So you’ve got your concept, you’ve done some market research, and you’re ready to start developing your product. The only thing missing: money.
This is where lots of people with great ideas find themselves giving up. Securing funds to help you begin your product development can be daunting—after all, most people feel uncomfortable asking for money, especially because in order to get it, you have to be your own hype man (or woman). That can be a difficult role to step into.
But step into it you must if you want to ever get past the idea phase. Luckily, you don’t necessarily have to beg your family and friends to give you some of their hard-earned cash in order to get the funding you need (although you certainly can). Here are a few of the ways to fund your product development.
This is a popular one among entrepreneurs in the know, because with bootstrapping, the only person you’re accountable to is yourself. Bootstrapping involves using your own personal assets to fund your idea, without outside funding from investors. That could be personal savings, lines of equity, or revenue from another business. The idea is to start generating revenue as quickly as possible, so that the business becomes self-sustaining.
The advantage to bootstrapping, as mentioned above, is that you have complete control over how and when to spend those funds (unless, of course, you have a partner). The disadvantage is that you could end up running through your savings without much to show for it. However, according to Investopedia, there are lots of successful businesses that have been launched through bootstrapping, like Mint.com, Apple, and eBay.
If you’re considering bootstrapping, you’ll want to take a clear and realistic look at what your funding needs are and how quickly you want to achieve them. If you’re OK putting some money aside each month for a couple of years until you have what you need, then bootstrapping is probably perfect for you. If your funding needs are relatively small—$8,000 rather than $80,000—that’s another indicator that bootstrapping could work.
A final consideration is how long you expect it to take to get your product to market so it can generate revenue. If it’s a relatively short timeframe, then using your own money might be easier than going through other avenues.
Just remember: nothing is ever guaranteed, so any money you spend you should be prepared to lose.
Today, crowdfunding—raising money from individuals via the internet—is practically synonymous with Kickstarter and Indiegogo, two of the best-known crowdfunding platforms. There are several more out there, however, and you should do some research to figure out which one might be best for you.
GoFundMe, for example, is geared more toward causes and personal fundraisers. If you are working on a product with a humanitarian or social purpose—solar water filters for use in Indian villages, for example—you may want to check the site out. Just make sure you are crystal clear in your description of how the funds will be used. The last thing you want is for people to think they’re donating to a cause instead of funding your product.
Kickstarter is one of the top platforms out there, and there are lots of success stories that have come from it. One important characteristic of this site is that if you don’t reach your funding goal, you don’t get to keep any of the money. Indiegogo, on the other hand, has a Flexible Funding option that does allow you to keep any money you earn, even if you don’t meet your goal.
One of the most important precursors to a successful online crowdfunding campaign is to have a thoroughly-researched, well-presented value proposition. If you don’t put in the time to explain very clearly and persuasively why you deserve a stranger’s money, you most likely won’t get it.
And then there’s always the old-fashioned method of crowdfunding: asking your friends and relatives to invest in your idea. Make sure you’ve got the same clear value proposition, and be kind and gracious if they turn you down. If they say yes, keep them informed as you go through your development process.
They’re called angel investors for a reason: These wealthy individuals are just looking to invest in great ideas that they believe will become profitable in a reasonable amount of time. The amount of the investment varies, but it generally is between $50,000 and $250,000.
Angel investors have come more into the public eye recently, as they’re often involved in startups like social media companies or mobile and tablet apps. This can give the impression that securing an investor is, if not easy, not terribly difficult.
But in fact, persuading an angel investor to fund your product is becoming harder. There are so many good ideas out there, and so many products and businesses to put money into, that you have to be more competitive than you did even five years ago.
If you decide to try to secure an investor, it’s best to wait until you at least have a functional demo or prototype that you can show him or her. Unless your idea truly is the next big thing—and everyone recognizes it—an angel investor probably won’t want to take the risk.
If you’re ready to start your product development process, Pivot International can help. We handle everything from conceptualizing and product management to prototyping—so you have something to post on your Kickstarter page or show potential investors—and can even help with manufacturing, supply chain management, and business development. Contact us today!