Crowdsourcing To Start A Business

The tools needed to start a business are multifaceted and precarious.

 

Traditionally, if you did not have the resources or capital to start a company, little more could be done. Business loans and venture capitalists can help launch a company but often come with restrictions, eligibility rules and the loss of autonomous control. Being tied to one or two investors may cause you to sacrifice control over a part of the company or even the direction it is taken in. Those who do not have access to business loans or investors are left with little to no help in getting a company off the ground. Crowdsourcing can be used to fill this gap and provide more efficient ways to build a company from the ground up. There are several ways crowdsourcing can skip over the investor and similarly reduce your overheads. Understanding the details of crowdsourcing will help you decide when and how this tool can be used in your own startup.

Raising Initial Capital

Startup costs can be higher than expected and require a great deal of capital to fund. Small businesses face equipment fees, advertising costs, office space rentals, website development costs and more. There are two ways crowdsourcing can help contribute toward raising initial capital: crowdfunding and offering stock options in return for labor.

Crowdfunding Capital

Crowdfunding can be used to pre-fund a business’s initial costs, so they can operate debt-free early on. This may give the company a better chance to grow than if they started in the red with a business loan. Those who choose to crowdfund should be aware of the fees that apply to most crowdfunding websites. Roughly five percent of the total funds collected are absorbed by the crowdfunding site as payment for their services. In addition to these charges, money obtained by crowdfunding is subject to income tax. Standard IRS rules state that crowdfunding accounts with at least $200,000 of raised funds, or have over 200 contributions, will receive a 1099-K. This does not mean income tax must be paid, expenses can be used to offset these funds so little tax is taken.

Another benefit of crowdfunding for capital is the engagement you receive from potential customers. The act of sharing your product or services with the public in this setting generates an interest. This interest is accelerated when members of the public feel invested in a company. By providing the public with an opportunity to feel responsible for the success of a new company, you also help cultivate a customer base.

Crowdsourcing Labor

Another way that crowdsourcing can help raise capital is by skipping the monetary elements entirely. A few technology companies have canvassed large groups of people to find specifically skilled workers who then work on separate parts of the company in exchange for stock options. This method allows the company to lower their initial overheads by receiving free labor in exchange for paying out benefits later on. Workers are motivated to build a prosperous company, as their paycheck is dependent on the success of the business.

Useful Crowdsourcing Tools for Startups

While there are numerous crowdsourcing tools available, there are a few that directly benefit the startup of a small business or enterprise. It is important to understand how each method works so you can match it with the right project. Some types of crowdsourcing work better for certain project. Understanding this difference will enable you to get the most out of crowdsourcing for our startup.

Create Contests

Branding for a new business can cost a lot. Logos, websites and other branding items can take time and money to create and perfect. Launching a crowdsourcing contest for these items can help you look through a variety of design directions without paying for the research. Depending on the rules of the contest, the winner can be paid for their designs, compensated with noncash options like stocks or discounted products. Crowdsourcing contests help boost a new company’s presence on the market and offers the public an opportunity to engage.

Startups can also use crowdsourcing contest to find initial clients or customers. Participating in another company’s crowdsourcing contest can help promote your own services, as well as possibly securing work.

 

Break Up Tasks

In the early stages of a business, hiring employees can be pricey and not always cost-effective. However, tasks need to be completed and they require minds and hands to do them. Crowdsourcing these tasks can help reduce the costs and find possible future employees in the process. For example, crowdsourcing large amounts of transcription work and paying a small amount for each completed piece will ensure the work is done quickly. The cost will also be significantly lower than if you interviewed and hired each transcription professional separately.

In addition to this, you may find a few individuals in the crowd who are particularly good at the work and hire them full-time. In this sense, the crowdsourcing has allowed you to operate with few employees and also help you find and vet possible long-term employees for the future.

Important Factors to Consider

There is no exact science to starting a business and each startup has different needs and goals. Regardless of your company’s direction, if you use crowdsourcing as a tool to help grow your startup, there are some factors that you should take into consideration.

 

  • Course correct – With any new business or venture, it is important to test your products and be flexible with theirdevelopment. Crowdsourcing for opinions on improvements through social media can help you nurture a service or product in real time, while also engaging your audience.
  • Be specific – It is important to be specific when developing instructions and rules for crowdsourced projects. Not only in the breakdown of what is needed to be done but with the rewards that participants are working toward. If these are not made clear, participants may be frustrated, and the fallout could harm the image of the company.
    • Be objective – Social media can be a daunting place to crowdsource opinions orconduct contests. Depending on the size of the crowd, you may face a huge group of varying opinions from the public, both positive and negative. Not everyone has to agree for you to gain some perspective on the question you have asked.
  • Know when to use crowdsourcing – Sometimes a smaller test group is the best options for a new company. Whether you are beta testing a product or need detailed, personal responses in order to efficiently develop and launch you company, crowdsourcing may not be useful. Quantity of responses or feedback may not outweigh the quality you would receive from less participants in a controlled environment.

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