Form Venture Capital from Your Own Customers

31 08 2007

Ever been in a meeting, got all excited about a new project, and then the air goes out of the room when you look to see how much available capital you have to fund a good idea?

What if I told you that a load a venture capital can be had for new projects and that the source of that capital can come from your own targeted consumers?

The product development strategy is called “crowdfunding” which I first wrote about last Spring by showcasing the German & US music companies SellaBand and Magnatune. This approach is used widely among music industry artists to bypass music publishing companies and “go direct” to their fans who are now seen as much as investors as listeners.

ArtistShare “takes advantage of the latest developments in technology to allow artists and fans from all over the world to connect with each other directly. With technology developing at such a rapid rate it will not be long before it is impossible to “protect” digital data from being shared altogether. ArtistShare solves this problem by paying artists up front and allowing the fans to experience the excitement of the creative process. The art industry has become a service industry and ArtistShare is at the forefront of this new paradigm.”

Notice they mention the erosion of “protected digital data” or DRM. If you are an STM publisher, “open access” isn’t a new thing nor Google scholar nor other free digital repositories. So what’s interesting here is that crowdfunding models might be useful to redesign better approaches for publishers who are also under constant pressure from audience segments to start new niche publications which might not pay for themselves.

What Does It Take?

It takes a combination of the right “customer-needed” idea, a customer experience that promotes through two-way conversation with the potential funder, let’s them contribute ideas or feedback to the project as part of the production process, and ultimately, gives them some incentive for their investment.

One form of customer conversation the artist uses at ArtistShare is radio. Web-based audio files run from a music player let’s the artist share their thoughts on the ongoing project and provide other content unavailable to the public.

Click on the image below to listen to this artist discuss their current project.

In the music world, incentives would be free artist CD’s but in the association world it might be a free registration to the crowdfunded conference they “backed.”

To discover the magic of this product development strategy, examine SellaBand, Magnatune or ArtistShare.

One thing to keep in mind especially if this approach has not worked for you. As you reassess the process, pitch, design and delivery, ask yourself:

  • Was the project driven to fulfill a large, compelling customer need?
  • Did you offer the proper incentive to your “investor?”
  • Was the production process designed to be inclusive of your investor member in some way?
  • How did you structure the conversation with your investors about the idea and its ultimate benefits?

One more reason why you need to build community around your own product and service experience at your site. It’s a worthwhile investment toward building customer evangelists.

For example, look at your own site.

What makes your site experience “exciting” for your buying public? Are you just selling a “mass-produced” product or a solution custom fit for their needs?

Turn your members into financial backers of projects they are willing to self-fund, let them contribute their ideas, feed a frenzy, design and deliver on the promise.

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One response

31 08 2007
Anthony Kuhn

Peter:

Crowdsourced funding is a growing trend in venture capital investments, and I’m glad you added your sentiments to the mix. I cross-linked to your post, along with some comment at http://blog.innovators-network.org The Innovators Network is dedicated to bringing technology to small businesses, entrepreneurs, intellectual property experts and venture capitalists. Please visit our community and help us grow.

Best wishes for continued success,

Anthony Kuhn
Innovators Network

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