Ten days ago a popular downtown restaurant here in Madison, Wisconsin announced a GoFundMe campaign to raise $175,000 to help them recover from COVID debt and ongoing rising costs.  A few days later a local chocolatier posted a GoFundMe with the ambitious goal of raising half a million dollars to build a chocolate factory.  The first has campaign has reached almost $40,000, the second one just $20,000. 

These two large-scale crowdsourcing efforts caught the attention of the Wisconsin State Journal.  The newspaper quotes Mike Kunesh, treasurer for the Wisconsin Economic Development Corp, as calling crowdsourcing “a lesson in creative economics.” There are certainly many challenges faced by small businesses today, and borrowing from a bank is not always a viable solution.

In case you’re not familiar with the idea of campaigns such as those run on the GoFundMe platform, the concept is simple – you set a goal, tell your story, and share it with friends and family in the hopes that they will contribute. (GoFundMe does charge a transaction fee on the amount raised.) Unlike Kickstarter, a crowdsourcing platform popular with startup businesses, it’s not an all-or-nothing funding model. With Kickstarter, if you fail to reach your funding goal, you won’t receive any funds at all. 

Another big difference between GoFundMe and Kickstarter is the use of incentives. Mango + Main, a fair trade company hoping to open its first retail store in Annapolis, MD, offers those who contribute to their Kickstarter campaign gift cards, custom products and invitations to exclusive events.  They have 114 backers so far, and have already reached their $8,400 goal.

It can be tricky to manage these incentives, especially if the crowdsourcing campaign doesn’t meet its goal of saving a floundering business.  But it’s also hard to imagine the chocolatier will get $500,000 in donations without promising a single truffle as a reward.

GoFundMe’s policy of paying out whatever is raised is especially advantageous in situations in which the goal is not met. While the amount contributed by the public may not be enough to accomplish what the business needs, donations from many different people may help demonstrate to a bank or other lending institution that there is significant community support. It also might raise a cash sum that could be pledged as collateral against a larger loan.

There is definitely a downside to asking people to give your business money without promising anything in return, however.  On GoFundMe, it seems to mostly be the proprietors themselves asking for cash from the public (unlike those starting by friends of family for an individual in need). Although contributing is entirely voluntary, there are people who feel the need to post remarks on social media criticizing the business owner for asking for help.  Hopefully these hurtful comments would not harm your reputation, but you’d need to be ready to respond to them in a positive manner.

On a separate note, the recent devastation of small businesses in Lahaina demonstrates a very good use for crowdfunding – helping a retailer recover from a natural disaster, fire or major crime.  We all want to help our fellow business owners who have been hit by an unexpected crisis, and this can be the perfect way to do so.

Happy Retailing,

Carol “Orange” Schroeder