IMAGE: Christophe Boisson — 123RF

Crowdfunding and innovation

An interesting article in TechCrunch, “Kickstarter is breaking down assumptions about where innovation can occur” tries, based on a Polygraph report, to clear up some unknowns about the relationship between crowdfunding and innovative ecosystems.

I have been talking about crowdfunding for several years in my innovation courses, and always highlight the same point: however much we are distracted by big projects that break records grow thanks to a successful campaign, the important thing about crowdfunding is not the money. A crowdfunding project as a way to replace traditional financing will likely fail.

Crowdfunding formulas based on the presentation of a product linked to pre-purchase schemes or similar rewards are not about funding per se.

A well-planned crowdfunding project can yield a treasure trove of data on how the market sees your product, helping you refine its features and functionality, to rethink how you present it, and even give you the bonus of additional visibility. In fact, in cases where a project beats all the records, success lies not so much with crowdfunding, but with the virality that some highly visible pages can provide.

Crowdfunding can add a lot of value to a project, but that value is purely economic, as evidenced by its corporate use; companies that take this approach not because they need the money, but because they want to study the market through real customers that will provide the most accurate test possible: putting money up in advance to obtain a product. And sometimes, companies attain visibility through the media that are constantly patrolling popular crowdfunding sites looking for interesting projects or early success. This should not be underestimated: in terms of innovation, market sensitivity and visibility can be invaluable.

I have seen numerous projects and entrepreneurs dazzled by the money they could generate through crowdfunding, but they were confusing their goal. Whatever money you generate will be spent in the process will have to devote primarily in the manufacture of the product that people have pre-purchased, and when you finish sending the products, if you succeed — usually delivery dates are longer than expected — you’ll usually find yourself exhausted.

And while being able to deliver a crowdfunding project successfully can serve as an introduction to some investors, negotiating with them must be seen as a completely different development phase of your company.

Crowdfunding will not have been substitute for financing the project through traditional means, and the most valuable thing to be extracted from it, if you did it right, will be a better understanding of the market, possibly the creation of a community of interesting users, some fleeting visibility and the experience involved in carrying out the project; not the money. The money you earn from crowdfunding will never be decisive for the future of your company, that will come from financing through other means.

(En español, aquí)