The 'crowd economy' serves as a democratized channel of financial flows. This Forbes article discusses the ways entrepreneurs could strategically monetize the ‘power of the crowd’ and use it to their advantage.
The crowd: you’ve probably already heard about this unnamed mass disrupting business models, changing work paradigms and even changing the way we find soon-to-be superstars (I’m talking about you, American Idol, Project Runway and The Voice). Companies incorporating the crowd into their business models are in vogue, and we’ve been seeing investors spend big bucks on businesses powering the crowd economy for the past year.
But just what should CEOs and business owners know about the crowd? Will it significantly change startups as we know them in the long run? Will it help large companies tap mass markets? Or is it only relevant for small businesses or tech startups that want to crowdfund capital?
Let’s separate the hype and realities of crowd-based funding, sourcing, and lending, and identify what you should focus on in order to participate in the crowd economy today:
- You can put the crowd to work for free (and the crowd may even pay you for the opportunity). The beauty and power of the crowd economy is that anyone can participate — and in the right situations, the crowd will work for nothing. Wikipedia has enlisted the help of professors and universities to help maintain and update articles on their site. Simon Cowell created an entire business industry around crowdsourcing talent discovery with American Idol and the X-Factor. He’s not just making money from the discovery process either — he’s also raking it in through promotion and the eventual success of the artists (he ultimately gets paid by the customers that help select the artist).
- You can pick who and what you want — since the crowd now has a reputation. With all kinds of information is readily available on the Internet, the crowd is no longer one type of person. Airbnb built an entire business around the concept of everyday people renting empty spaces in their homes to total strangers. By sharing the information about their listings, availabilities, and reputations, they were able to monetize and become a thriving business. That’s not all the Internet does. Need market research? Look no further than Mechanical Turk, Google Research, or UserTesting. Hiring? AngelList lets you ask your friends for referrals and give them a bonus if they find you a candidate.
- You can access global talent and resources right from your desk chair. Just the other day I ordered a pair of shoes on eBay. They were shipped to me directly from Shenzen, China. The crowd doesn’t operate exclusively in the U.S. — and that’s a good thing. Aside from purchasing physical goods from the crowd (eBay, Etsy), you can also hire freelancers to work from across the country on sites like oDesk, Elance, and 99 Designs. Screen and hire quality, affordable contractors for your business, all without leaving your chair.
- You can also access local and hyperlocal talent and resources. Sure, the crowd is global — but it is also extremely local and mobile. Companies like Gigwalk and Taskrabbit built their business around crowdsourcing errands for busy people — from picking up dog food to doing store-to-store product research. Especially in such a tough economy, the freelance economy is booming. Your local neighbors will jump at the chance to make some cash and simplify your life. Companies like Zaarly (disclosure: I founded it) have spawned a new generation of entrepreneurs by helping people make money doing what they love. Sometimes you just need to explore your local community to find what you need—and the crowd is making that easy.
- You can ask for a loan from your friends (or millions of
strangers). Crowdlending already exists (and has for a while),
and business is booming. According to LendingClub, they
have funded over 100,000 loans for more than $1.3 billion. That comes out to
almost $120 million in interest paid to investors. With those kinds of numbers,
it’s only a matter of time before we see a company that is focused exclusively
on helping crowdlend business loans (for now, Lending
Club does offer certain business loans).
- You can sell products and services that don’t yet exist. Sites
like Kickstarter don’t yet let you sell equity or a stake in your company to
the crowd, but they do let you pre-sell your business products and services.
You can pre-sell millions of dollars’ worth of product if your campaign hits
the right nerve (and it’s a great way to test a concept before you ever spend a
dime on product development).
- The SEC is making strides to allow for equity-based
crowdfunding. Today, your company can use certain provisions of
the 2012 JOBS Act to advertise to accredited investors (individuals with a net worth
over $1 million) on platforms like AngelList or WeFunder, essentially allowing
you to sell a portion of the company (and its future returns) to the crowd.
Soon enough, experts expect the SEC to implement crowdfunding for the masses –
allowing everyday individuals to invest in anything from a local restaurant to
a high-growth startup. We are still waiting for those rulings as of September
2013, but with any luck you’ll soon be able to ask anyone in the crowd to help
fund your business (for now, you’re limited to accredited investors — be sure
to ask your lawyer to help if you have questions).
The crowd might have been introduced in 2012, but I believe it’s just starting to take off now. Can your business save money through the crowd? Are there ideas, product features or promotions that can be crowd-powered? Do new funding mechanisms, from Kickstarter and Indiegogo to Lending Club and AngelList, offer a unique model for your business? In the near future, playing to the crowd might be just the ticket for your business.
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