BUSMHR 2500 Foundations of Entrepreneurship

Introduction

  • Instructor: Dr. Lori D. Kendall, FT-MBA Academic Director & Sr. Lecturer, Management & Human Resources

  • Focus: Chapter 12 explores Bootstrapping and Crowdfunding for Resources.

Starting a Business with Little Funding

  • Seven Components of Entrepreneurship Model includes:

    • Your Why statement: Clarifying personal motivation and purpose behind starting a venture.

    • Start with means at hand: Utilize available resources effectively.

    • Describe idea today: Articulate the current business concept clearly.

    • Calculate affordable loss: Assess what you can afford to lose if things do not go as planned.

    • Take small actions: Begin the entrepreneurial journey with manageable steps.

    • Network and enroll others in your journey: Build a support system through connections.

    • Build on what you learn: Continuously adapt and improve based on experiences.

  • Funding Sources: Initial financial help can come from three categories:

    • Friends

    • Family

    • Fools (individuals who invest in ventures without full understanding of risks).

What Is Bootstrapping?

Meaning of Bootstrapping

  • Definition: The process of starting a business with little or no external funding, relying instead on personal finances and operating revenue.

Key Aspects of Bootstrapping

  1. Acquiring Resources Without Financing: Focuses on utilizing personal finances and sales revenue rather than seeking outside investment.

  2. Benefits from Formal Channels: Continues from traditional financing routes while ensuring better control of the venture.

  3. New Ventures Unready for Investment: Early-stage startups often do not have the required metrics to attract investors.

  4. Better Negotiating Position: Bootstrappers maintain greater autonomy and less pressure from investors, allowing for improved negotiation terms in future funding rounds.

The Bootstrapped Startup

  • Using Your Own Sources: Emphasizing the importance of personal investment and savings.

  • Creative Ways to Save Money: Encouragement to invent cost-saving measures unique to each startup.

  • Start with Steady Pace: Growth and expansion at a manageable rate to ensure sustainability.

  • Sweat Equity: The value created through hard work and personal effort rather than monetary investment.

Crowdfunding and Crowdsourcing

Differences Between Crowdfunding and Crowdsourcing

  1. Crowdfunding: Raising capital from a large number of contributors, typically via online platforms.

  2. Crowdsourcing: Gathering ideas, labor, or services from a large group, often leveraging the internet.

Benefits of Crowdfunding

  • Crowdfunding aims to raise cash while providing various benefits, such as:

    • Increased public engagement with potential customers.

    • Diverse funding sources limit individual exposure to risk.

Engaging Customers Through Crowdsourcing

  • Crowdsourcing for Customer Engagement and Satisfaction: Utilizing existing customer base as a source of ideas and feedback to improve the business.

  • Methods:

    • Formal engagement initiatives.

    • Informal interactions to gauge interest and collect input.

Reducing Labor Costs Through Crowdsourcing

  • Benefits: Reduces overhead since labor can be contracted on a task-per-task basis.

  • Innovating Solutions: Crowdsourcing can lead to more creative solutions by gaining diverse perspectives.

Crowdsourcing as a Core Enhancement

  • Crowdsourcing for Innovation: Engaging a large group can lead to innovative products and solutions.

  • Diversity of Thoughts and Ideas: A broader collaborative model fosters creative solutions.

  • Product-Centric Companies: Some businesses are built entirely on crowdsourcing methodologies.

Growth of Crowdfunding

  • Factors Contributing to Growth:

    • Increased legitimacy and acceptance among entrepreneurs.

    • Numerous online platforms available that facilitate crowdfunding.

    • The gig economy provides a growing number of contributors.

    • Social media campaigns promote crowdfunding initiatives.

    • Statistics: Crowdfunding has raised billions, with the US and Canada leading at $74 billion collectively.

Types of Crowdfunding Sites

  1. Kickstarter: Most established platform, charges a percentage of funds collected.

    • Must follow five basic rules:

      • Projects must create shareable outcomes.

      • Honesty and clarity in presenting projects are essential.

      • No equity or revenue-sharing possibilities.

      • Cannot fundraise for charity.

      • Must avoid prohibited items.

  2. Funding Requirements: All projects must be fully funded for any money to be raised.

    • Rewards structure can vary significantly among projects.

    • Alternatives: Indiegogo and similar platforms.

Equity Crowdfunding

  • Provides an opportunity for backers to become shareholders in the venture.

  • US Sites: They specifically offer potential investment opportunities to the public.

Crowdfunding Models

  1. Patronage Model: Financial backing is provided without an expectation of direct returns.

    • Example: Patreon platform.

  2. Lending Model: Funds are given as loans, which may not always require repayment.

  3. Reward-Based Crowdfunding: Backers receive unique rewards for supporting a project.

  4. Investor Model: Involves giving equity or shares of profit back to the contributors.

Advantages of Crowdfunding for Global Entrepreneurs

  • Market Interest: Judging customer interest prior to full launch.

  • Building Relationships: Developing early relationships with potential customers.

  • Promotional Support: Customers can help to promote the business offering.

  • Early Marketing: Engaging in marketing activities prior to the product’s market introduction.

Guidelines for Successful Crowdfunding

Key Steps

  1. Ensure Product Solves a Real Problem:

    • Craft your message to communicate effectively.

    • Understand the core essence of your product.

  2. Test and Refine Your Idea:

    • Iterative approach to development and planning is crucial.

  3. Be Prepared:

    • Establish connections with suppliers, distributors, and customers in advance.

  4. Seek and Accept Advice:

    • Lean on others’ expertise through feedback requests.

  5. Begin Socializing Your Campaign Early:

    • Spread news and leverage social media channels effectively.

    • Example: Share prototype drawings online.

  6. Money Matters:

    • Recognize that most crowdfunding successes require thorough financial planning.

    • Differentiate between required funding versus desired amounts.

    • Set realistic and conservative funding goals.

  7. Focus on the Video:

    • Investing in a high-quality campaign video can significantly improve funding amounts.

    • Showcase authenticity by connecting with backers personally.

  8. Maximize Crowdfunding Opportunities:

    • Solicit feedback from backers actively and use press coverage to gain visibility.

  9. Extensive Promotion:

    • Boost visibility through active campaign promotion.

    • Engage promptly with backers for better retention.

    • Collaborate with influencers or media as needed.

  10. Commit to and Manage Your Campaign:

    • Recognize the hard work involved in managing a popular campaign.

    • Be prepared for potential setbacks such as delays or unmet expectations.

    • Address failures transparently to maintain trust among backers.

Conclusion

  • Successful crowdfunding requires thorough preparation, engagement, and active promotion to navigate the complexities of fundraising effectively.

Thank You!