Crowdsourcing, scale and sustainability

Crowdsourcing.When I look back on all the proposals I’ve done myself or helped other people with, all the bootstrap enterprise ideas and new product innovations upon which a whole franchise could be created, I just wish this kind of system was around ten years ago. But even if it had been, I don’t think we had a base of young entrepreneurs (and their mini-investors) who would be flexible and laid back enough to use it.

There were so many small businesses – some which would scale and some which would not – that could have been conceived and grown on the back of crowd sourcing. For example, my idea for a website that only sells old-fashioned things that you can no longer buy in shops, such as woollen dressing gowns, designer handkerchiefs, attractive clock radios and teasmades. There are thousands of business ideas out there that could be started on the back of some crowdsourcing, a few credit cards and a good knowledge of the wonderful world of elance.com.

The AV Jennings/ Ikea principle

And yes, 99% of these would not scale. However… I want to activate what I call my ‘AV Jennings/Ikea’ principle here: you can rubbish the brands all you like for being unoriginal, for being non-master-built, for being of their times and for appealing to the mass market and the very muffled vagaries of its taste, but AV Jennings gave people who previously had very little available to them homes with decent doors, windows and storage, with bathrooms and kitchens that could be cleaned; Ikea gave people the option of cheerful furniture that looks smart whereas once they would have had to contend with grandma’s cast-offs.

In the same way, there are many businesses which are not glamorous, not particularly sustainable and not scalable at all that would nonetheless provide an income for two or three families and a sense of pride and dignity and investment in their own lives that a crappy job at K Mart just cannot provide. For example, the doughnut and coffee stall at Chirnside Park shopping centre, with its three competitive advantages: consistent and rational undercutting of the Big Donut Franchise, its location in the foodcourt, and the unfailing friendliness of its staff couldn’t be anywhere on any Tom McGaskill radar, but the two young guys who run it are not sitting at home all day playing World of Warcraft and eating cheese toasties and our community gets some genuine competition in the coffee-and-doughnuts market.

Sustainability

Growth has been the basic measurement of success for so long in business that it has been taken for granted. Even in businesses and industries where growth is no longer possible, the business world focusses of growth of market share. The idea of sustainability is that it is the driving force behind growth, as an enterprise that is not sustainable cannot last long enough to grow, and the longer it lasts, the logic goes the more it grows. In this view, ‘loser’ businesses are the ones that hit a certain size and then plateau, or even go backward for a while until settling into their ‘ideal’ size.

However, sustainability is also not necessarily the key to a successful business – it depends what you want in the first place. A business based on selling Sydney 2000 Olympics souvenirs would certainly not be sustainable but nobody would argue against its ability to make cash. The entire property development industry really depends upon project-based earnings rather than ongoing cashflow, yet few if these projects are designed to make money indefinitely.

Money for cash business

Crowdsourcing is not inherently suited to the long-term investment projects that attract venture capital. I don’t know what proportion of crowdsourcing investors are professional or angel investors, but I assume (and this would bear some research) that 80% of it is someone having a bit of a crack at it, using their money as they would on the futures market or at the races. Having a bit of fun and having a story to tell at the pub, or having the power to invest in something they really believe in. (My father, a very conservative banker, bought Compass Airlines shares when it listed solely because he believed in  the competition it represented).

If most of the investors are having a crack, then they are not really in the market for a long-term, staged relationship with the company, and are therefore not necessarily interested in its prospects for sustainability or scalability. A few expertly marketed ventures might be able to establish relationships with their investors that make them long-term, but this would not be because they are locked in, it would be down to an inherent stickiness that the company had created. This far and away from the typical strategies and requirements of venture capitalists.

For Haverin Books? Crowdsourcing is going to be perfect. So watch this space,

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