If the creation of the much-anticipated “Veronica Mars” movie has proven anything, it’s that people are willing to crowdfund a good idea. However, a new phenomenon arose with the advent of crowdfunding: struggling business owners taking to online fundraising websites to plead customers to help them through rough times.
Some of these fundraising campaigns make sense. For example, the Hippodrome State Theatre introduced its “The Hipp Goes Digital” campaign in July to raise money for the theater’s purchase of a digital projector. Since more and more films are being produced only in digital cinema packages, theaters with analog projectors have struggled to adjust to the digital revolution — kind of like when Game Boy Color cartridges became harder to find once Game Boy Advance came out.
The Hippodrome is a Florida landmark, so Gainesville residents were happy to donate to the cause. As a result, the community receives high-quality screenings of current art films. Everybody wins, and the event was less of a charity campaign and more of a business transaction. Hippodrome customers purchased the equipment so they could then benefit from the new equipment.
When Gainesville’s beloved independent video store, Video Rodeo, hit a rough patch in 2005, crowdfunding wasn’t yet the option it is today. According to the ad archives on its website, Video Rodeo workers took to the Internet to let customers know it wasn’t turning a profit. In turn, community support kept the business afloat. Now, it’s expanded to a used bookstore as well as a resource for film buffs whose tastes go beyond the same 20 or so movies available inside a Redbox at any given time.
This is why we’re dubious of the Midnight’s fundraiser through Fundly. The Midnight, a small bar in downtown Gainesville, is pleading its customers to donate money to help the owners pay off debt.
The Midnight’s owners have no formal business training, according to the Fundly page. They’re not asking for much, and their goal of raising $1,800 is close to being met.
However, crowdsourcing debt is, quite simply, a bad business practice. If a business is failing, then clearly there’s something wrong with its product or its management. And anyway, how do customers benefit by propping up a business that has to ask for donations? That’s what sales revenue is for.
Although the Hippodrome and Video Rodeo relied on community support through tough times, we’re skeptical about the idea of business crowdfunding. Businesses aren’t charities. They rely on transactions, and the creation and sale of a product. When Video Rodeo struggled, it let its customers know. It didn’t ask for money with no strings attached. It simply asked for business. Additionally, the Hippodrome and Video Rodeo both provide a product of cultural value: art.
The Midnight’s product, however, can be found just about every five paces in Gainesville.
[A version of this editorial ran on page 6 on 2/24/2014 under the headline "Crowdfunding: How to succeed in business without really trying"]
