Monday, February 6, 2012

Could Crowdfunding be the Future of New Project Development?

Reading this article reminds us that the jump from concepting and ideation to actual production is something that can be very difficult. Could crowdfunding be a possible solution to this more difficult problem of funding ideas?

Traditionally, design companies show new product development workflow as something like this.

With design concepting and ideation on the left progressively working towards a proof of concept and prototype, then finally flowing through to production and distribution. All very simple when you know how. Of course this is the idealized view of product development and it requires time and effort, not to mention money to make this process work.

The reality is as the article suggests more like this.

Where the concepting and ideation are can be quick and full of possibilities then the reality of having to make and distribute and getting investors involved can change the new products possibility of surviving in the marketplace. Ultimately you have to get to a point in the product development where considerations about marketing and product placement occur. To get people to buy your product thoughts on differentiation from competition and potential rivals has to occur. Most likely you will need some kind of advertising and marketing effort to make that happen. When should these have been considered? Probably quite early on in the product life-cycle. Then the questions of manufacturing and shipping to consumers has to discussed and solved. Apple hasn't just been innovative in their products but also in the infrastructures that support the making and shipping of these items. Innovation si more than a good idea and great product.

So this leads onto the focus of the article, for the majority of start ups and small businesses that have lower budgets and not the reach and resources for these systems to be put in place, how can they solve these issues without help? Could a form of crowdsourcing that involves investments from a crowd, called crowdfunding help?

Firstly there are 2 important questions to ask yourself.

1. Do I have the time to make this commitment?
2. Do I want to develop this publicly

These questions of course have huge impacts on whether you should begin a crowdfunded project.

Certainly crowdfunding has been shown to work in gathering money for projects\ that seem worthwhile. One attempt at this that has proven successful has been the work by Grameen bank, an attempt at helping the third World at getting micro financial help for individual projects that can help those in extreme poverty.

So how might this fit into the building of an idea at what stage should you seek funding from other people. The website suggests getting people involved at the proof of concept stage, of course this makes sense that people want to see at least something working in action rather than pure speculation. Then the idea has already started to prove at least it can be made. The speculation of course might still be in the interest of the public at large and it's possibility of future growth and success. But then that is what investment is all about, speculation on future growth.

There are already many sites forming on this concept such as kickstarter and IndieGoGo, they are proving out the model and already have many projects looking for crowd funding. Time will tell how successful these become. but already signs are looking positive for this new venture into funding. Kickstarter has already as of 2010, had 319 successful projects and raised over $9.1 Million in funding these efforts. Top catagories seem to be towards film and music efforts with design making a growth sector in third. The reason suggested is that designer primarily spend their time working on projects for others and are not as used to pitching their ideas for themselves.

Noted reasons for Kickstarters crowdsourcing success are suggested to be:

1. They filter which projects get posted to the crowd -
makes them interesting and worthwhile

2. You only get funding if you meet the threshold of prior to launching your project
keeps projects realistic and encourages crowd participation in promotion as projects get close to reaching their goals

3. Easy to find and promote projects
Easy is always good in these efforts, as it makes it easier for anyone to get involved.

4. Its success has made it more successful
As Malcolm Gladwell would suggest reaching a tipping point in success will only lead to more interest by others.

5. It's not about the money
Like most crowdsourcing efforts the crowd is most motivated by personal pet projects and interests.

You can find out more information about crowdsourcing in a previous post here.

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