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Crowdsourcing and Crowdfunding Explained

Crowdsourcing and Crowdfunding Explained

What is the difference between crowdfunding and crowdsourcing? Both are techniques used to connect people at a local level, to create businesses that will benefit communities using global techniques. Although technology has created a global community (through online and more specifically social media), people rely on local communities for essentials. Crowdsourcing is the technique of outsourcing specific tasks to external participants. The participants typically learn about assignments by a request via a platform on the Internet. This opens up the ability to obtain services with: • Immediate access • Cheaper/cost efficient • More relevant one off usage • Problem solving approach

Therefore the services are across a vast and wide range and not geographically nor time restricted.

The only issues may be those of trust for the user and of course, the quality. If those barriers can be broken down or even overcome, then the crowdsourcing model will make it relevant for anyone to trade with anyone worldwide.

While the Crowdsourcing model is not actually new, the internet has opened it up. Assignments used to be placed via word of mouth or newspapers and of course, this medium only reached a limited audience. The internet immeasurably extends the reach. New words are being introduced in to the OE, such as ‘outreach’, ‘online’, ‘traction’, ‘i trade’ or ‘i business’. The ‘e’ word means electronic. Embrace the new revolution.

Crowdfunding involves outsourcing the financing of a project to the general public. Its intention is to limit the use of professional investors. It starts with announcements designed to raise awareness of the projects seeking backers. The majority of crowd funders as they are known are private individuals, who may not know each other, who choose freely; • How much they want to invest • The projects they wish to invest in • The industries they are interested in

In return for supporting or backing the business or project, they will be offered a project specific reward. Funding is generally an all or nothing proposition, meaning that the project can only come in to fruition when it is fully funded. This maximises the likelihood to a small possibility that the project will have to be terminated due to a lack of funding at the outset. Of course, announcing the project in advance gives free advertising.

Unlike commercial financiers or banks, crowd founders may be less interested in maximising their returns than in helping to see the project realised and succeed. To encourage such motives a limit is sometimes applied to the amount that any crowd founder can invest in to any given project. Financial regulations are entering this market place in order that certain restrictions allow some protection for the investor.

Crowdfunding has been around for many years, think back to ancient times when associations were formed to build buildings. Also, the British rock group Marillion, unable to fund its early tours, were able to secure funding from fans to tour the U.S. In 1997.

One of the key attractions to crowd funding is that it allows project initiators to obtain validation for their ideas at the incubator stage. Feedback, critique and comments from interested members from the worldwide audience are given freely. This is the way forward.

Crowd funders put their money where their mouth is. You need to go with the crowd!

Next week I will be revisiting my monthly series on Tradition vs Technology: comparing the traditional Cheque book and the modern online banking system. In the meantime, share any comments you may have on this article below and connect with me on: Twitter – Facebook – LinkedInFor more insight into the behaviour and characteristics of entrepreneurs read Drive Like a Real Entrepreneur.

Photo courtesy of Flickr

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