Crowdfunding is more of an art than a science. It is about getting the right people involved at the right time. Using crowdfunding for nonprofits has been a resonant success because it helps all types of donors to quickly and conveniently find worthy causes to support; and for nonprofits to fund special projects, initiatives, and supplies without much difficulty. The mission of every successful nonprofit is to be followed and loved by many people and crowdfunding is a unique and easy way to unite the needs of this organization, a person’s passion for a mission and the network of friends and family. This way of raising vital funds truly brings to life the idea that people give to people. But there are still some factors that need to be considered. If you are an entrepreneur or a business student who has a high interest in knowing more about nonprofit organizations and how to develop a successful nonprofit crowdfunding campaign, this paper is the right choice for you. Throughout this report, the difference between for-profit and nonprofit companies and the crowdfunding success factors will be discussed as well as a real-world nonprofit crowdfunding project example to get a better insight.
FOR-PROFIT vs NONPROFIT
Before starting a new business, the entrepreneur needs to make very important decisions. One of them would be whether to enter the for-profit or nonprofit sector. Even if both these sectors have much in common, significant differences between the two exist. In order to decide which direction to take in your entrepreneurial career, you need to familiarize yourself with each type of organization.
The most important difference between nonprofit and for-profit sectors is the reason they exist. For-profit organizations are usually founded to make income for entrepreneurs and their employees, whereas nonprofits are generally initiated to serve an environmental or humanitarian need. Nonprofit companies direct all their revenue into services and programs which are designed at meeting people’s unmet or under-met needs, such as water, food, shelter, and education, or other issues such as endangered species and deforestation. For-profit organizations offer products and services that are valued in the marketplace, and therefore distribute profits between owners, employees, shareholders and the business itself (Arrow, K.J., 2000).
THE BENEFITS OF NONPROFIT
Creating a nonprofit organization can be a memorable experience for entrepreneurs who want to make a world-changing step. Building a successful nonprofit involves a distinct set of skills and capabilities, but the experience is not massively different from starting a small business. Knowing the advantages of starting a nonprofit company can help you to choose whether this type of opportunity is a perfect choice for you.
Firstly, creating a nonprofit rather than for-profit company will give you a personal satisfaction of knowing that you are achieving something good in the world. It lets you use your business experience and education for the good of humanity or the natural world. Therefore, this purpose-driven experience can give intangible rewards that you may find more valuable than any amount of money (Smallbusiness.chron, 2018).
Secondly, starting your own nonprofit company can still be a beneficial experience. You will get the satisfaction of building a productive entity together with a team of experienced managers and employees, building a brand, reaching out to the public to suggest valuable services and building long-lasting business connections. You will still get to undertake the outstanding experience of putting something valuable into motion and helping it grow (Hopkins, B.R., 2017).
Thirdly, building a new nonprofit can be less risky than opening a small business as a sole proprietor or partner. Limited liability offers business owners legal protection from the company’s lenders and other stakeholders. The extremely dangerous situation for the company that is not focused mainly on establishing a profitable business model might be created. This new form of nonprofit promises to offer social entrepreneurs the safety they need to reach out and experiment with new structures and services (C. Tice, 2006).
Finally, by running a high-impact nonprofit as someone who effected meaningful, lasting change in the world you would leave the legacy. Successful social entrepreneurs are highly active in increasing and sustaining their field of impact, rather than only focusing on their own organization. Having a real influence on people’s lives or in the natural world is a legacy viewed by some as superior to building long-lasting profit-making companies (Hopkins, B.R., 2017).
WHY CHOOSE CROWDFUNDING?
Kickstarter, Indiegogo, GoFundMe, etc. – these are all crowdfunding platforms helping the entrepreneurs to start their businesses (Medium, 2018). In an entrepreneurial concept, crowdfunding can be described as the efforts by entrepreneurial groups and individuals – cultural, social, and for-profit – to fund their projects. These projects can be funded by drawing on relatively small contributions from a relatively large number of individuals using the internet, without standard financial intermediaries (A. Schwienbacher et al., 2010).
While nearly all nonprofit organizations engage in some form of large-scale, coordinated fundraising effort, an increasing number use online crowdfunding platforms to give their campaign a boost. The traditional nonprofit fundraising efforts require an investment to be made in advertising, such as the use of a radio or TV commercial to raise awareness or direct mail efforts that include the printing of materials and the purchase of postage to mail information to donors. Unfortunately, this kind of advertisement would cost additional money (DoubleTheDonation, 2018).
In this case, crowdfunding is a much more efficient way to go. Campaign founders can use free services like social media to get the word out regarding the need for donations while at the same time, directing potential contributors to the website where they can accomplish this task. Also, when using a crowdfunding site, many charge only a small fee for every transaction or a monthly subscription amount which is much less expensive than traditional marketing methods. Additionally, a charitable organization can leverage the immense power of the internet to help it raise money to support worthy causes (Carvajal, M. et. al., (2012).
SUCCESS FACTORS OF CROWDFUNDING
While any businesses from different industries can use crowdfunding, the nonprofit sector has exceptionally benefited from the growth of this financing method. But there are still some factors which need to be considered while accomplishing the most from your crowdfunding project. Crowdfunding success can be defined as either the successful completion of the venture proposed or its’ successful funding on the crowdfunding platform before the start of the project (G. Giudici et. al, 2013). This funding success is attained when the amount of money pledged by funders exceeds the determined guarantying goal (Mollick, E. 2014).
However, if you think that it will be very easy to launch a nonprofit crowdfunding campaign with minimal effort in the planning and development stages? Think again! Remember that many crowdfunding campaigns come to an end before they achieve any meaningful traction (Clifford C., 2016). This often happens as the campaign was launched before a solid plan was established, so do not make the same a mistake. If you want to spark attention and the engagement, the people who view your crowdfunding page must have trust that your nonprofit campaign idea is fully settled. In this next section, the project-specific characteristics that have an influence on the success of funding will be outlined and the case of SYR – a good example of launching a nonprofit crowdfunding campaign will be analyzed.
Factor No1: Media Richness
The action when the applied media types effect on relationship and interaction value by their diverse potential we face is called media richness. The classification of original classical media by its richness starts with face-to-face interaction, telephone, personal documents such as letters or memos, impersonal written and numeric documents (Daft et al. 1987). However, in nowadays, the perception of media richness has been improved as the modern concept. It changed its’ focus to gradual variances between simple text and interactive multimedia applications (Palmer 2002). Regarding this development, text, video, and photos – the three most mutual content formats in online communication – are of certain attention.
The Role of Video
According to the literature, videos contain the highest level of media richness and help to interact best on the emotional and cognitive level of communication as they can better communicate emotional and personalized facets of messages and lead to a higher trust and connection by recipients (Otondo, R.F. et. al, 2008). “Projects with videos succeed at a much higher rate than those without (50% vs. 30%).” (Kickstarter, 2017). Even in the social media, the use of videos offers enormous benefits as they are usually shared by users. Therefore, video-based communication is considered the richest form of media communication (Daft et al. 1986).
In the context of crowdfunding, it is shown a video within the project presentation can additionally encourage a potential funder to raise the money for a project. Those projects are more often successfully funded as videos can be featured richer than photos as they contain audio information as well as visual (Kuppuswamy and Bayus 2013). In your nonprofit crowdfunding video, you need to invest as much as you can to ensure that production values are as high as possible. Then, make sure your content is just as outstanding. The successful nonprofit crowdfunding video needs to consist of information which is seen in the case of SYR. For instance, who you are, where did you get the idea to start your own nonprofit, what stage is it, how are you feeling about it. Come out and ask for people’s support by explaining why you need it, and what you will do with the money. Talk about the awesomeness of your nonprofit project and include as many visuals as you can. Never forget to thank everyone! Remember: the video should not be more than three minutes long and should include at least four storyboard scenes (Kickstarter, 2017).
Factor No2: Project Description Depth
Founders of crowdfunding campaigns have an opportunity to publish the description of a project on crowdfunding platforms with all related information. Many projects will share who they are, what they want to do, how they will execute the plan and share the reason behind the campaign. You need to remember to begin your pitch by sharing WHY you are doing this nonprofit project to win the hearts and minds of crowdfunders (Soorjoo, M., 2012).
From the field of information theory proposed by Claude E. Shannon in 1948, which emphases the question if a certain text is helpful for customer decision-making or not, it is known that the perceived helpfulness of texts is positively related to the amount of information published (Mudambi and Schuff, 2010). In that regard, a bigger text length is linked with increased value for its’ readers (Cheung et al., 2008). We can use a simple example of uploading a product on Amazon. Imagine you want to sell any items on this electronic commerce and cloud computing platform and to make them popular you need to come up with the informative description. So, you will try to make it in-depth as possible otherwise no one will buy your product. You need to make sure that customers could benefit from it and obtain the information without any additional search costs (Johnson and Payne, 1985).
In the context of crowdfunding, founders need to increase the number of details about their projects and the specific steps leading to a project realization. Consequential from the increased information in the project description, it can also be expected that there is a positive impact on the funding success of the venture (Sascha et. al, 2016). According to GoFundMe (2018), a good project description consists of (1) an extensive explaining of the general issue, (2) the solutions that the organization is currently developing and how they will help solve the problem, (3) links to more information about the project, (4) the information about the risks related to the project as it would increase transparency, trustworthiness and lead to more success regarding the supportiveness of the funding decision.
Factor No3: Social Media Development
When people gather together to work towards a mutual cause, great outcomes are created. From strengthening relationships to creating new career connections. By using social media platforms, such as Facebook, Twitter, Instagram, etc., it helps project funders to influence and establish additional new contacts beyond their closed circle of friends and family. Most project initiators understand that it is valuable to start linking with a great number of contacts on their social media pages before they begin with their crowdfunding campaign. Therefore, means of social capital for the crowdfunding project are recognized as the number of Facebook connections of project funders which makes it a success factor in crowdfunding campaigns (Giudici et al. 2013). Moreover, social media platforms can be valuable tools for word-of-mouth marketing in online infrastructures and their pages are esteemed instruments for reaching a public mass and prospective buyers (Groeger and Buttle, 2014). One Tweet can be retweeted several times, and a single Facebook post may find its’ technique to get into any number of News Feeds.
It also helps build a positive image for the crowdfunding project and inspires action on part of the user, making the project stronger (Lu, Chun-Ta et. al, 2014). Moreover, a media capacity theory states that social media channels improve the potential for direct feedback (Montoya et al. 2009). Consequently, most crowdfunding platforms provide a chance to specify a link from project pages to profiles in social media channels.
The world of social media is one that must be navigated and managed carefully. The purpose is to achieve maximum impact when social media is being used to endorse a crowdfunding campaign. For example, being too aggressive in your tactic to fundraising, i.e. overt “Give me money” without any other content, can, in fact, discourage potential funders. To maximize the benefit of using the social media you need to create a clear social media engagement strategy by (1) outlining what your current social media presence looks like, (2) identifying your target online audience and (3) where and how reach those communities, (4) articulating how your social media activities, such as website posts, media interviews, etc., will work with your other communications activities, (7) outlining a schedule and plan for pre, during and post campaign social media activity, including what the nature of the engagements will be (e.g. promotions, campaign updates, post-campaign production updates), (8) summarizing a plan regarding accessing the resources required to effectively manage the social media activity related to your nonprofit crowdfunding campaign. (8) Last but not the least, establishing a reasonable online supporter community first. To conclude, the use of Facebook, Twitter, etc. additionally helps to increase crowdfunding project reach, raises quality communication with prospective funders and positively influences the number of potential funders for a project, their decision-making and willingness to pay (Crowdfunding.cmf-fmc, 2018).
This viral value is an essential feature of the way information is spread via social media. It means that social media is a particularly cost-effective of leveraging your network to reach out to their networks. According to Phelps et. al (2004) the message becomes viral because of four stages: “(1) the receipt of a pass-along post message; (2) the decision to open or delete the message; (3) if opened, the reading/decoding of the message; and (4) deciding whether to forward the message on to others.” The message needs to engage with its’ target audience by combining photos shared on the content community. Nonprofit campaign funders need to find out what the audience would like to hear, talk about, might find interesting, enjoyable, and valuable. Finally, be honest and respect them (Kaplan, A.M. et.al, 2010).
Factor No4: Project Updates
“Giving backers the silent treatment – unintentionally or otherwise – can cause irritation and mistrust among your most supportive advocates” (Backerkit.com, 2017). In addition to media richness, only those project founders are encouraged to be funded who know a crucial relevance to an effective information exchange with potential and actual project supporters as it establishes social relationships (Kuppuswamy and Bayus, 2013). Do not let your nonprofit crowdfunding page lay dormant. Give post frequent updates and thank your donors. Let your backers know about strides that you have made along with obstacles you are facing. Review the comments on your page. If there are matters that could become contentious, address them. Create new content and encourage investors and potential investors to view that content. The more responsive you are, the more you engage, and the more up to date your content is, the more connected your audience will feel to your campaign.
At the beginning or at least at a rather early stage of the project the information in the description prepared is only static. No developed project status is revealed and the funders, who need information that the project conduction is properly performed, and what a certain progression speed is, will not be satisfied by only static data. Moreover, it has been found that quick updates within the first three days of a project launch are positively correlated with fundraising success (Mollick, 2014). Only if the updates of such as problems that are dealt with or being solved within a project are frequently and continuously posted, the funders may get convinced that the project founders are highly motivated that the project will reach its’ goal and is hence worth being funded. The best crowdfunding project updates are: (1) Timely: always make sure that your updates are the most resonance. Begin a countdown 10 and 5 days out for the end of the nonprofit project. Do not leave it for the final hours. (2) Relevant: do not overwhelm your entire funder base with updates that only apply to select few. That is what individual responses are for. (3) Engaging: tempt crowdfunders by providing them with selected images or information of their rewards. (4) Well-written: while the campaign page is all about creating a story, updates serve more practical ends. Keep it short and simple, and do not forget to spell-check. (5) Polite: as a small gesture remember to thank your funders for their support. (6) Public: your nonprofit project updates help persuade people to back your campaign to use the social media (BackerKit, 2018).
Factor No5: Partners
You are not alone. The crowdfunding community is a diverse and open community. Make connections with other entrepreneurs. Crowdfunding became extremely popular among college students. So, if you are still a student then start building and expanding your professional network in social networking services such as LinkedIn. Student networking can be fun, entertaining and useful. Communicate, participate in different college events and organize your own. Act as a mentor for somebody who has less experience in this world than you, or ask for help yourself. Find ways to promote other businesses in exchange for them promoting yours. Share a few message points with the volunteer, like statistics about your mission, values, and percentage of funding spent on administrative costs. Better yet, work with your volunteer on their personal story. What drew them to your organization? What improvements, changes and developments have they been a part of? Including this testimonial on the nonprofit campaign’s landing page and in social media posts will help personalize the fund request (Howe, 2008).
DO NOT FORGET
You need to always remember that the nonprofit world is all about selling the vision and not really selling a tangible product. Take it a step further, and you will realize that nonprofit campaigns are about more than just a one-off project. The most important thing is the relationship building. So sure, these organizations have fundraising that includes crowdfunding in it, but it is much more than that. It is about allowing your current potential funders to connect with you and sustain a relationship with them. You need to make sure that it is not just a one-time donation. Your goal is carrying down and getting new donors to continue to support throughout their lifetime. It is about the continual donations. Always make people feel good about giving and getting the most of your nonprofit crowdfunding campaign!