Restaurants are some of the most capital-intensive businesses to start. Build-out and equipment costs, starting inventory, licenses, fees and working capital can easily add up to hundreds of thousands of dollars. To make matters worse, banks won’t lend to new businesses and not everyone has a rich uncle. So where do up-and-coming entrepreneurs turn for much-needed capital to fuel their dreams? Crowdfunding!
Crowdfunding is a financing mechanism popularized by Kickstarter and Indiegogo, where an entrepreneur pitches their ideas online and receives pledges from backers in exchange for rewards and gifts.
Crowdfunding is not easy money. We learned the hard way by doing it ourselves. The love comes from the labor you put into to it. Here are six essential ingredients to crowdfunding a restaurant project based on our extensive experience in the field.
1. The Fundamentals
Much like a successful dinner service, prepping is 90% of the battle. Once you launch your campaign it will be a 30-day sprint, so practicing “mise en place” will prevent your campaign from stalling and keep you from getting into the weeds. Good campaigns take at least 150+ man hours or three to four months of lead time to prep.
Crowdfunding isn’t a one-person show. For a successful campaign, you’ll need a variety of skillsets within your team.
First, you’ll need someone to project manage the campaign. Coordination is key, so it’s crucial to have someone to be on top off all the elements. Successful campaigns tell their story and showcase their brand in beautiful and engaging ways. Make sure you have a good photographer/videographer and a designer to make sure your story gets told well. Finally, you’ll need someone who has a way with words to craft your tagline, social media posts and press releases.
2. Setting Your Goals
Just because you want a million dollars does not mean you should set your goal at a million dollars. The proper way to establish your goal is by first establishing what you need the money for.
Do you need the money for additional equipment like a deep fryer and a convection oven? If so, your goal should be set to that amount (about $3,000). Why be modest? Because Kickstarter is all or nothing, meaning if you don’t hit your goal of $1 million, you don’t get to keep the $699,000 you raised.
The second step is to analyze previous crowdfunding campaigns in your area. This will give you a realistic baseline to compare your goals to. For example, you shouldn’t set your goal to $100,000 when your research shows you that 99% of campaigns in your area have only raised $50,000. Past performance is not indicator of future success, but if you are trying to reach past your peers the quality of your product and your social capital should reflect the length of your reach.
The third step is to calculate the cost of your rewards and factor that into your goal. Nobody wants to raise $10,000 only to find out that after all is said and done, you’ve only got $1,000 left to complete your project.
3. Rewards Tiers
Getting people to back you means giving back. Think of rewards as your menu offerings. You want to maximize your average check by appealing to a host of tastes, from sweet to savory. In crowdfunding, this means you want to have a selection of rewards that appeal to different price points. For example, you want offer rewards at the $20, $50, $100+ range.
Research on similar crowdfunding projects will also shine a light on reward tiers their sweet spots. When we crowdfunded the Boba Guys, an artisan boba milk tea shop in San Francisco, we developed reward tiers that lead to an $89 pledge average for a drink that cost $5, by exploiting sweet spots and price laddering techniques. A surprisingly popular reward tier for the Boba Guys was a $500 Black Card for a year’s worth of Boba! Typically, reward tiers for a restaurant will be dinner for two or tickets to the opening party.
4. Launch Party
Momentum is essential in crowdfunding. If you reach 20% of your goal in the first few days, you are 80% more likely to hit your goal. A successful launch party can help jumpstart your campaign by turning attendees into your evangelists.
Let people experience the awesomeness of your product first-hand and use it as an opportunity to build excitement around your campaign. Invite repeat customers, friends and family, and people that you shown consistently in the past to “have your back.”
At the FK Frozen Custard launch party, we offered free scoops to backers and a step-and-repeat photo booth wall to encourage backers to Instagram themselves while promoting the campaign. The end result: FK reached the critical 20% funding milestone at their launch party.
Just because you build a crowdfunding page doesn’t mean supporters will come flocking to fund your project. All successful crowdfunding projects have a thorough promotional strategy in place before launching.
Pleading for money is a turn-off; captivating images are a turn-on. Tell your story using alluring imagery of your new restaurant space and food program and then publish it over social media — every day of the campaign for maximum reach.
When we helped Cassava crowdfund their restaurant, we produced a series of social media-friendly images that visually told their story. Professional-level photography was important to reinforce Cassava’s attention to detail and craftsmanship. If you aren’t meticulous about how you’re represented, how can people believe you’re meticulous about your food?
Press and bloggers will also play big part in promoting your campaign. Engaging bloggers and press isn’t an email-and-hope tactic. Identify writers that would speak to your target audience. After doing that, we researched their past articles to unearth themes and patterns the writers gravitated towards. Finally, craft several press angles tailored specifically to them.
6. Taste and Season
Like any recipe, you’ll need to adjust your campaign accordingly. No amount of planning will hold true once it’s set out on the field. Use Google Analytics to track key metrics to know if your campaign is performing as planned. You will want to know how much traffic is coming to your site, where the traffic is coming from, and what your average pledge is. From all of this data you’ll be able to calculate your conversation rate (the percentage of visitors to your crowdfunding page that back your project).
Once you have this data in place, you can adjust your campaign for maximum performance. For example, if you have a 10% conversation rate and you average 100 visitors to your campaign every day, you should be getting 10 backers a day. To double the number of backers, you can increase your conversation rate by making your page more appealing or double the amount of traffic that comes to your crowdfunding page. Knowing these metrics and how they interrelate is similar to the science of baking and portion sizes.
Why should you crowdfund if it takes so much work?
Although crowdfunding is a time-intensive endeavor, it will reap more than just financial rewards. For one, it frees you from having to take investor money.
Building a base of evangelists is another intangible result of crowdfunding. A successful campaign will create a base of early supporters because they are invested in your project. We’ve seen this time and time again, where a successful crowdfunded restaurant has an unbelievable blow-out opening.
Remember, nobody eats alone. One backer will bring anywhere from three to six people with them to your opening to show off and brag that they helped make your project come alive.
Desi Danganan is a serial entrepreneur and the Managing Director of the Plinth Agency. Plinth has an 82% success rate in crowdfunding and has raised over $2.65 million through crowdfunding, venture capital and angel investors. With his 15+ years as a restaurateur, Desi has created a series of 6 affordable, 30-min crowdfunding classes designed specifically for food entrepreneurs called PlinthAcademy.com.
|NEW: OpenTable wants to help you promote your own fundraising link! Restaurants on the OpenTable network can add their fundraising link to their OpenTable profile at no cost. |
Restaurants can drive awareness of their fundraising efforts by adding a fundraising page link to their restaurant profile, and OpenTable will promote those fundraisers across its app, and marketing, beginning Monday, April 6. We hope our extensive diner network will help contribute to the financial health of as many restaurants as possible.
Originally published on https://restaurant.opentable.com/news/tips/6-essential-ingredients-for-crowdfunding-a-restaurant/, 23 March 2020.