trendpreneur

I’ve seen a bit of discussion about funding models recently, and have been playing around with an interesting experiment in crowdsourcing products called quirky.

For creative or product-focused businesses, it seems crowdfunding is really taking off as a concept, though I’ve yet to hear much in the way of actual success stories. The idea’s fairly simple: get loads of people to chip in when you need cash, and cash out later – either by owning part of an artwork, or by getting a discount on future products, etc.

It reminds me a lot of the way our Young Enterprise company was funded; we sold shares for a pound each to friends and family, then they got their dividend and return when we closed up at year’s end with a profit. But that was back in the nineties and so cool words like crowdfunding don’t really apply, non?

Quirky has more of a central-organisation take on stuff. Armed with designers, the ability to rapidly prototype, and some way of actually making real products, you pay to submit an idea – then cash in if your idea gets picked by the community. If you contribute along the way, either to your idea or to other people’s (you don’t have to ever pay or submit an idea yourself, mind), you gain Influence, and are rewarded based on your influence when the product finally sells.

For example, I voted for a product that turned out to be the community winner, so I gained a tiny bit of influence. I submitted a product name that wasn’t chosen, so nothing there. I answered a couple of market research questions, gaining a bit more, etc.

What’s nice about this is the company in the middle is doing a lot of the legwork but is also able to profit from zero creative outlay. I assume the funds paid by each round of idea-submitters cover the costs of internal development on those products, if not now then at least in future. Plus you’re guaranteed a winner because the community chooses the product.

Organisations are taking the middle stance in other industries as well. From brokering fashion investment to putting together crowds of art backers, there’s already several places you can go to find people willing to back you. It’s a bit like Kiva for the first world, or Zopa for businesses; Colectivo seems another name that springs out of Google (as I can never, ever remember Zopa’s name). Maybe one of these will become the place to go, especially for more traditional web or product businesses rather than creatives, where philanthropism is partially a factor.

I can totally see a hacker’s Quirky emerging, though. Almost like SiCamp in a way; people submit a ton of ideas, the crowd votes for the favourite, then the hackers split off and make the thing happen. Those who were involved get credit, dividends, returns when the business is sold, etc. But software doesn’t quite work so easily, and the middleman will need a lot of glue — plus, would you invest in a business with two thousand minority shareholders?

One of today’s spreading stories is sending out mixed messages. VentureBeat reports on Sequoia Capital, whose leaked presentation carries the starkly grim message “R.I.P. Good Times”. The message to startups is simple, but reflects some of the desperation various companies must be feeling by now: “Get Real or Go Home”. However, there’s some more concrete advice in the presentation.

Instead of reaching out and throwing money at a market share, preserving capital is the way to go; streamline operations and stay cash-flow positive, ensuring your product is a must-have, the revenue model is sound, your customers can pay and you know your place amongst your competitors. There will be fewer acquisitions, prices will go down, so don’t bank on being bought out by a big guy as your only viable exit strategy. Spend every dollar as if it were your last.

On the other hand, BusinessWeek’s TechBeat is resoundingly chirpy over the fate of early-stage startups. Early stages aren’t worrying about revenue and being cashflow positive, though those with grand designs of $10m first-round funding and being bought out within a year will probably have to rethink their plans. Investment will be hard to come by for the near future, but that affects early stages less than those already grimacing at their bottom line. No, seed-stage businesses are in a great place now, as they can adapt far more readily to the changes in the market than an entrenched company.

TechCrunch nails it: “So what exactly just ended? Easy capital to start.” If your prospects are solid, there’s still going to be money out there. But if you’re flying high on an idea that won’t ever recoup the sort of revenue you need, the reality checks of the current economy will bring you down to earth before money gets wasted. It’s all too reminiscent of a few years ago, but many businesses survived that intact and even stronger than before. Consumers and businesses are tightening their belts, but there’s still basic demand for a lot of things.

Plus, there’s always an opportunity in the darkest of times; how many businesses will spring up offering financial advice, discount products, coupon roundups or any of a hundred-and-one ways humans profit from others’ panic and loss? Far too many.

[Update: Great post on the downturn and startups by 500 Hats, via Tim O'Reilly.]