Will Crowdsourcing Replace Loans?

Loans are a great way for businesses large and small to raise cash, but they aren’t the only game in town anymore. Crowdsourcing has given companies a way to get to spend so much on development costs. They also get a crowd of passionate people to spend the money instead, giving them much-needed cash to hire more people, get out production units, and basically get cool projects off the ground.

Yet the question remains: will crowdsourcing replace traditional loans? Not at all. It’s hard at first to see past the glitter and glamour of crowdsourcing. You pitch a passionate idea, you get people behind it, and they give you money. The Coolest, a high-tech cooler, made headlines as the most funded project on Kickstarter ever, bringing in well over 10 million dollars. Before companies start dreaming about island vacations and brand new cars from an army of passionate geeks, there are some problems with crowdsourcing.

First and foremost, if your product doesn’t have a cool hook or a glamorous tinge, it’s probably not going to capture the public’s eye for very long. Sometimes there are great business ideas found in very mundane products, and it’s a shame that they don’t get highlighted the same way all of the flashy stuff does. But you have to look at alternative streams of financing when you know that your product won’t really catch the eye of the crowdsourcing groups.

Next, you still need to have a great business plan. Far too many people think that they’re going to raise a bunch of money on Kickstarter and that’ll be the end of it. This isn’t the case at all. You want to make sure that you’re looking ahead and getting a solid plan in place. Yes, that means that you might have to pay someone for the business plan if writing isn’t your thing. But getting organized is really an important building block of getting financing, no matter which direction you go.

Finally, you still need to network. Don’t let the bank or the crowdsourcing audience let you believe they’re the only sources out there. Start talking to angle investors that invest in small projects, that can grow with time. Start telling people about your prototype. Once you get something built, see if you can scale it by advertising in higher markets. It’s completely up to you to think about how you want to get your business to expand. The key here is to get moving as soon as possible. Every financing path is challenging, and it can be hard to figure out which way to go. But look again at what your business brings to the table. You’re bound to get someone’s attention eventually!