THE BLOG
04/01/2013 02:42 pm ET Updated Jun 01, 2013

Crowdfunding Is More Than a New Source of Capital

Crowds have already demonstrated their value as a source of capital for start-ups. Support via donations or pre-purchasing on sites like Kickstarter has set high expectations for equity-based crowd funding in the United States.

Discussions often focus on how crowds can and will compare to traditional institutions like venture funds or angels. One can argue simultaneously for the madness and wisdom of crowds, so it's not yet clear how crowds will compare at picking the best startups. However, there are some areas in which crowds might outperform existing institutions. And for these contributions, crowds deserve serious consideration for startups and their stakeholders.

De-risking Product Market Fit
So much of start-up risk is trying to understand and prioritize needs for a particular group of people. What is their plan? How will they value a particular solution? And then how can I quickly get feedback to make the next iteration even better? And that's just the product or service offering. Creating communications materials, from the logo to the website, benefits from similar feedback.

In start-up ecosystems, early communities are often not explicitly rewarded. But take a look at communities like Giffgaff or Quirky and one can see the de-risking process at work, as these firms solicit and test ideas with their communities, which are explicitly rewarded for contributions. What might happen if more start-ups created option or equity pools for their early communities of contributors? And how can start-ups begin recruiting long before beta, when they simply have a problem and perhaps some hypothesis about solutions?

Building Out Your Expertise
Many successful start-ups have cultivated formal and informal advisory groups. The main challenge is time -- the same folks who are well known also have limited time to help out. The good news is that it is becoming easier to identify those who have skills and might be less well known.

We often think about customers' demographics or psychographics, but we don't often ask about their skills -- or just as importantly -- their affiliations with expert networks or communities. What is the value in getting feedback about a data science or design problem, or what about messaging or branding? Chances are, your early crowd of supporters will have some of the skills that small founding teams don't have, or at a minimum they will have a way to access those skills.

Powering Early Customer Acquisition
As you move from testing to growth, a critical part of growth depends on marketing. Whether you are creating your B2B content marketing campaign or trying to get press for your new consumer product, your community can play a critical role in helping with everything from refining content to pitching to the other communities they belong to.

How much can you reduce content marketing risk if your community can help come up with ideas to test? Or how might your crowd expand your network to reach early reference accounts or influential customers?

Understanding the Costs of Crowd Benefits
When it comes to contributions, you should expect to find power laws at work. That is, a small group will drive a great deal of the value. For this small group, you should expect more help to refine product-market fit, more access to their unique expertise and more help with early customer acquisition. Like advisors, don't they deserve compensation? Or might you get even better contributions if you made it explicit, upfront that this type of compensation was possible?

Also, involving a larger group of stakeholders introduces new demands on founding teams. Founders will need to plan processes to share progress and respond to feedback like they do for shareholder meetings and investor updates. Fortunately we can look to effective community management techniques from firms like Threadless or Giffgaff, who have efficiently engaged and worked with their communities.

Like investors, crowds can contribute much more than capital. And like investors, some crowd participants will be more valuable than others. How will you recruit your crowdfunders?