I have the greatest respect for Mark Suster as an entrepreneur and investor. I really treasure his insights. I also have great respect for the theories and methodologies of “competing against non-consumption and “jobs to be done” of Clayton M. Christensen. I teach them to startup founders and corporations.
Let me be crystal clear: When I talk about the benefits of crowd funding for bootstrapping and validation, I’m talking only about crowd funding without selling equity.
I argue selling your actual product or service is a great way to bootstrap and validate your business, in effect using crowd funding as a channel for taking pre-orders.
I make a clear distinction between trying to crowd fund an idea or a vision and crowd funding a real product or service. That is to say, I think there is a real difference between selling your product or service (asking in effect the market to pay for it and help you validate if they will buy it) as the reward or perk you offer instead of offering ephemeral perks and rewards not directly related to your product or service (which will not help you validate if people will buy it).
“If I had asked people what they wanted, they would have said faster horses.” -Henry Ford
“Disruption happens when companies use technology to help customers “achieve what they already had been trying to do.”” -Clayton Christensen
The theory simply asks, “What job your product is hired to do?” And if you want your customers to switch products you need to ask, “Why would they ‘fire’ the other product and ‘hire’ yours?”
Competing Against Non-Consumption (disruptive innovation)
True disruption occurs when companies compete against non-consumption. “A new-market disruption is an innovation that enables a larger population of people, who previously lacked the money or skill, now to begin buying and using a product and doing the job for themselves,” – Clayton M. Christensen.
If you’re an upstart chasing after the non-consumer, the great news is that your audience is non-discriminating. They want something easy to use and they want it cheap. They’re not expecting that same level of quality and performance. “Because,” says Clayton M. Christensen, “something is so much better than nothing.” (Business Innovation Factory, 30.01.2006)
I think it’s obvious that Crowd Funding fits the properties of a disruptive innovation and I don’t think anyone is arguing otherwise.
However, (or perhaps not that surprising as Suster is already vested in the world view of the incumbent as a VC) Suster and Christensen seem to ignore the disruptive power of crowd funding as seen from the side of the table of the entrepreneur.
I sense the classic argument we always hear from the incumbents in the talk between Suster and Christensen: It always seem to revert to the argument of quality – as if that is all there would be too it.
We’ve heard this before.
Remember the records industry? “Who would like mp3 files when you can have quality audio on CDs?” Turns out the story was rather people want the freedom of choice to select just the good songs without the 10 other crap fillers on a CD, and would quite eagerly sacrifice audio quality for the ability – hence Napster was wildly successful, hence they sued Napster out of the world BUT without taking over the space of Napster, still not recognizing what people want, what the new opportunity offered them.
And we’ve seen how this turned out before.
Instead of seizing the opportunity for themselves, iTunes, Last FM, Spotify, Amazon, Pandora et al came in and screwed the records industry out of the opportunity – and no one was sorry for their loss but themselves.
And it’s the same old story, same old arguments which are today being bandied about in the discourse about with Massive Open Online Course (MOOC), but that’s a different albeit highly related discussion. Check out Clay Shirky’s post on MOOCs for more on that topic.
Christensen teaches us about the concepts of “jobs to be done” and “competing against non-consumption”. As far as I can tell, Crowd Funding without selling equity is doing both for the entrepreneur very well.
To the best of my knowledge, crowd funding without selling equity is:
Getting the job done for entrepreneurs of getting early stage funding, or perhaps more precisely validating their product in the marketplace (explicitly or implicitly) without substantial financial risks and without taking a lot of time producing something first that perhaps the market doesn’t want (negating risk and time to market or failure for the entrepreneurs).
Enabling entrepreneurs that otherwise would not get the attention – let alone the funding – of a VC, bank or angel, effectively competing against non-consumption (lower barrier to entry for entrepreneurs).
A highly valid MVP (Minimal Viable Product) when used correctly.
As an entrepreneur, you no longer have to ask the incumbent private equity gatekeepers for permission to play. You now have the option to walk it alone.
If you fail, there’s little to no downside. It’s a learning experience. You’ve only lost face. Get used to it! Now pick yourself up and play again. And again.
If you’re successful, maybe you won’t even need an investor at all for scaling or at least you’ll have revenue from sales as a bargaining chip to get the term sheet you want.
Am I saying that the VCs will go the way of the Dodo? No. The way of the record companies? Most likely.
VCs will have their place and will still be a highly valid or even the only right play for some types of ventures, just like the elite schools of Stanford and Harvard will not go out of business because of MOOCs.
I am saying that crowd funding without selling equity is a powerful disruptive tool for entrepreneurs.
It is enabling many more entrepreneurs to succeed that wouldn’t otherwise be able to play.
And it will enable many more entrepreneurs to FAIL – and fast, before they have spent all their savings, bet the barn, lost their spouse and spent a good part of their life building something that no one wants.
And that’s all good:
For the VCs that will be able to fund more validated businesses and proven entrepreneurs instead of throwing spaghetti on the wall to see if it sticks (perhaps at the cost of less proprietary deal-flow).
For the entrepreneurs that get to play without asking for permission and again and again ad infinitum with little or no cost and risk to learn, learn, learn.
And for the world that will hopefully see more value generated, more new jobs as a result of the lower barriers to entry for more people.
Do listen to anybody that tries to tell you otherwise – just don’t take their advice. You no longer need their permission. JFDI.
It seems to me that he doesn’t know how crowd funding without selling equity (e.g. Kickstarter and IndieGoGo) works – or deliberately wants to discredit the incredibly powerful new tool available to entrepreneurs for validating ideas and product – or perhaps more likely he just lost track of the evolution of entrepreneurial methodologies since graduating.
(Kudos to him on the polemic page impressions link bait material, though.)
These are my highly opinionated thoughts on his three outrageous claims in the Inc. article.
Claim 1. “It [Crowd Funding] makes it too easy to kid yourself”
- In which he argues for the writing of a business plan (!) instead.
1. Crowd Funding without selling equity is bootstrapping.
There’s nothing more sobering and honest feedback than direct contact with the market. Crowd funding WITHOUT selling equity can be used as a valid MVP (Minimal Viable Product) that will help you validate your thesis that if you build it, they will indeed come – AND buy.
Just don’t build and produce anything until you’ve received pre-orders that will cover the production at cost or better. Obviously. Crowd Funding without equity IS a valid bootstrapping strategy. Make no mistake about it.
Who cares about business plans? No business plan ever survives first contact with a customer anyways. Business plans can only work if you are executing a known and validated business model. That’s the polar opposite of a startup which sole purpose it is to search for a scalable and repeatable business model. No magical business plan is ever going to help you find it. Validating your product in the market will.
I do personally recommend writing a very basic business plan as an educational exercise to arrive at an back of the envelope estimate of how much money is going to come in and go out and where – and then burn it! It’s not an operational guide nor a road map. It’s a work of fiction, a fantasy, a guess.
Isn’t it a no-brainer that as long as you can sell your shizzle, you should try to make as many pre-orders as you can before production and shipping, at least enough to make it cover your cost and perhaps contain some profit to channel into marketing of the second batch? Isn’t crowd funding a perfect viable channel for facilitating such pre-orders?
If you can’t sell enough to just break even, isn’t that a clear sign that maybe you’re not solving a problem that the market cares enough about to pay you? Or that you are doing a crappy job at describing the problem you’re solving and the solution you’re offering? That you should probably be doing something differently?
Isn’t crowd funding an awesome low-risk, low-cost channel to test the viability of your business idea, to help the market find you and fail or succeed faster?
And so frigging what if you don’t make your funding goals? At least you failed before you committed significant amounts of your or other friends, fools or family’s money – let alone an investor’s – bet the barn and lost your life partner.
And hopefully you learned more about what you should be selling instead by getting invaluable feedback directly from the market. Consider your time spent raising crowd funding a considerable investment in your personal entrepreneurial education.
And consider this: Every time you fail at crowd funding, you get to play again and again and again ad nauseam, ad infinitum – without going bankrupt or having to beg private equity funds for the privilege to play.
Claim 2: “It [Crowd Funding] isolates you from people who can actually help you”
- In wich he argues you need feedback, permission and validation from investors, not the actual market and your actual potential customers.
2. An investor is a commodity, an outstanding entrepreneur is the prize.
If you as an entrepreneur can show a VC or an angel how you already validated your business and how you’re already making money, you can pretty much shop around for the investor you want to a price advantageous to you.
Basically, you’ll have the best bargaining chip available to any entrepreneur in your pocket. In fact, you might even find out that you don’t need an investor at all to scale your business, that you can build on actual pre-orders and sales yourself.
I call hot steaming bullshit on the ridiculous assumption that savvy VCs and Angels would be less interested in you if you crowd fund (read: bootstrap) your startup at an early stage.
In fact I’ll claim the polar opposite: Crowd funding provides you with a new channel to get found. If you’re able to show traction and sales – they’ll come knocking, or at least it will help get you through most doors.
As an anecdotal proof, I myself have been approached by tier one Silicon Valley investors as a direct consequence of crowd funding projects.
A couple of months ago I met a new acquaintance that had some interesting business ideas. As luck would have it, they happened to correlate in part with some ancient ideas of my own and we instantly hit it off. Since then, a little voice in the back of my head has been telling me that I might have a record of the original brainstorming back in 2003. It’s not quite what we’re up to these days, but it is in many ways related. At least it was sort of the spore for me. More on that for a future post, perhaps.
Lo’ behold: I actually managed to find the original IM chat log between me and a good friend sometime first half of 2003 after some searching of archived CD-ROMs [sic], translated in parts from Norwegian. It’s a fun time capsule if nothing more and it’s interesting to see how the assessments and predictions for mobile devices, services and business models we had back in 2003 relate to the mobile reality of 2010 – or not.
If you’re of an overly sensitive nature, be warned that this post contains colourful adult language. I would also state for the record that my references to Nipponese people and Nipponese culture are not meant to be derogatory, defamatory or otherwise insulting. Far from it. I find Japanese people and culture most fascinating and inspiring.
To all telcos that might find statements, opinions and ideas in this post derogatory, defamatory or otherwise insulting – well life just ain’t fair, is it?
My friend’s IM nickname has been changed to protect the guilty. He knows who he is and what he has done. ;)
So with no further ado I’ll let it all hang out here in the open for posterity. What can I say. We were angry young men of low moral fiber young and needed the money:
BlackTar says: http://www.twincities.com/mld/pioneerpress/business/technology/5987828.htm [link no longer active - nice argument for permalinks - and I was not able to find it on wayback machine. Anyway, I seem to remember the article was about some new dating and geolocation thingy]
BlackTar says: new? no
BlackTar says: I’ve had an idea about the perfect Japanese mobile phone along those lines for a long time.. .
BlackTar says: it’s gotta happen sooner or later – would bee nice to cash in ourselves
Friend says: I thought this was cool when I read about it back in the tamagotchi days
BlackTar says: yeah, but think about the possibility to cash in real money on perv nipponese (and the rest of the world for that matters)
Friend says: I think that would be pretty kick-ass, actually…
BlackTar says: there once was this Japanese hightech product that would let you plot in sexual and partner preference and it would indicate when someone with the same gizmo and matching profile would be in your vicinity
BlackTar says: it never took off
Friend says: not necessarily for perv purposes
BlackTar says: no, true – but it’s more fun if you think about perverted nipponese
BlackTar says: well.. . my idea is to enable each and every mobile phone with the same capabilities
Friend says: separate the crap, sort of
BlackTar says: either with a Java app together with a server based solution
BlackTar says: low threshold
BlackTar says: or just the server solution
BlackTar says: ref. NetCom Buddy [early Norwegian geolocation service that you could set up in a web interface to have it report by sms where your friends were, based on opt-in consent and triangulation]
BlackTar says: you can already receive notifications about where your friends are
Friend says: hmm.. it cannot work other than server side.. or else you need new hardware
BlackTar says: true, but the interface could be Java
BlackTar says: instead of sending sms – but sms is a proven business model by now
Friend says: if it can’t run piggyback on the standard mobile server traffic
BlackTar says: it is a prerequisite that it can
BlackTar says: (must)
Friend says: but you can like request a ‘proximity check’ from the server, anyway.
BlackTar says: yeah, but you do it via SMS!!!
BlackTar says: that’s the genious part!
BlackTar says: you constantly need to BUY services!!
Friend says: yeahyeah, of course.. just thinking out aloud here
BlackTar says: I think this is ripe for bigggg bucks
Friend says: piggybucks!
BlackTar says: piggy, piggy can’t you see.. .
BlackTar says: imagine you are about to go out for a night on the town – then you just set up what you are looking for today/tonight – either via sms or web – then you can request proximity checks via sms afterwards
BlackTar says: I believe and think this is worth insane amounts of money
BlackTar says: after all – the human sex drive is probably the most proven business model of them all
Friend says: the nipponese are probably working on this already.. better sleuth for some industrial espionage on the net
BlackTar says: you are the only one I’ve told
BlackTar says: no! I don’t think the nipponese even use sms
BlackTar says: do they?
BlackTar says: they probably have some sort of micropayment system
BlackTar says: but.. . I picture this being just as big in the us of a
Friend says: are they making money on devices or services or both.. sort of
BlackTar says: both I think
BlackTar says: they do have a completely different network
Friend says: yeah well, usa have discovered sms and teletext only in the recent year or so
BlackTar says: with 489587347598759 more features and bandwidth
Friend says: hmm.. but they can’t launch a network just for this? .. probably radio
Friend says: isn’t it only short distance that is of interest?
Friend says: or
BlackTar says: no, it could probably work on the nipponese network too
Friend says: e.g. sitting at home checking out where the most likeminded are in the city at the moment
BlackTar says: exactly
BlackTar says: you can do this today with GSM
BlackTar says: and probably with anything that sends and receives waves
Friend says: yeah, with people you know…. ok I know how this can work
BlackTar says: trinangulation between base stations
Friend says: yeahyeah
BlackTar says: it’s going to get much more fun when gps becomes a natural part of a mobile phone
Friend says: but it can work exactly like the “where are my friends” thing
BlackTar says: triangulation is even more accurate as of now, tho afaik
Friend says: you don’t have to send any extra information between phone and central either
BlackTar says: yeah! and one should also be able to do the “where are my friends” thing too
BlackTar says: no, it only takes that you opt-in to allow your geolocation to be published
BlackTar says: you’ll send a simple or advanced query to the server via SMS – it returns what it finds
Friend says: because the numbers are categorized on the central [server] into interests you’ve been filling out over the internet.. and when one does a “my friends search” it does not search for the numbers you’ve added, but any number they’ve flagged prerequisites
Friend says: the technology is already there
BlackTar says: after a proprietary – a la google – sorting
BlackTar says: there has to be some flexibility in handling the query such as you risk to never get a match [sic]
Friend says: that you not? or? huh+
BlackTar says: a lot of the success factor lays thus in the algorithm(s) for handling the matching of criteria
BlackTar says: understandably you could make this hyper simple too
BlackTar says: with if/else functions, booleans
Friend says: hmm.. I don’t really see a problem with this.. you get % numbers on matches and it’s left to the user to decide if that’s good enough, sort of..
Friend says: a fixed number of hits every time
BlackTar says: % match is meaningless – ref websearch
Friend says: hmmm….. can one buy oneself upwards on the lists?
BlackTar says: hehe
Friend says: el corrupto
BlackTar says: that doesn’t work either ref websearch
BlackTar says: but it’s clear that you have to specify degree of match you want when you request query per sms
BlackTar says: hihi
BlackTar says: so you have to send more than 1
BlackTar says: and it is clear that you need heaps of parameters and features that you can adjust per sms
Friend says: mo’ money
BlackTar says: but just enough so that it becomes, stays functional
Friend says: one can request info on hits
BlackTar says: so, you see.. . it’s in actual fact the sane as Trepia – only smarter
BlackTar says: regular people don’t understand hits
BlackTar says: info on hits? more info, click hear plz
Friend says: duh
BlackTar says: tell me more about info on hits
Friend says: Once you’re a member of the service you can enter personal info about yourself, this can be bought with sms, when MMS gets common you can have images/videos, whatever, too
BlackTar says: yeah
BlackTar says: yes
BlackTar says: info on hit == profiles
BlackTar says: brb
[snip, snip, snip. Lunch break and a funny digression about Cottage Cheese, Procter & Gamble, Amway and the Church of Satan. It happens, you know.]
BlackTar says: what’s neat & sweet about the mobile service is that it is remarkably compatible with the multi level marketing [MLM] scheme!!!
BlackTar says: you have a product (that in addition to be low cost – initial investment only) that people consume and come back to consume - then you ‘franchise’ the system to agents below you (distribution companies, telcos, etc) who then resell the service to other subcontractors. We collect from every party from the bottom up!!
BlackTar says: == daddy bigbucks
Friend says: what’s the name of the friends search service thing from telenor?
BlackTar says: no idea
BlackTar says: [the service from] netcom is called ‘buddy’
[snip, snip, snip. A digression about SARS in China, ill friends and travel.]
Friend says: #2
Friend says: Pick-up tips?!!!! jesus
Friend says: Jokes?!!! OMG
BlackTar says: positioning
Friend says: ho ho!
BlackTar says: ‘It costs NOK 0,0 per message that you receive.’
BlackTar says: eh?
Friend says: hmmm.. Whiskey Tango Foxrot ?!
Friend says: ah.. you pay fixed
BlackTar says: longitude and latitude?
BlackTar says: how much does one pay fixed?
Friend says: or?
Friend says: no, then they would probably state it
Friend says: ‘The query is free but you have to pay for the answer.’
BlackTar says: Probably an error
BlackTar says: ‘Get Bible verses directly to the mobile. It costs NOK 3,0 per message that you receive.’
Yeah, yeah, yeah. I know. You’ve heard it all week; Buzz, Buzz, Buzz. I’m very guilty of adding to the… well… Buzz. (Sorry. Bad pun.) and I’ve almost had enough myself.
I think nobody knows exactly what Google Buzz is right now and where it’s going to go, evolve into. I think most agree it has tremendous potential. However, a most provocative thought occured to me today; Could this be a Blog killer replacement?
The gist of my hypothetical argument is that Google Buzz could probably replace most blogs given the ability to take it out of Gmail, customize, widgetize and skin it a la iGoogle. The Google vehicle is already there in the form of the current Google profile page or embedded externally over the Buzz API. The vehicle for an standalone service is already there as Google owns Blogger. The quest for unified commenting could also have been solved by the advent of Buzz. Further more, Google’s proven efficiency at filtering SPAM in Gmail, it stands to reason that they’d do an excellent job at eliminating comment SPAM.
Please share your take with me – I’d really like to hear what you think.
For those of you who live under a stone actually live wholesome, meaningful livesBuzz is a new service launched by Google.
Think of Google Buzz as something like twitter with no character restrictions and with comments or Facebook without Farrmville and the other horrible wonderful stuff, like FriendFeed if you’re of a more adventerous inclination – or perhaps a Blog?
Currently I hate the (as of writing) lock-in of the service with Gmail, but I’ll keep that for future posts.
The service has improvement potential and, shall we say some rough edges?
Here’s a primer on what you should know about Google Buzz to get started.
To keep in the spirit of ‘the now’, I’ve embedded the original Google Buzz thread (as a grotesque kludge – do tell if you know of a better way) below.
UPDATE 2012: Below we have the answer to the question in the headline. It’s a resounding “no”. Buzz is scheduled to be killed and old content is not embedable anymore.
As I was in the area, I just had to stop by the legendary Xerox parc in Palo Alto and pay my dues. The home of the GUI and numerous other firsts. Obligatory geek homage.
Though not really an Applefanboi, I couldn’t pass up the opportunity to pop by Infinite Loop 1 in Cupertino for a quick pose. On another note, it was also interesting to see the actual offices of the guys and gals I’d been previously only been talking on the phone with from across the Atlantic. (A work thing. Nothing exiting. Don’t ask – I’d have to kill you. ;)