Crowdfunding is 4x hotter than crowdsourcing but hybrid models are the real story

crowdsourcing_dollar_bill_pyramid

Crowdsourcing isn’t new, just look at the pyramids. The essence of crowdsourcing is splitting a large task into micro-tasks for others to accomplish. This is powerful because it (hypothetically) lets you accomplish large labor-intensive tasks relatively easily; certainly there are challenges.

Crowdfunding works the same way; individuals or companies can raise large sums of money for products, projects, or social causes by harnessing the funding power of a large group of people each pledging a relatively small amount. In the last two years, crowdfunding has well surpassed crowdsourcing in terms of hype. Just take a look at this Google search volume chart comparing the two:

crowdfunding_vs_crowdsourcing_google_search_volume

Worldwide Google search volume for Crowdfunding (blue) vs. Crowdsourcing (red)

Instead of discussing the merits and challenges of both strategies, I want to argue that hybrid models are the most compelling. Engaging the crowd to both raise funding and provide feedback can be hyper-productive when campaigns are thoughtfully designed with a close eye for incentives. But what does this really mean in practice?

When you ask the crowd to fund a project you’re effectively gauging demand; if people give cash then they like what you’re doing. If no one supports you then you need to run back to the drawing board; this can be a huge time and money saver for companies. Gauging demand with crowdfunding kills the losers quicker, which is uber Lean Startup.

"Crossing the Chasm" Technology Adoption Lifecycle

“Crossing the Chasm” Technology Adoption Lifecycle

At the same time, if you can engage your crowd of customers for feedback as part of the product development process, then they quickly become your innovators and early adopters (see Technology Adoption Lifecycle). By crowdsourcing feedback, these early customers provide priceless guidance and become your product champions and promoters.

This hybrid model is the essence of quirky.com and is tied closely to the ‘empathy‘ concept of design thinking.

To make this notion more concrete, let’s look at Scanadu, a medical device startup based in San Fransisco. Via crowdfunding they raised $1.66M, a new record on Indiegogo, for their new product ‘the Scout’ which is a handheld device that delivers professional grade medical diagnostic data to your smartphone in 10 seconds.

Scanadu Scout medical device

Scanadu Scout medical device

It wasn’t their crowdfunding win that make them a success though: Scanadu raised $10.5M in Series A funding or nearly 10x their crowdfunding take. With so much VC money, why do we care about their crowdfunding efforts? The answer is the hybrid model – Scanadu has leveraged their Indiegogo backers to both gauge demand for the product and to actually take part in testing the device for expedited FDA approvals. The biggest challenge for Scanadu is to get data for the FDA to prove the device works – normally a study is designed, testers are paid, and the process takes a number of years. Scanadu doesn’t have that kind of time in such a competitive market. Instead, they asked people to pre-order the device and opt into beta test. Isn’t it beautiful… pay us to tell us if this product works! 

As firms continue to hone these hybrid models and embrace Lean concepts and design thinking, I strongly believe that we will see more and more of this crowdfunding + crowdsourced co-creation model taking hold. It’s expedited disruption by design!

Chris Kluesener, Open Innovation Central

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