As you set out to start your entrepreneurial venture, one of the biggest challenges to overcome is connected with finding the money necessary to get your business to liftoff. In the past, founders were given only two options: they would either ask for startup money from private investors or get in debt with a financial institution.
Nowadays, thankfully, many more options are possible, and thanks to crowdfunding, you are not only able to collect precious resources to build your company, but also get a lot of feedback in the process. Crowdfunding in fact is not only a great tool to collect financial resources, it’s a wonderful validation strategy.
Another big issue is connected with finding the right talent and human capital capable of helping your building your vision. Sometimes talent is scarce, expensive and hard to find. This is why crowdsourcing can be a very effective solution to developing an HR department.
In this post, we are going to discuss what crowdfunding and crowdsourcing can do for your company. Here’s a breakdown of the post content:
1. Crowdsourcing and what it can do for your company.
2. Different growth strategies that rely on crowdsourcing.
3. Crowdfunding Explained.
4. Inserting ‘the crowd’ into a fully-fledged business strategy.
5. Resources for further learning.
1. Crowdsourcing, and what it can do for your company.
Crowdsourcing has actually existed for a very long time, the term simply refers to the act of creating collaboration networks. Over the past few decades, the internet has allowed creating new and innovative approaches to remote work, allowing people to exchange over the internet any type of work which can be delivered digitally.
The reason why crowdsourcing has become so popular is connected to the fact that entrepreneurs starting digital businesses need to manage the workforce bearing in mind the needs of a firm which may have unique needs. These are some of the trends in human resources management that crowdfunding is able to address are the following:
- Flexible and uncommitting workforce. Entrepreneurs need to work on an MVP or a minimum viable product in order to test markets and adapt to new customer demands. This creates the need to rely on a flexible and modular workforce, which crowdfunding can effectively provide.
- Rocketeering employer. Employers need to source human talent diversifying the scale of their investment according to what makes the greatest impact on the company’s performance.
- Delivery-oriented service. The transactional nature of the collaboration fostered on a crowdsourcing platform allows for interactions which are always oriented towards a ‘deliverable’ or a clear professional output, represented by a file or a series of measurable actions.
- Emergency delivery is an option. Crowdfunding allows to work under tight schedules and request revisions in real-time.
But that’s not all. Crowdsourcing is actually a very versatile and inclusive form of collaboration whereby organisations are able to use the internet as a technology to simplify people involvement.
This is why the business applications of crowdsourcing include many more examples than a simple ‘talent marketplace’. In the following section, we are going to discuss what alternative models can be employed to harness the power of the crowd.
2. Different growth strategies that rely on crowdsourcing.
Crowdsourcing is huge. Its principles can be applied to a wide variety of situations and businesses. Here follows a list of ‘extended usages’ of crowdsourcing.
- Mobile Sourcing. This relates to data collection and data analysis used by digital companies to provide ‘better’ consumer experiences. Google Maps is a good example of this, where data is sourced and used to calculate traffic and preferred routes for transportation and mobility.
- Creative Sourcing. This approach allows for companies such as 99designs.com to make use of a vast community of creative professionals who contribute mockups and designs through an online auction system.
- Voting and political participation. Political participation and online engagement can be simplified by the use of crowdsourcing, allowing for online voting and surveying.
- Microwork. An example of this is Amazon Mechanical Turks. This model allows companies to outsource micro-tasks when digital task completion needs human intervention.
The reason why crowdsourcing is such a versatile format of engagement is due to its close connection to the founding values of the internet. The internet itself was developed to create an interconnection between universities, governments to share human knowledge. There are many instances in which the power of the crowd has been able to succeed against the largest giants of technology, some examples include Wikipedia and Linux-based operative systems.
As we’ve seen crowdsourcing allows for a lean and efficient development strategy for your business, but it can do much more. In the following paragraph, we’ll look at the use of the crowd to test your products and to finance your business’s growth.
3. Crowdfunding Explained.
By now it’s quite clear that starting a company entails for many challenges to be overcome.
To simplify the matter we are going to speak about three categories of “complication”: complexity, funding and uncertainty. Spoiler alert, crowdfunding helps you deal with all three.
Complication 1 – Complexity.
Running a business is very hard as businesses provide a great volume of problems and day-to-day complications that need to be looked after. As you are starting a new venture, you can find yourself in a difficult spot.
If on the one hand, your profits are linked to scale (the more you grow the more you earn) on the other hand, you can’t afford a high paced growth to reach better profit margins without substantial financial investment and management power.
It’s important to keep your structure lean. Business literature recommends starting with an MVP or a minimum viable product. An MVP, in fact, is the minimum tangible, service you can provide and will allow you to keep your project flexible, as you navigate uncertain waters. This does not mean that money isn’t a priority, that’s why we are going to address it next.
Complication 2 – Funding.
Even if you can get by with very little money, you will always need some money. This is why you may want to use a crowdfunding platform in order to reach out to as many people you can. What you do is not actually selling a product as much as telling a story. If you turn your product into an interesting story that people want to hear, you can easily tap into a community’s aspirations and help them solve a problem. The funding you will get will likely come into two forms:
- Donations. People who share your vision will be able to assist you by giving you some money, it might be little, but if your arguments are well thought-through you can find people who are happy to help.
- Backing. If you want to have people donate more money, then crowdfunding platforms allow for a “backing” system, whereby you can provide your audience with different types of rewards (which can be from the most obvious to very “creative”) in order to support your project and encourage more generous funding.
This allows us to understand why the important factor of success is your campaign’s reach. The wider the audience you reach, the more significant your impact may be. But this is only one of the variables of the equation, timing is just as important.
Crowdfunding platforms are designed around a clear 1 to 2-month schedule, this is the time you are allowed to reach your funding goal. Usually, if you set a shorter timeline you’re able to create a stronger sense of urgency and ignite faster action, but this will create a hectic funding campaign, making every single day very extremely valuable. During a one-month period, you’ll need to make something happen almost on an hourly basis to keep the buzz going and attract new funders.
There are many techniques which need to be employed to run a successful crowdfunding campaign. All of these strategies revolve around the creation of a relationship with your fans and the fostering of a community. Showing some degree of proof that your funding goal is going to be achieved and that you are going to be successful in your endeavour is essential to win over more people and exceed funding expectations.
It’s important to realise that – aside from the few 1 million+ dollar projects – the average amount of money collected via crowdfunding is in a range between 5,000 to 10,000 euros.
Considering that running a crowdfunding campaign requires ideally a team of 4 people working full time for a month it is quite obvious that 10,000 euros are not much of a financial gain.
Wouldn’t it be so much easier to go to the bank and ask for a loan?
Well, not necessarily.
- Firstly, by splitting risk over a much wider population, the likelihood of getting the money is much higher, especially for small volumes of capital.
- The benefits of a crowdfunding campaign don’t rely only upon “making the money” but in developing a community around your project and create a demand for your products and services you are going to offer in the market.
Complication 3 – Uncertainty.
Even if you ‘make it to market’ and develop a fully functional and sellable product, you don’t really know if people are still going to be interested in purchasing it.
And this is where crowdfunding really shines. If you have developed a crowdfunding campaign you will have spent a long amount of time building relationships with potential clients, creating connections, and building an audience. By doing this you have created a crowdsourced community of people who are going to support your work once it ‘hits the shelves’.
All in all, it’s clear that crowdfunding is not free money, you need to really work hard for it. Having said this, crowdfunding still allows for a very steep learning curve, one that will turn the campaign in a do-it-yourself MBA.
What you need now is a strategy, and our next section will help you with that.
4. Inserting ‘the Crowd’ into a fully-fledged business strategy.
We hope that what you read so far was helpful.
Now, remember: using the crowd to boost your business is a great opportunity, but it does entail for a lot of responsibility.
To become able to harvest the full potential of a community it’s very important to develop a fully-fledged strategy which uses ‘the crowd’ to focus on a specific goal. In one of our posts, we especially recommend using the crowd to test the market and realise if your product or service will be able to capture your audience attention and persuade them to pay for it. Remember paying money is not the same as showing support for the product, customers will pay when they feel that the problem you are solving is very painful.
Finding out if your audience is willing to spend money to acquire a product is an essential question that you need to answer if you want to gain traction, and make your business more likely to attract other forms of private funding.
If you want to learn more about this topic, here’s an article which goes more in-depth on this topic.
5. Readings for Further Research
If you are willing to find out more about this topic and become an expert in crowdfunding, you can find below some resources which should help you become very knowledgeable on the topic, enjoy!