By MoneyMorning.com.au
When we hear news reports about consumer spending being soft and businesses struggling, frankly we think it’s all rubbish.
From our perspective, no other time in history has been so promising for people with a great idea (some call them entrepreneurs) to go from zero dollars to a million overnight.
And the way they do this is from other normal people with great ideas.
You see people are willing to spend their money. But…only on great ideas or great people. And in the digital world, there’s plenty of both.
As money flows into the digital economy it takes great ideas and turns them into multi-million dollar businesses. Because of this, it’s the best time to have a great idea; you just have to get it out to the people…
The exciting part about it all is its happening more regularly and frequently as we get more entrenched in the digital world.
It isn’t some inflated bubble of an industry. It’s a whole new financial system. And the reliance on financial institutions and borrowing has gone out the window. Hoorah!
Most people will spend a dollar. You see a single dollar is psychologically insignificant. Some will spend ten and some a hundred with the same mindset. But the point is there’s plenty of spare money floating around.
And the best example of this is the explosion of crowdfunding thanks to the internet and social networks.
Crowdfunding, A Huge Trend Developing
Crowdfunding takes a big job (a project) and breaks it down into thousands of little jobs. That is, instead of trying to raise one lot of $100,000 from a bank, it’s possible to raise 100,000 single dollars from 100,000 people. It about getting funding from the ‘crowd’.
And this isn’t some fad. Crowdfunding projects rose to over $2.7 billion in 2012. It’s projected crowdfunding will swell to over $5.1 billion in 2013. At this rate, crowdfunding will likely surpass $10 billion by the end of next year.
The great thing about crowdfunding is anyone can become an entrepreneur. If you want to start a business making paper planes or cat memes you can raise a project on one of the many crowdfunding websites.
If your project is good enough people will fund you. It could be a dollar, it could be $10,000. The key to it is being able to sell your project online. A great video and graphic illustration of the project is a good start.
You might have heard of some of the crowdfunding sites, Kickstarter, Indiegogo and RocketHub. Either way, if you haven’t, you should. Because anyone can be a success through these sites.
Take for example the biggest crowdfunded project ever. The Pebble watch. It’s a watch with an e-ink display. It’s Bluetooth connected to your smartphone and displays some of the key information from your phone, on the watch.
Initially the project needed $100,000 to launch their product. At the end of the funding timeframe, the project had raised over $10.2 million.
Let’s just consider the scope of that. Crowdfunding led to the project being 10,000% overfunded. And if a project is overfunded it just means the project creators get more cash to grow the business.
The Pebble project has been an outstanding success. It’s even inspired a whole new range of consumer technology. Apple’s now doing a smart watch like the Pebble, as are Microsoft and Samsung. The disruptive potential for successful projects is mind-blowing.
Of course the catch is for anyone that funds a project, they usually get something in return. Usually a pre-release product, a limited edition version or multiple products. They get something for the dollars they put in.
Unleashing the Entrepreneurs with Crowdfunding
Pebble isn’t alone either. Some other recent projects are now rolling in millions thanks to crowdfunding. Oculus Rift, a Virtual Reality head-mounted display, raised $2.4 million. Ouya, a new type of game console, raised $8.5 million. Even a start-up that makes a durable hoodie raised over $1 million.
For every million dollar project there are five more in the hundreds of thousands. And for every 5 of those, there’s 20 in the tens of thousands. It’s like Matroyshka dolls made from cash.
We’re talking small projects that instantly become million dollar companies. Literally sometimes overnight, Pebble hit a million dollars within 28 hours of listing on Kickstarter. Crowdfunding is simply going in the same direction as the App Revolution. Or as we like to put it, the ’99 cent craze’.
Think about it like this, the Apple App store is almost at 50 billion downloaded apps. That means, in a roundabout way, every single person on earth has 7 apps.
And the average app price in the Apple App store is $1.43. That makes an industry of over $71 billion. And that’s just the Apple Apps. Android downloads are around 25 billion. Ahem…who said consumer spending was slow?
Crowdfunding is heading along the same trajectory. What has grown into a multi-billion dollar system in just 4 years will soon hold more power and sway than the largest financial institutions, who have been around for hundreds of years.
If you’re anything like me, Kickstarter and Indiegogo will sit high on your online bookmarks. I regularly trawl through new projects looking for the next great product, or novel, or game, or piece of design.
Because crowdfunding and the companies they create aren’t going away. But what it might do is turn out the next Google or Apple. And if you’re savvy enough it’ll be the chance to get in literally at the earliest stage possible.
Sam Volkering
Technology Analyst, Money Morning Australia
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