As presented in this article about the Business Model Canvas the first thing you need to do as an entrepreneur is to figure out the business logic that your company is going to follow to serve its customers.
One of the key questions you will be required to answer concerns the acquisition of resources necessary for your business to grow. Both financial and human resources to jump-start your business can be accessed through lean models, relying on the power of the crowd.
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:
Crowdsourcing has actually existed for a very long time, crowdsourcing simply pertains to the act of creating collaboration networks. The internet has allowed creating new and innovative approaches to remote work, allowing people to exchange over the internet any typology of work which can be delivered digitally.
The reason why crowdsourcing has become so popular relates to the fact that entrepreneurs starting digital businesses need to manage a workforce differently. These are some of the trends in human resources management that crowdfunding is able to address:
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.
The reason 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.
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”. 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 not to overcommit while instead of keeping 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 and find out more information about your market. This does not mean that money isn’t a priority, and this is why funding is out next point.
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 by helping them solve a problem. The funding you will get will likely come into two forms:
This allows us to understand that 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 contingency and ignite faster action, but this will create a hectic funding campaign, making every single day very 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 grow your 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.
Complication 3 – Uncertainty.
Even if you ‘make it to market’ by completing a fully functional and sellable product, you don’t really know if people are 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, but the money you need to work really hard for. Crowdfunding still allows for a very steep learning curve, 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.
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.
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 and professional funding.
If you want to learn more about this topic, here’s an article which goes more in depth: a 5-step process to grow your business.
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!
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