Crowd-sourcing and crowd-funding: socially powering companies

The web has allowed people from across the world to engage together to find solutions to problems, proposed either by companies and organizations or from individuals. When most people think of crowd-sourcing and crowd-funding they imagine many people building or investing in something together, and in some respects this depiction is accurate. However, crowd-sourcing and crowd-funding are better represented by group(s) of individuals working together towards a common goal rather than a common result.

Sourcing Parts or the Whole

While attending a workshop on Practical crowd-sourcing and crowd-funding offered by Ideavibes at London’s Innovation Warehouse, I was struck by how both tools can be used in various parts and stages of a business. Crowd-sourcing has been used to allow companies to help develop new products or services through the donation of time and efforts from individuals around the world for the mere recognition or pleasure of the challenge.  However, crowd-sourcing can be used as a part of the whole as well. For example, a company producing a web browser like Mozilla’s Firefox may use crowd-sourcing to not only actually make the product, but can also source the manpower to create plug-ins and other features which compliment or add components to their products. As such, crowd-sourcing could be used for the main product and for complimentors or to source components.

Crowd-sourcing critics often highlight that the crowd has no financial motivation or formalized work structure to work on projects, resulting in delayed or failed projects. Additionally, there is the perception that companies can source “free” or very cheap labour from individuals for their own financial benefit. Each company can use crowd-sourcing in different ways, and  Wired recently wrote an article about how crowd-sourcing has been used by various sectors and companies as well.

Funding beyond relatives

Similar to crowd-sourcing, crowd-funding has filled a gap in the marketplace and has entered the web as a sort of alternative to existing capital channels. However, crowd-funding touches upon very grey areas in terms of the legal securities framework and the risks taken in terms of reporting and capital application.  In particular, there are no established reporting structures to access the financial statements or even determine the success or failure of an investment. Additionally, there are no legal frameworks that help to insure stakeholder value is maximized and that stakeholders can have an input or power to make decisions within their investments. Thus, crowd-funding seems to act as a type of miniature and informal stock market without the protection or motivation from traditional stock markets.

The crowd-funding companies represented in the workshop seem to have the biggest growth in developing countries; the BRIC’s in particular. During the question period, I was led to the conclusion that the growth is happening in these areas due to the lax government regulations on these securities and also because there is a gap in the market for access to capital using traditional channels that crowd-funding solves.

Despite these issues, crowd-funding does provide an alternative for both investors and capital seekers alike. Additionally, the argument was made that society is facing increased socio-economic disparities because lower income brackets are not able to access services or investment opportunities that the wealthier ones enjoy; thus perpetuating and increasing the disparity. Moreover, crowd-funding also allows certain ventures to acquire access to capital they might have never had before because currently the investments are also perceived by the investor as a form of donation. Thus, the investor maybe willing to  take a greater gamble that their money might not be returned for the personal satisfaction of helping an institution. As such, most companies and organizations currently benefiting from crowd-funding are related to the social sector or some form of social/environmental mission.

Another benefit of crowd-funding stems from its use during different cycles of a business.  Usually new enterprises start off using initial seed money either from the founders themselves or from friends and family. Thus, crowd-sourcing could be used as a platform to help raise initial seed money to help an enterprise establish a presence. Once the company grows in size and more revenue sources are needed, then it could use more traditional funding sources.

Customer-Centric Approach

Crowd-sourcing also hold promise for a type of Customer Relationship Management (CRM) tool, best seen through the use of comment ratings or tools that can determine how often keywords have been mentioned in a post on an issue. Thus, crowd-sourcing can be used as a service management tool that collects user’s product or service responses and helps shape future product developments. Crowd-sourcing has best been represented through community interaction groups and services, such as governments, which represent those communities. The best example of a customer-centric approach using crowd-sourcing involves citizens’ inputs and suggestions for government spending or public consultation of issues, and then allowing them to vote on the issues. As such, governments can align their resources and future projects based on what citizens want, rather than working in reverse now; where governments make the decisions based on the citizens who elect them.


Crowd-sourcing can additionally be used as a branding initiative through the use of emergent experts. Basically, an emergent expert is someone who helps lead a group in terms of opinions and sometimes outcomes. Thus, an emergent expert can help  shape demand for a product and service, while also helping to define the product development strategy simultaneously. The emergent expert can also affect the brand perception choosing to lead the group in both supportive and detrimental ways.

Therefore, companies have to be aware of the risks involved when empowering users within the crowd, and provide safe guards to minimize damages if an emergent expert goes rogue. However, in general, the crowd usually is quite informed on topics and helps to normalize any radicalized attitudes. Hence, if predominant negative attitudes do emerge with few rebuttals then it is a good indication that users in general are not supportive of the issue and corrective action should be taken by the company to solve the problem.

Crowd-sourcing and Crowd-funding

Crowd-sourcing and crowd-funding can be used at different stages of a company’s evolution and for different parts of it as well. Companies could even try and merge crowd-sourcing and crowd-funding to create incentives for users who input their time in a form of “work” stock in the company or service their work efforts provide. Companies have to be aware of the risks in terms of branding and consumer perceptions, while understanding and weighting the cost to potential benefits. One thing is for certain, crowd-sourcing and crowd-funding are new sources of capital and resources providing an alternative to existing channels, and are important parts of companies today and into the future. For further reading, additional information and examples can be found through this crowd-sourcing link.