A Corporate Marketer’s Introduction to Crowdfunding

Global Crowdfunding Market -  fundly.com

Global Crowdfunding Market - fundly.com

What started as a catchy Fintech buzzword a decade ago, ‘Crowdfunding’ has evolved and taken on a life of its own as a prolific and trusted fundraising and promotional tool for startups and large corporations alike. Presently, billions are raised annually on crowdfunding platforms like Indiegogo and Kickstarter, for a wide range of projects from companies of all sizes.

Cash-strapped startups, struggling small businesses and independent artists looking for innovative ways to keep their businesses afloat or fund their next big idea were the first to take advantage of this new and effective democratised business financing model that promised to give the power back to the people and allow anyone to become an investor in whatever project sparked their interest. The ability to bypass traditional means of fundraising from banks, venture capitalists and hedge funds were particularly attractive within the consumer goods sector as founders no longer needed to give away equity to raise enough capital to bring their innovation to life.

Crowdfunding Today

Today Sony, General Electric, Pernod Ricard, Dell, Honda, Chrysler, Coca-Cola and IBM are all among the billion-dollar names that have not only tried this new way of financing from their consumers, but are making waves in the space, giving birth to this new sub-sector of crowdfunding known as Corporate (or Enterprise) Crowdfunding.  The idea is, within larger organisations, R&D plays a critical role in the survival and continued relevance of the company, and because of this, a large amount of time, money and effort is spent on figuring what makes it to consumers, and what gets shelved. Two examples where we’ve successfully coordinated Brand crowdfunding campaigns are on behalf of Pernod Ricard and Evelyn and Bobbie.

“Corporate Crowdfunding” stems from a realisation that crowdfunding has matured beyond a financing mechanism and into something much greater - a social listening and communication tool that offers brands the chance to speak directly to their consumers and make changes based on their wants and needs. In addition, crowdfunding comes with a number of advantages that traditional funding mechanisms or go to market strategies don’t possess. Companies can better connect with end users for product feedback in a mutually beneficial and risk-free manner. Contributors aren’t entitled to equity in a project but can benefit from a range of different tailored perks such as early access to products and a cheaper price, or product exclusivity.  

Corporate crowdfunding isn’t without fierce critics especially when you consider the history of crowdfunding (it was a response to conventional sources of funding shunning individuals and small-scale businesses in favour of well-heeled corporations).

There’s a widely held belief that large companies venturing into crowdfunding platforms are selfish and exploitative. It’s difficult for critics to imagine such companies can’t allocate a tiny fraction of their multi-billion dollar annual budgets to fund their project internally.

An Opportunity for Brands and their Advocates

As a large brand, social listening has become increasingly important with many large consumer brands such as Pepsi, H&M and even high-fashion houses like Gucci being scrutinised for a lack of social understanding and awareness. Here corporate crowdfunding can be a mutually beneficial translator where brands can build based on direct feedback, and consumers can participate in the decision-making process which more often than not includes incentives such as early bird pricing and access to products.

Also, the budgets of big companies must be viewed in their proper context as big business means big expenses. Balance sheet size doesn’t preclude a company from bankruptcy.

As expected, regulation is still significantly behind the corporate crowdfunding curve. But as more big businesses see this as a real option for funding their projects, financial and data regulators are likely to eventually develop and publish rules to govern the industry.

Why R&D Innovation and Crowdfunding are a Perfect Match

Gillette tested their ‘Heated Razor’ innovation on Indiegogo, successfully validating their product

Gillette tested their ‘Heated Razor’ innovation on Indiegogo, successfully validating their product

Once touted by AOL co-founder Steve Case as a future driver of ‘the rise of the rest’, crowdfunding has largely been seen as a tool for ‘the little guy’. The rationale was that with large and medium corporations having access to multiple sources of product finding, crowdfunding would be the saving grace for small businesses and startups.

What wasn’t considered in the early stages of crowdfunding was its ability to finance and test innovation projects within larger corporations. The Evelyn & Bobbie and Pernod Ricard’s Absolut Art campaigns (both executed by Blazon) are great uses cases of this trend. In the constantly changing world of innovation, Crowdfunding seems to be a logical step on from the existing practice of crowdsourcing, where corporations would solicit ideas from the general public and offer cash prizes or alternative rewards for the winning solution.

In this article, we’re going to take a deeper look at why crowdfunding is such an ideal match for corporate R&D.

Testing the Market

One of the reasons large companies will discard an idea is because its feasibility is in doubt. This has sometimes proven to be a premature conclusion. Many ideas that were eventually hugely successful initially seemed far removed from market realities. To a certain degree, landing on a successful idea is a game of chance. No business is ever 100 per cent sure that a given concept will be the one to take their revenues to the next level.

Search behemoth Google is a classic example. Many of its ideas have fallen by the wayside. But in the midst of this sea of failed experiments, some have been a resounding success. Crowdfunding is a great way for corporations to test their less conventional ideas with the market and ultimately establish their viability.

Collaborative Innovation is the Norm

Unlike centuries past when inventions were often the efforts of one man, contemporary innovation is characterized by a large number of participants. It’s partly because the scientific and technological strides humans have made over the last 100 or so years forces modern innovation to be a fairly complex fusion of diverse overlapping ideas.

Crowdfunding creates this kind of environment. The hundreds or thousands of contributors are a wellspring of knowledge.

Source Ideas from Product Users

Inventions as never created in a vacuum. They are an improvement of existing products or harness existing bodies of knowledge. Little wonder that many inventions are the result of candid customer feedback or suggestions. Crowdfunding goes one better by giving people not only the power to provide suggestions on a concept but also contribute money towards the realization of the goal.

Fresh Set of Eyes

The biggest businesses have a sea of employees and consultants at their beck and call whenever they have an idea that needs analysis. Unfortunately, returning to this same circle with every new idea can be detrimental. It may lead to a vicious cycle of confirmation bias.

As persons who feel confident of what concepts senior management will be amenable too, employees and consultants may presumptuously rule out from the get-go things they do not think will fit into the company’s assumed mould of a ‘good product’.

Also, a new concept may threaten a product they were involved in developing. So they may overtly or subconsciously resist the new idea because it endangers their reputation. Crowdfunding allows you to tap into a global, diverse and fresh set of eyes that is more likely to judge the concept primarily on its merits.

Rapid Launch

We’ve talked about how crowdfunding gives businesses the ability to test their product against the market. That is crucial in getting the product out there quickly. Remember, that by the time the idea is posted on a crowdfunding site, there’s perhaps a prototype already.

By putting the product out there, businesses can get vital feedback on whether this can work. They can make changes to the design and make it ready for market deployment. In the more conventional product development lifecycle, this process from concept to market can take significantly longer.

Going Global Fast

Even though the Internet has been around for decades now, many businesses still see taking their product global as something they’ll do once it succeeds in their country or locality. Actually, there’s nothing wrong with taking a product to multiple countries from the get-go. Crowdfunding gives you the power to do just that.

Leading platforms like Indiegogo and Kickstarter attract interest and contributions from all over the world. An American corporation can draw funding from contributors based everywhere from Mexico to Malaysia, from the Netherlands to Namibia. With this contribution comes to demand and this can give the product an international head start against competitors following the more traditional growth path.

Broad Ownership

Humans are social creatures and are drawn to people or projects that we feel connected to. Merits and demerits of the product notwithstanding, crowdfunding gives a concept a much larger and more passionate product fan base than it’d otherwise have with venture capital and other funding sources.

You end up with a large group of people who are vested in your product’s success. That is a good thing because they’ll be happy to freely provide whatever feedback is needed to make sure your product makes it in the marketplace.

Financially Risk-Free

Bose’s Sleepbuds raised over $450,000 during their campaign

Bose’s Sleepbuds raised over $450,000 during their campaign

Bose’s Sleepbuds raised over $450,000 during their campaign

We may be talking about multi-billion dollar corporations but you have to remember no organization has the cash to do everything it wants to do. Yet, bringing any commercial idea to fruition requires money. Big businesses, therefore, have to prioritize expenditure. That means plenty of concepts will be discarded as they’ll be ranked low on the priority list.

Crowdfunding is an opportunity for corporations to get their ideas off the ground without significantly eating into their own budget. A great example of this is Bose’s Sleepbuds campaign, which raised almost half a million dollars.

Of course, this may sound distasteful, unethical and exploitative. There’s still, understandably, a general unease about large companies joining the crowdfunding space. So crowdfunding R&D must be done cautiously and sensibly while taking into consideration brand reputation and the greater social good.

You Need Money to Crowdfund Successfully

Crowdfunding has been sold as an avenue for cash-strapped individuals and startups. However, the success of an R&D crowdfunding campaign is dependent on how much cash the product owner has and can commit to the project. Just taking something from concept to demonstrating a tangible product that actually does what it’s expected to require cash. Also, products that go on a crowdfunding platform usually have to offer a generous discount to give the market a real feel of its viability.

In this respect, large corporations have a distinct advantage since they can afford to spare a couple of million dollars from their huge budgets to make sure the product is market-ready before it goes on a crowdfunding platform. They have the financial muscle to withstand preliminary losses before the product becomes self-sustaining.

Gets Deep Pockets Interested

Crowdfunding may raise enough R&D cash to get product development completed and the item out there in the market. Nevertheless, if the product does attract unexpectedly huge demand, it’s going to need even more money to truly grow.

That’s partly why originally crowdfunded Oculus Rift was eventually snapped up by social media giant Facebook. Crowdfunding can give R&D some legitimacy that could inspire deep-pocketed investors to dive in.

Fund Products with Narrow Markets

Vasler    — Coca Cola Co’s experimental crowdfunding campaign for high-end water.

Vasler — Coca Cola Co’s experimental crowdfunding campaign for high-end water.

Not all products are meant for the mass market or at least it doesn’t always seem that way at the conception stage. Take Coca Cola Co’s Vasler Water, a high-end offering for a narrow market, launched via Indiegogo and successfully funded.

Crowdfunding gives companies the ability to develop and rollout such niche products and gauge whether there’s room for scaling.

In any case, many products that start off as targeting a small market segment eventually became mass-market products. Instead of such ideas gathering dust on the shelves of product development departments, crowdfunding can give them life.

Motivation

By getting the public to participate in product R&D, you inadvertently assume a solemn responsibility. Crowdfunding contributors are not the same as the company’s employees who are paid irrespective of whether the product succeeds. They are also unlike equity investors since they will not experience any financial gain regardless of the product’s fortunes.

Therefore, the business must be true to a moral obligation to see the product through as best as they can. This heavy responsibility can be a powerful source of motivation.

Crowdfunding has already proved itself at turning the rudimentary ideas of startups into viable, market-savvy products. Large corporations mainly differ from small businesses in terms of scale. It, therefore, makes sense that big business can equally leverage crowdfunding for their R&D. It’s placing the power of innovation in the hands of the people who matter — the consumers.

Blazon’s Involvement

As one of the world’s leading Crowdfunding Agency, and the leading Crowdfunding Agency in Europe, Blazon has taken its wonderful track record of successful and highly unique campaigns and re-focused its efforts on providing a pathway into the world of Crowdfunding for larger brands who wish to test their R&D innovations in a new and exciting way.

To find out more about how Blazon can help enter this exciting market, get in touch directly above.