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The future of crowdfunding: Coopetition

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Some crowdfunding campaigns are launched and almost immediately attract improbable amounts of support.

In many cases, there is nothing inherently wrong with this. Most good campaigners will prepare in advance for a healthy launch by lining up networks of friends and family so that the campaign gets off the ground nicely as soon as it launches.

This priming of the pump is a deliberate strategy widely acknowledged in crowdfunding circles. Defenders of the practice say that any campaign that doesn’t plan for at least some degree of pre-arranged funding and traffic to get the ball rolling is badly planned. Fair enough. But it is still, in principle, at least, anathema to the idea that all ideas are playing on a level field.

We should delineate, though, between fair practices like lining up family and friends in advance (legitimate) versus truly devious practices that distort the entire system (illegitimate).

There is nothing wrong with getting friends and family on board.

People are not, so to speak, “gaming the system.” They have merely found ways to succeed in a competitive environment. That’s what entrepreneurs do. The good ones succeed.

Think of it in this old fashioned way. If you were opening a bakery on your town’s main street, you would notify everyone you know well in advance of opening day. You would plan to have a crowd there for the ribbon-cutting and throngs coming through the door on the first day.

After that, the tempting aromas emanating from the place and whatever additional marketing you’ve done will build additional clientele. If your baked goods are awesome, your business will flourish. If not, well … the market has spoken.

Using this analogy, there is nothing at all wrong with priming the pump with family and friends.

The main negative to this comes from a very macroeconomic issue of global inequality. Imagine that the greatest idea in the world – the ultimate, unequivocal better mousetrap – launches a crowdfunding campaign. But what if that Next Great Idea comes from a place where the annual average income is, say, $1,000 and it is competing for attention with lesser ideas promoted by campaigners whose friends and family live in a place where the average annual income is $38,700? It will obviously be much more difficult for those campaigns to “prime the pump.” Using the bakery analogy, all other things being equal, it would be far more lucrative to open a bakery in a nice location of a city with a high average income rather than in a poor area of a place racked with poverty.

At the macro level, this is an issue of global economics that far greater minds than ours have not resolved. Yet there absolutely are some steps that crowdfunding can take to make raising funds fairer for all campaigns, regardless of where they are.

The world is becoming flatter. That means people in places with lower incomes can be competitive with (indeed, may gain a competitive advantage over) people in higher-income places. Current crowdfunding mega-sites do not reflect this new reality. A level playing field would. (We’ll address this more in coming posts.)

But there are also some truly immoral strategies – and, far too often, they work.

There are nefarious online services where you can buy thousands of “users” for $5. These are all fake profiles, of course – fake likes for your Facebook page, fake Twitter followers and fake homepage views on crowdfunding mega-sites.

Fake or not, the algorithms of most of the crowdfunding mega-sites don’t differentiate. That means that these fake users with their supposed interest in a campaign will trigger automated processes that propel a campaign up the mega-sites to become featured campaigns or hot prospects.

That’s not OK. At least, it shouldn’t be. But, for almost all crowdfunding mega-sites today, it’s perfectly fine.

The point is, crowdfunding was meant to provide an opening for people with ideas, a place where the ideas succeed or fail on their merits. And that idealistic vision is being eroded by a number of factors, some legitimate, some not.

There are some systemic issues that allow these strategies to create an uneven playing field.

There’s one fundamental “fix” to this problem.

Competition is good, but cooperative competition – also known as coopetition – is better, especially when everyone is playing fairly.

Crowdfunding mega-sites have set up a degree of competition among campaigns that is simply not necessary, fair or legitimate. Every new campaign on a crowdfunding mega-site is in direct competition with every one already there. The more campaigns the mega-site draws, the less value it has for each and every campaign on it. But a coopetition system could eliminate this disadvantage.

Among the millions of people now trying to raise money through crowdfunding, there probably aren’t many who object to the idea of competition. In life, but especially in business, we compete to succeed. If our idea is good, we should not fear competition. Competition is a motivator for entrepreneurs.

But what if we could compete and cooperate by sharing resources and ideas that actually benefit everyone?

Within the framework of crowdfunding, coopetition means individual campaigns interact with and assist each other, creating greater value through both cooperation and collaboration, more than if they were simply to compete against each other directly. In this scenario, campaigns would gain competitive advantage through cost reductions and shared resources – benefitting everyone – while still maintaining and guiding their individual campaigns to success.

But it also needs to be an even and fair field of play. The competition for good ideas should trump the competition for how to manipulate the system to get ahead of the pack. After all, only so many of us can push our way to front of the line at the expense of everyone else.

The future of crowdfunding is exciting indeed. We are ready for it. Are you joining us?

Our next blog posts will explore solutions to these problems.