Crowdfunding – the smart new way to go! (Wait, that’s OC Transpo’s Presto).
Nevertheless, crowdfunding is smart, new, and a way to get things going. Before we delve into this topic, let’s get our ducks in a row. What’s the difference between crowdfunding and crowdsourcing?
1) A project team may seek an alternative form of financing through crowdfunding. Instead (or in addition to) funding from a regular financier or spending their lottery winnings, the project team will go to the customers to finance the project. In its most common form (as seen on Kickstarter and Indiegogo), the project team will give tiered rewards to customers who pay to finance the project. For example, when Zach Braff went to crowdsource his film Wish I Was Here, financiers who payed $40 or more got a t-shirt, as well as all the rewards from the lower tiers (including an online screening of the film).
2) A company that ask its customers for ideas on an online forum is crowdsourcing. These online communities are meant to have customers share their insights and knowledge about the product and suggest improvements. It’s difficult for a company to make a better product the next time if they don’t know what their customers didn’t like about the original, and crowdsourcing benefits both the company and the customers by giving them what they want. A common example of crowdsourcing is open sourced software, which is software that can be edited by users to improve the product. This very site, for instance, runs on WordPress’ open sourced software.
Getting back to it: why crowdfund? What good can honestly come out of a project that couldn’t find a traditional financier? From movies and video games to high tech watches and solar roadways, and even the return of the Reading Rainbow, there is no good idea that cannot be crowdfunded. (For a more detailed list of some of the most successful crowdfunds ever, check out Kickstarter’s (https://www.kickstarter.com/discover/most-funded) and Indiegogo’s (https://www.kickstarter.com/discover/most-funded) most successful campaigns ever).
The Indiegogo/ Kickstarter model, where projects offer tiered rewards, is the most common, it’s not the only form of crowdfunding. Projects could also vie for a donation-based crowdfund (especially if they’re a project that can’t give anything away as a reward) where many financiers give small amounts of money until the project budget goal is reached. As well, a project team could partner with a venture capitalist or other wealthy investor, with the project team giving up a certain amount of equity in exchange for funding. This Dragon’s Den model is especially popular among projects that are trying to become actual companies.
Crowdfunding has seriously become a realistic funding option for project teams, with a projected 270,000 jobs and $65B injected into the economy in 2014 alone as a result of crowdfunding projects. One of the harder parts about crowdfunding is become the popularity issue, where, even if you have a good project, you may be swimming in a sea of thousands of other popular projects.
Not just changing the finance game, crowdfunding is also changing the marketing game. Obviously so much of new world marketing is focused online, but with crowdfunding, project teams are basically allowing customers behind the scenes of their operation. Customers, now financiers, have a legitimate investment in the project, and now the project team has thousands of bosses to appease. If you once thought customers could be rude when they were displeased with your product, wait until they voice displeasure about a product they invested in.
A few sources:
Paul Dombowsky’s slide deck from class, Sept 21 2014