What is Flexible Funding and How Can it Help Your Business

crowdfundingFlexible funding is one element of ‘crowdfunding‘; a way of getting numerous small donations from various parties to build a larger investment pool to start a business, run a campaign, or complete some sort of project. Within crowdfunding, there are 2 main elements-fixed funding, and flexible funding.

Fixed funding refers to a campaign where backers will be duly compensated and refunded if the budget of the campaign is not met. Let’s say you set up a campaign to raise $5,000. If you only reach $3,000, you’ll not have raised sufficient capital to complete your project. As such, each donor will be refunded his donation, and the campaign will be abandoned with no-one missing out.

Flexible funding, however, is different. With these campaigns, the fundraiser will keep all of the money that they raise regardless of whether they meet their targets or not. As such, this leaves anyone who fails to meet the target with something of a moral dilemma-should they refund the donations themselves and incur fees if they don’t reach their target, or simply do the best they can with the money that they raise?

This moral choice will weigh upon the campaign creator. If they legitimately believe they need $10,000 to start up a new business, and they only raise half of that, how can they possibly think they will be able to accomplish the same goal unless they receive further backing elsewhere? This opens the door to scammers and con artists to create campaigns that have no hope of working simply to ‘skim off the top’ and take what money they are able to siphon out of the willing community of online donors.

Of course, most people will use flexible funding for good, and in this sense it becomes a legitimate method of raising finances for business ventures, especially those that capture the public eye and imagination. Don’t expect to achieve much funding with a dud project that people have seen 1,000 times before, or that bores them to death. Crowdfunding techniques work when they pique the people’s imagination and interest: you won’t be pitching to serious investors here with a dour business plan, but to people willing to ‘chip in’ to help you get your project off the ground.

So, how do you use flexible funding for your business?

Well, the starting point needs to be creating a campaign and making it interesting and appealing for potential donors. Creating a video that presents your project in a stimulating and entertaining way is a good idea. Be sure to show yourself off during the process: people will want to know what they are funding and who they are funding, so give your campaign a face that people can relate to. Remember that people will be more inclined to back projects that they feel passionate about, so this needs to come across throughout your campaign. They also want someone who appears to know what they're doing so make sure to supply a business plan and possibly your resume. If you have a masters in management, people may be more likely to accept you as someone who could run a business successfully rather than a guy with a pipe dream.

Providing unique benefits to donors as part of the process is highly recommended. This refers to something that contributors will receive in exchange for their donations, for example, a 10% coupon off their first order once you get up and running. Not only will this help to increase your donations; it will give you a readymade ‘hot’ market prepared to buy your products once they are ready to sell.

Spreading the word about your campaign through as many outlets as possible is also important. This means talking to friends and family and asking them to tell others, as well as getting online and expanding your reach into social networking platforms. Setting up a dedicated Facebook page and Twitter account for your campaign is a good idea-post updates about how much you have raised, what the money will be used for, and so on, and people will become engaged and interested. When people ‘like’ or ‘follow’ you, your pages will show up on their friends' feeds. Depending on how interesting and popular your project is, this can lead to a viral effect.

With flexible funding, it’s important that you set realistic targets. Remember, failing to hit your target will put your in a tricky moral position, so do your research to know how much your project needs.

If you have any questions, please ask below!