Article by Bryan Clark Originally Published on entreproducer
Three Ways to Fund Your Online Startup Without Investors
The industry we typically refer to as the “content” business — New York publishing, Hollywood movies and television, music from both American coasts — is primarily an endeavour in investment and distribution.
In many ways, despite myriad cultural differences, it’s not entirely different from Silicon Valley. The traditional content business is about high-risk venture capitalism focused on a highly specialized portfolio of products.
As a result, content creators and online entrepreneurs often begin their journey trying to figure out how to get money. Not from customers, but from investors.
Is this necessary? Sometimes, yes.
But in this new realm of digital media, not always. And not as often as you might think.
Create Your Own Publishing Advance
Take the legacy publishing industry, for example. You develop a proposal for a business book (the business plan). A publishing company gives you an advance and agrees to print and distribute the book (the investment).
Once the book is out, the standard royalty commission for authors is:
- 15% up to 10,000 copies
- 17.5% up to 20,000 copies
- 20% thereafter
Not only that, but you have to first pay back your advance out of sales before you start earning commissions. Compared to the typical 20% a venture capital firm might take of your company in return for tens of millions of dollars (with generally no obligation to pay back the investment first), 85% seems a bit of a rough deal.
And of course, it’s up to you to sell the book. Don’t forget that part.
Jim Kukral experienced this first hand. And although he enjoyed working with Wiley for his first book, the numbers just didn’t add up for him.
So, he did something smarter.
Kukral has been publishing a blog for 10 years, which made him an audience-enabled author thanks to content marketing. So when he came up with an idea for a new series of business books, he decided to try to create his own advance. To accomplish that, he simply offered up his yet-to-be-written next book at a pre-sale discount to his audience.
Thirty days and $35,000 later, Jim started writing. He credits his online platform as the reason he landed that initial book deal with Wiley, and then realized he could rely on it directly for all of his subsequent books.
This process works even better when you’re selling membership access to sequential content, rather that an ebook that’s delivered all at once. I’ll give you an example of that approach from the early days of Copyblogger.
Sell the Idea First
By the summer of 2007, I’d been running Copyblogger as what appeared to be a non-profit website for a year and a half. In reality, I was building an audience and listening intently to figure out what that audience needed, and I had just decided what one of those things was.
I spent a lot of time talking to Tony Clark that summer. Tony had just left the software company he founded, and was looking for his next thing (he’s now COO of Copyblogger Media). We had both spent the previous 10 years creating online content, and both enjoyed geeking out about learning psychology, instructional design, and the intersection of adult education and direct marketing principles.
Through 4 months of intense conversation and collaboration, we decided on the first ever Copyblogger product. It would be a massive online education program called Teaching Sells, and would put to rest the myth that people wouldn’t pay for online content while helping people create real online businesses.
We didn’t create the course first, though. Instead, we took the idea to the Copyblogger audience via a free PDF report. The thought of working that hard for no pay just didn’t sit well with us.
We charged for access from day one (at that time, a quarterly fee), and built the course over the very intense next year. In the first week after Teaching Sells went live, Copyblogger had earned its first six figures in revenue — an investment by the audience that allowed us to deliver them the education they needed. And Teaching Sells remains a core element of our product mix to this day.
In its initial form, Teaching Sells consisted of weekly-released content mixed with forum access to Tony, me, and other members, behind a membership wall. Other than 5 initial lessons, the content didn’t exist outside of my head.
But I now had all the motivation in the world to create the course once people entrusted me with their money. Procrastination was no longer an option.
Kickstart Your Content
If you don’t have your own audience, but you have a really great idea, you can still fund it without traditional investors. Kickstarter allows people to build profiles on the site to make a case for their project, break out required costs, and to offer special incentives and benefits to people who contribute to the funding.
A recent example of using Kickstarter for a web media project is the journalism startup Matter. Former reporters Jim Giles and Bobbie Johnson have a vision for a different kind of online journalism, and took their financial request to the crowd:
MATTER will focus on doing one thing, and doing it exceptionally well. Every week, we will publish a single piece of top-tier long-form journalism about big issues in technology and science. That means no cheap reviews, no snarky opinion pieces, no top ten lists. Just one unmissable story.
Matter intends to charge 99 cents per story to deliver a better journalistic experience for readers. They seem to have struck a chord, because they’ve already raised $105,268 as of this writing.
Your Own Crowd Beats Any Old Crowd
Each example above is a form of what’s known as crowd funding. Basically, an individual or organization relies on a networked group of people to raise money, usually in exchange for some benefit to the paying members of the crowd.
In the first two examples, there was a direct relationship with the audience. There was no need to involve a third party site like Kickstarter, no fees to pay, and no selling to a cold crowd.
That last point is the most critical. Jim Kukral initially tried to presell his book idea on Kickstarter, but his proposal was rejected. The Kickstarter crowd is looking for the hip, the cool, and Ze Frank. Jim’s books were much too pragmatic.
His own audience, on the other hand, was exactly right for Jim’s books. They were actually eager to pay a fair fee, not only to get the book when it came out, but to support Jim for all the value he had delivered to them over the years.
There are ways to borrow someone else’s audience via affiliate relationships, joint ventures, and long-term partnerships. We’ll explore those in upcoming articles, but the sweetest position to be in is to have an online audience of your own, just waiting to support you.
What about you? Any other examples of pre-selling or crowd funding to get an online project going? Let us know in the comments.