The truth about crowd funding

Most web tools that are re-shaping commerce are doing one thing, handing over control to the users from the producers. They are democratizing the factors of production so that anyone with access and ideas can now play. They do this through cutting out two things that existed and thrived in the industrial era: middle men and gate keepers. The power of collaboration has been touted as a revolution consistently since the the word web 2.0 exited the mouth of Tim O’Reilly. I think it is entirely justified. This is particularly the case with the latest disruptor to emerge – crowd funding. The reason that funding our projects from the crowd changes everything, is because it doesn’t really change anything.

All things have always been funded by the crowd, we just didn’t know it before.

To bring this idea to life let’s consider a couple of examples:

Debt funding via banks is a form of crowd funding: They take our deposits, assess and carry the risk of ‘sub-letting’ our deposits on margin. Essentially banks make money from crowd funding projects and managing the organisation of it.

Capital raising via VC firms is a form of crowd funding: They take large portions of their venture money from Superannuation or 401K funds which has been allocated to ‘high risk’ investments. This is typically between 1-5% of the total asset allocation. Again, our money is being allocated in our behalf from which transaction profit margin is made.

The point is that pretty much every type of investment that involved aggregated money, has always been the money of the ‘audience’ hidden within a structured system. A system which we are now re-structuring with deomcratised tools so that we can organise our capital amongst ourselves. So that we can access each others funds without permission from financiers. So that we can decide what is worth funding. So that we can make the margin available on float capital. And this is just the start of the inevitable changes to the financial system.

The very truth about crowd funding is that before it arrived in its current ‘web organised’ form – we got locked out of the system that our money funded. And it feels like crowd funding of micro projects is just the begging of something much bigger and more important. The question for aspiring entrepreneurs is how can we disrupt the finance industry further with newly connected commercial eco systems?

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Would you like some pie?

There are 2 people who are offering you some pie.

Person 1:

They tell you that they are about to bake a pie. They then continue to tell you a story that they are terrific pie makers and that all of their experience in and around the kitchen (watching their parents bake) and eating lots of pie, gives them the right qualifications to make a really great tasting pie. They also tell you about their secret recipe, which has never been used before. They are certain it will make a far superior pie. They even show you the written recipe and tell you about the ingredients and methods.

After all this explaining they then ask if you’d like a taste, but before that, you will have to wait until they bake it. Then they ask you to give them some money to go build a kitchen and buy some ingredients. They want to bake these pies at great scale. They think they can sell many of these pies.

Person 2:

Has already baked a pie and offers you some. They have only baked this one small pie. But would like you to try it even though it is just a small sample. It smells nice, and it looks nice. You try some and it tastes lovely. You then engage in some conversation about their pie. How they baked it, the ingredients, and if they think they could replicate this pie and make it at scale. It turns into a really great discussion and evolves into a deeper immersion about the pie business. You’re both really inspired by each other and start planning some next steps.

Your startup is the pie. Which person would you invest in?

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How to invest $1500

Invest it in yourself. Go to local Melbourne (Y Combinator) Statup site Adiso.com and book a flight to San Francisco.

Spend the next month working on your best idea startup idea.

Get a working prototype, or do those updates you’ve been talking about for the last 6 months on your current startup. Get it in shape.

Book meetings with VC’s, write up a schedule of where all the events are, startups weekends are and build a calendar of people to meet, things to do and actions to take while in Silicon Valley. Ask some locals who’ve been there and done it.

Get your spiel tight. Know how to pitch in 1 minute. With no slides, just your voice box.

Make sure your spiel covers what it is, who it’s for, what it disrupts, and the final revenue model. 

Go there, pitch and win (or lose). But you’ll win regardless. You’ll win with knowledge gains and contacts made. Get excited, have a story to tell, get 2012 off to a fast start.

Didn’t you know it’s an Aussie gold rush over there?

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4 factors for webpreneurs – Guest Post

1. Technology is easy – getting customers to pay you is outrageously difficult.

When was the last time you heard about a web startup failing because the product didn’t work?  Almost never.  With the greatest respect to all the hackers and engineers out there coding away, making a product do what you want is simply a function of time.  Spend enough development time on it, and you can write code to do almost anything you want. Getting a customer to pay you some money for that feature you just added? That’s an entirely different proposition. The vast majority of web startups fail because they don’t find enough customers, at the right price and in enough time before they run out of cash.  If we spend as much time on marketing your startup as you do on writing and shipping your code, and we just might beat the odds.

2. Customers can always choose to do nothing

When pitching a prospect we are generally trying to convince them to do one of two things:
(i) Leave a competitor and join you
(ii) Stop doing nothing about their pain problem and join you

Who knew that getting them to leave a competitor was often easier than getting them to stop doing nothing? At least if they are using a competitor they recognise that they have a problem that needs solving! The truth is, many prospects are indecisive, stagnant, glacial, apathetic, unwilling, and unmotivated.  Demonstrating your product and then asking for the sale is just as likely to be met with a yawn and a scratch of the arse as it is with a chequebook. If you understand how difficult the process is, then there is a good chance you will approach it with the right amount of preparation and effort.

3. Financial models are fantasy
Their is one good reason to construct a financial model prior to having any real customer data.  Do it to prove to yourself that the fundamentals of your model will produce a profitable business over time.  Think of it as a sanity check. Once you are happy that the model works in theory, throw the spreadsheet away.  Never look at it again, and for christ sake don’t go out and try and raise investment funds off the back of it (guilty as charged!). Just launch your product and get as much real live data as you can.  Months later you can giggle about how wrong your projections were, but at least you won’t be making life altering decisions based on nonsense.

4. There is no replacement for quality user testing

User testing pays for itself many times over.  This doesn’t mean getting your mates over to play with your creation in return for a 6 pack.  It means getting real life customers/strangers to use your product while you watch. True story.  Our startup is an online event registration solution that allows customers to sell tickets and accept registrations for any sized event. Three months after launch, we sat and watched via web cam while a Canadian tester spent 15 MINUTES just trying to create an account. In one of our releases, we had cannily decided not to display a “register button” to anyone using Internet Explorer.  No-one using this browser  could get in and use our product, and it had been that way for over a week.  He eventually managed to get in, but man was he pissed!

What else do you wish you had known before you did your own web startup?

Post by Scott Handsaker founder of Eventarc

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I don’t…

I don’t have a rich Father

I wasn’t left a sum of money from my Grandma

I didn’t go to Harvard

I don’t live in Silicon valley

I wasn’t funded at Techcrunch 50 or Y combinator

I’m not technical genius

I can’t code the latest killer app

I guess I’ll just have to build my startup the old fashioned way. Work my ass off, invent my own revenue, build a team and improve what I have to offer as I learn from the mistakes I’m bound to make. If you’re still around in 10 years, look me up.

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How to pitch

There is more good than bad in these hilarious Ali G pitches to Venture Capitalists.

What to look for:

  • His tone of voice and pausing when speaking.
  • His reliance on talking. There is no powerpoint.
  • Taking them on a journey. Story telling.
  • Simple visuals. Having samples / props.
  • Supreme confidence

I’d seriously recommend this video on how to pitch versus most other examples we see on the web so long as we understand the context.

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The Thomas Edison Strategy

In business, demand is invariably more important than supply. If demand doesn’t exist, supply is irrelevant. If demand exists, supply will eventuate.

I happened upon a quote from one of the greatest inventors / entrepreneurs in history Thomas Edison. Despite the simplicity of the idea, it’s very profound.

“I find out what the world needs, and then I proceed to invent it.”

This is some pretty good advice for any entrepreneur. It’s better to make what you can sell, than try to sell what you can make.

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