like to spend money on marketing, you just don’t think your finances can take the strain.

You can create an approach which works in tune, rather than against, your cash flow. Set a benchmark based on the average spending of your main competitors. If the market leaders in your sector are spending 20% of their revenue, you will likely need to spend more in order to catch up. Consider how big your company is and where it stands in its growth cycle. For example, a small business with relatively few overheads may be able to apportion a higher amount of its business budget to marketing than a larger business.

You should think about setting aside of pool of money from your income based on your marketing goals. This means you always have a pool of cash reserves which is constantly being replenished and should not compromise your cash flow.

Customer retention

One of the most common mistakes is to neglect customer retention marketing. It’s far easier to convince someone who has used your business before to come back than to go out and find new people (always assuming that their initial experience with you was a positive one). You should regard every customer you deal with as a potential marketing opportunity for the future. Furthermore, investment in marketing at scale is a proven strategy to continuously engage and connect with customers.

Newsletters and follow up contacts can be effective ways to engage those customers. Using their sales data, you may be able to identify new products which they might be interested in or craft personalized promotions which could attract them back to the business. Good customer service will also increase the chances not only that they will come back but also that they will recommend your service to someone else.

You can also invest time and effort into measuring the lifetime value of a customer. Not all will be created equal. Some may come back for just a few purchases of low-value items, while others could become regular buyers. Knowing where to focus your customer retention strategies will help you retain your business.

This will come at a cost, and you should set aside a dedicated customer retention budget as part of your marketing strategy, but it will save money in the long run. Data from the Harvard Business Review suggests gaining new customers costs between 5% and 20% more than retaining an existing one. Companies which successfully retain a high proportion of their customers also tend to be more successful at generating sustained and continued growth.

Funding growth

You should always assess your ongoing marketing efforts. You need to see what is performing well and what is not working. This can stop you from plugging away at an unsuccessful strategy but it can also prevent you from casting aside something which has been working well up until this point.

Embarking on a new project is all very well, but that doesn’t mean you should stop doing something that has been working. This is a good foundation on which you can base future growth. The aim should be to add to what is working rather than replace it.  

Bootstrapping for growth

Of course, every business runs into the brick wall of financial realities. Indeed, many businesses will feel they could grow faster than they are if they had more money to set aside into a marketing budget. This is where businesses often turn to outside assistance in the form of investment, but to do so you will usually have to surrender some of your equity.

Marketing in the digital world today

Today though there are a number of alternatives thanks to the rise of digital marketing. DRVE, for example, provides an innovative solution by funding for digital marketing without asking you to surrender equity in your business. You remain in control while DRVE uses its expertise and capital to take a hands-on approach to boosting your digital marketing performance. Not only can it offer you access to funding but it can also free you and your capital up to concentrate on doing what you do best.

This can be particularly useful in a world in which digital technology is changing marketing. In many ways, it’s becoming more affordable. Traditional media such as television and print can be expensive and don’t always have a clear return on investment. Rather than a single column in a newspaper, you can have your own online shop and reach out across multiple media channels.

Digital marketing gives you an enormous amount of exposure and the opportunity to engage with consumers, leading to actual sales growth. Our unique approach at DRVE helps balance the need to protect cash flow while fuelling your hunger to grow your brand and business.