If crowdfunding is so great, why don’t companies do it internally?


I was reading a few pieces about the efforts to make crowdfunding a legal way to raise equity for startups as a result of April’s passage of the Dream Act. (By the way, the Securities and Exchange Commission will miss its year-end deadline for guidelines on how it should work.)

As I was thinking through the ramifications of crowdfunding in the public equity markets, I started to reflect on how crowdfunding might be employed within a company. Imagine a ten-year old consumer electronics firm, Belkin, for example. What if they distributed digital money to all employees, based on seniority, number of followers on the company’s internal social network, ‘swarmth’ (my term for ‘karma’ or whuffie), or whatever other technique. And then the employees could invest the money in competing product plans over the course of the year, or quarter, or month.

Instead of relying on strategic planning groups, or the whims of senior management, the only projects that would get funded would be those that attracted a relatively large following. At the same time, the staff would want to spread their bets, so there would be a natural distribution function, probably looking something like a power law curve.

Power Law Distribution – image from Wikipedia

In a distribution of this sort, the top few options gather the great majority of the bets, but there is still a long tail where outliers get a small amount. My bet is this sort of funding would allow greater resilience in businesses.

It also brings to mind the anecdote about Steam, the company with the most anarchic management in the world, where the CEO is unable to get his proposed projects off the ground, because not enough of the developers think they are any good.

So, imagine a second that a company, our hypothetical Belkin-of-the-near-future, were to use such a system. And they kept close track on who invested in each project, and which projects came to market, and what products made money and which ones didn’t. The company could — and should, I think — do a few things with that information:

  • Obviously, they should reward the people who dreamed up the project in the first place, and those that worked on it. One reward might be something like a shadow stock plan for the specific products coming out of the project, and not just the last century salary-and-bonus model of compensation.
  • Not so obvious perhaps, they should reward those that invested in it.  This might also include shadow stock payback, in a form like that used for the project team. But just as important perhaps, would be adding to the successful guesstimators’ swarmth, and giving them more digital money to bet in the future months, quarters, and years to come.

Of course, the company gets to keep the great majority of the profits in this scenario, but the way in which the profits that get shared are shared is quite different from the conventional organization. People are rewarded both for performing their jobs, but also for guessing better than others about the future.

A further wrinkle: If a near-future Belkin had such a system in place, it could potentially open itself to outside project proposals as a matter of course, instead of in the stagey, preordained approach that we see in most crowdsourced innovation. Consider the GE, which is intensely involved in marketing the ‘Industrial Internet’ as part of a recasting of the company’s future. At their website I learned that there are 4740 open positions in GE worldwide and 150 billion dollars of waste across industries that the ‘industrial internet’ could help. And to great fanfare, GE is running two — only two — crowdsourced innovation projects, one to find a better algorithm for handling realtime airplane flight management, and another to find non-medical ways to improve the patient experience in hospitals. That’s all? two?

I’m not knocking GE, but this isn’t even the quintillionth of what we will be seeing in five years. Yes, I know we can’t expect a monster company like GE, or even a company like Belkin to adopt the bizarro world anti-management techniques of Steam, but a well-designed and tightly integrated product planning solution with a large admixture of crowdsourcing might be the first giant step into a more resilient, distributed, agile, and effective approach to corporate innovation than in use today. My bet is that we will see the rise of internal innovation marketplaces, based on ideas like these, over the next few years.

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