The Power of Crowdsourcing for Startups

Unleashing the Crowd.

Introduction

People frequently ask entrepreneurs how they come up with new ideas. This answer is not as straightforward as one might think. There are many ways that entrepreneurs and innovators come up with new ideas, products, and processes. It is only half the story even once you have a list of idea-generating sources. As it turns out, having new ideas is only the starting point. It takes a structured process of experimentation and iteration to turn new ideas into innovative outcomes. That said, it is worth looking at methods to generate new ideas that lead to innovative results. This post will focus on one specific form of sourcing new ideas and new ways of thinking about problems, namely crowdsourcing.

Generally, entrepreneurs have several potential starting points to generate new venture ideas. First, founders can look for a problem or need in a particular industry or marketplace that needs a solution. Identifying problems can come from several sources, including the entrepreneur's experience and expertise, networking with other entrepreneurs and industry experts about potential opportunities, and conducting market research to identify trends and gaps in the market. Ultimately, the key to generating new venture ideas is to be creative, open-minded, and willing to think outside the box. Researching and gathering as much information as possible about the market, industry, and potential competitors is essential before committing to a specific venture idea.

Open versus Closed Innovation

The traditional approach to new product innovation uses internal resources entirely, called the closed innovation model. In the past few years, companies have recognized that searching for and incorporating knowledge from outside the company (outside-in approach) and leveraging existing internal knowledge via licensing and other mechanisms (inside-out approach) can be highly effective, using a so-called open model. The open model has various options for accessing external knowledge and leveraging internal competencies. Our growing use of online platforms has added a new dimension to this concept. For example, the ability to identify and engage with a "crowd" that can contribute to the generation of ideas, solving problems, undertaking part of the development process, finding applications for existing technologies, and even providing financial backing. Engaging the crowd is a critical activity in open innovation.

Open innovation is a term used to describe a business that actively seeks and incorporates ideas from external sources, such as customers, suppliers, and other companies, into the innovation process. This approach contrasts the traditional innovation model, in which a company typically keeps its ideas and research closely guarded within its walls. Instead, open innovation involves actively seeking and incorporating ideas from external sources, such as customers, suppliers, and other companies, into the innovation process. By opening up the innovation process to a broader range of input and collaboration, companies that use open innovation can often develop more creative and practical solutions to problems and gain a competitive advantage over those that do not.

Large companies have embedded open innovation methods into their businesses for several years. Since early 2000, Procter & Gamble (P&G), a multinational consumer goods company, has embraced open innovation as a crucial part of its business strategy. As an early adopter of this approach, P&G has implemented several initiatives to encourage and facilitate open innovation, including:

1. The Connect + Develop program was launched in 2000 and is P&G's primary platform for open innovation. It allows the company to identify and collaborate with external partners, including startups, academia, and other companies, to bring new ideas and technologies into P&G's innovation pipeline.

2. The P&G Ventures unit focuses on identifying and investing in early-stage companies with technologies or products that potentially integrate into P&G's portfolio.

3. The P&G Open Innovation Center: This center, located in Cincinnati, Ohio, is a physical space where P&G researchers and external partners can collaborate and work on projects together. The center possesses state-of-the-art labs and prototyping facilities to help accelerate the development of new ideas.

4. The P&G Innovation Challenge: This annual competition invites entrepreneurs, researchers, and students to submit ideas and prototypes as potential candidates for commercialization by P&G. The winning entries receive funding and support from P&G to help bring their ideas to market.

From my early research on innovation, it was clear that one of the best practices in highly innovative enterprises was searching for ideas from external sources. External sources of ideas can come from anywhere or anyone - customers, vendors, competitors, experts, etc. This model became known as the open innovation approach in the past few years.

During my early innovation research, several companies embraced open innovation. Many of these companies applied open innovation to generate new products by accessing a wider pool of ideas and resources and bringing new products to market more quickly. Some examples of companies that have successfully used open innovation to generate new products include:

1. IBM's robust open innovation program includes partnerships with universities, startups, and other organizations to develop new technologies and products. I had many opportunities to work with IBM in their "Smart World" initiatives. They would organize many open innovation sessions to explore how technology could solve urban congestion and climate change problems.

2. Siemens uses open innovation to identify and develop new products and technologies in various industries, including healthcare, energy, and transportation.

3. The LEGO Group has a strong tradition of open innovation and has used it to develop new products such as LEGO Mindstorms, a line of educational robotics kits. Lego has a program called Lego Ideas that allows fans to submit their ideas for new Lego sets, and some of these ideas have become commercially successful products.

4. Unilever has many open innovation initiatives, including its "Connected 4 Growth" program, which encourages employees to submit ideas for new products and business models.

5. Intel has a program called Intel Labs that invites external researchers to collaborate on projects and contribute to developing new technologies.

Overall, open innovation initiatives have helped these companies bring new products and technologies to market faster and more efficiently and have also helped to strengthen their relationships with external partners and stakeholders. In addition, this approach provides young startups the same opportunities to use the crowd to access knowledge, ideas, customers, and others on the same scale as the large incumbents without investing in extensive R&D and marketing resources.

Crowdfunding and Startups

Crowdsourcing describes a basic set of tools supporting various stages of creating and implementing new ideas along an entrepreneur's journey. Jeff Howe and Mark Robinson, editors at Wired magazine, coined crowdsourcing in 2005 to describe how businesses were using the Internet to outsource work to individuals.

Crowdsourcing may take some part of a function once performed by employees and outsource it to an undefined and often extensive network of people. More importantly, crowdsourcing brings resources to a small enterprise that could not be acquired by traditionally hiring individuals. In crowdsourcing, companies broadcast problems to a large and diverse audience as an "open call" for solutions. Public members submit solutions that are usually not always owned by the originating entity. Sometimes, the contributor of the solution is compensated monetarily or with prizes or some form of recognition. In other cases, the only rewards may be kudos or intellectual satisfaction.

Crowdsourcing systems accomplish a variety of tasks. For example, the host invites the crowd to expand on a conceptual idea, develop new technology, perform a design task, test a market, or fund a project. In addition, intimately incorporating the use of crowdsourcing by entrepreneurs into business models may reduce risk, lower funding requirements, and accelerate revenue growth. In some cases, accessing the "crowd" is a fundamental component and necessary ingredient.

Members of the crowd usually remain anonymous, which can lead to other intriguing benefits. Anonymity removes some cognitive biases, such as stereotyping. In traditional organizations, employees bring similar cognitive biases and ways of thinking, many embedded in the culture. However, a lack of experience or exposure to knowledge in another field is often a key ingredient for breakthrough thinking. 

Emerging companies may use open innovation in several different ways. For example, they may solicit ideas for new products or product improvements from their customers or other external sources. They may also collaborate with other companies or research institutions to develop new technologies or products or open their research and development processes to external contributions.

Many emerging companies are using open innovation to generate new products. For example, many startups and small businesses use open innovation to create new ideas and bring products to market more quickly and efficiently. Other emerging companies using open innovation include those in the technology, consumer products, and healthcare sectors.

Crowdsourcing can play various roles in startups, depending on the specific needs and goals of the company. Some possible ways that startups can use crowdsourcing include:

• Gathering feedback and ideas from a large group of people can help a startup refine its product or service and make it more appealing to potential customers.

• Raising funds through a crowdfunding campaign can help a startup secure the capital it needs to get off the ground.

• Finding and recruiting talented individuals to join the team, either full-time or freelance.

• Generating buzz and building a community around the startup can help increase awareness of the company and its offerings.

• Solving problems and developing innovative solutions through collaborative efforts can help a startup differentiate itself from competitors and gain a competitive advantage.

For example, I have had many founders use Amazon's Mechanical Turk to crowdsource customers and marketplace information. Amazon Mechanical Turk (MTurk) is a platform that allows businesses to outsource small tasks and processes to a global network of "workers." These workers can complete data entry, image labeling, or transcribe audio recordings. As a result, MTurk can be a valuable tool for startups looking to generate new ideas in several different ways.

A startup could use MTurk to generate new ideas by posting tasks on the platform that ask workers to develop ideas for new products or services. For example, a startup could ask MTurk workers to suggest ideas for new products or services that solve a specific problem or meet a particular need. The startup could then review the ideas submitted by workers and use them as a starting point for further development.

Another way a startup can use MTurk to generate new ideas is by posting tasks that ask workers to perform research or gather information about a particular topic or market. For example, a startup could ask MTurk workers to collect data about consumer preferences or trends for a specific industry. This information-gathering activity can help the startup identify new product or service opportunities.

Finally, MTurk can be a valuable tool for startups looking to generate new ideas, allowing them to access a large pool of workers with diverse skills and expertise. However, it is crucial for startups to carefully consider the tasks they post on MTurk and the criteria they use to evaluate workers' submissions to ensure that they are receiving high-quality ideas and insights.

Select Crowdsourcing Platforms

Startup companies are using open innovation to access external resources and ideas that can help them grow and succeed. Some examples of open innovation platforms include:

Quirky is a product development company that uses open innovation to source ideas for new products from its community of inventors and designers. Quirky was founded in 2009 by Ben Kaufman and was acquired by Flextronics in 2015. Quirky's process involves soliciting product ideas from the general public through its website and social media channels. Members of the Quirky community can submit ideas, collaborate on developing those ideas, and provide feedback on prototypes. The company has brought a wide range of products to market, including kitchen gadgets, home decor, and personal care products. Quirky has also worked with well-known brands like GE and Target to develop and launch new products.

Wazoku, formally InnoCentive, is a platform that connects organizations with a global network of problem solvers to solve tough challenges and create new products and technologies. The platform uses AI to match companies with potential contributors with relevant expertise and interests and also offers tools and services to help facilitate collaboration and idea generation. The company's platform, Idea Spotlight, is designed to help organizations capture, manage, and implement ideas from employees, customers, and other stakeholders. Some of the critical features of Idea Spotlight include the ability to: a) Solicit and capture ideas from a wide range of sources, including employees, customers, and partners; b) Collaborate on ideas and provide feedback through the platform; c) Evaluate and prioritize ideas using customizable criteria and metrics, d) Implement and track the progress of ideas through the innovation process. The company has worked with various organizations in various industries, including healthcare, finance, and manufacturing.

Edison Nation is a company that helps inventors and entrepreneurs bring their ideas to market. The company, founded in 2002, operates as a platform for inventors to submit their ideas, receive feedback and support, and potentially bring their products to market. Their services include idea evaluation, prototyping, marketing, and licensing. The company's process begins with inventors submitting their ideas through the Edison Nation website. A team of experts then reviews the concepts and provides feedback on their feasibility, marketability, and potential for success. Edison Nation provides support to help the inventor prototype and test their product if a startup selects an idea for further development. The company also assists with marketing and sales efforts and allows inventors to secure licensing deals with manufacturers or retailers. Edison Nation has helped market various products, including household gadgets, toys, and outdoor gear.

IdeaConnection is a platform that connects organizations with a global network of innovators and problem solvers to help them develop new products and technologies through open innovation. The company, founded in 2002, has a worldwide network of over 500,000 experts and innovators. IdeaConnection's open innovation process involves soliciting ideas and expertise from diverse external experts and stakeholders. This process occurs through various methods, such as challenges, hackathons, and online ideation sessions. The company's team of experts then reviews and evaluates the ideas and provides feedback and support to help clients pursue the most promising ideas. The company works with various organizations in various industries, including healthcare, finance, and manufacturing.

IdeaScale is a software platform that enables organizations to crowdsource ideas and gather feedback from employees, customers, and other stakeholders. The platform facilitates creativity and innovation, allowing companies to collect and evaluate many ideas and suggestions to identify and prioritize those with the most significant potential for success. The platform includes features such as customizable idea submission forms, voting and rating tools, discussion forums, and analytics and reporting tools to help organizations track and evaluate the progress of their ideas. IdeaScale works in various contexts, including product development, strategy planning, and process improvement.

Vistaprint's 99designs is a platform that connects businesses with a global community of freelance designers who can compete to create the best design for a project. 99designs is a platform that connects businesses with a community of freelance graphic designers. It offers various design services, including logo design, web design, and print design, and allows businesses to browse portfolios, communicate with designers, and provide feedback on design concepts. Companies can choose from a selection of pre-designed logos and templates or create a design brief and have designers submit custom designs for their consideration.

Nine Sigma is a global innovation and consulting firm that helps organizations solve complex problems and develop new products, services, and processes. The company uses various tools and techniques, including design thinking, Lean Six Sigma, and open innovation, to help clients identify and pursue new growth and value-creation opportunities. Nine Sigma operates an open innovation platform called NineSigma Connect, which connects organizations with external experts and resources to help solve specific challenges. The platform includes a database of more than 500,000 experts and a network of innovation partners worldwide. The company works with various organizations in various industries, including manufacturing, healthcare, financial services, and consumer products.

Outside formal platforms, other methods exist for crowdsourcing problem solutions and innovations. One popular approach is hosting hackathons and idea competitions. In tournament-based crowdsourcing, only the crowd selects the highest-value solutions using voting schemes or the solution-seeking firm itself. The firm seeking a solution does not incur the cost of those solutions that do not win. This helps in decision-making and resource allocation.

Hackathons are events where programmers, designers, and other technology professionals collaborate to work on projects, often in a competitive or collaborative environment. Some well-known hackathons include:

• TechCrunch Disrupt is an annual hackathon organized by the technology news website TechCrunch and brings together developers, designers, and entrepreneurs from around the world to build new products and technologies.

• Y Combinator Hackathon, organized by the startup accelerator Y Combinator, brings together a diverse group of entrepreneurs, developers, and designers to work on new projects.

• Facebook & Google Hackathons hosts regular hackathons for its employees and sometimes invites external participants. These events allow employees to work on new ideas and projects outside their everyday responsibilities.

• AngelHack is a global hackathon series in cities worldwide, including San Francisco, New York, London, and Singapore. It brings together developers, designers, and entrepreneurs to create innovative solutions to real-world problems.

However, entrepreneurs should not underestimate the efforts and possible waste of resources when managing these types of crowdsourcing programs. The internal and external costs (e.g., the award for winning solution, internal filtering process in case crowd voting cannot be applied, communication expenses, etc.) associated with crowdsourcing some problems can be rather high, potentially reducing the value created and captured. Additionally, the risk of not obtaining a good solution or a solution can be high for some problems, specifically when they are too complex or ill-defined.

Advantages and Disadvantages of Crowdfunding

There are several advantages to using crowdsourcing to support innovation in early ventures. It allows founders and key team members to tap into a diverse talent pool and ideas, leading to more creative and innovative solutions than possible with a limited startup team. Like large companies, smaller enterprises can use the crowd to generate many ideas from diverse perspectives. Founders and their teams can save time and resources by gathering and evaluating many ideas from external sources, a more practical approach than generating ideas internally. When designing a new product, founders gain valuable insights and feedback from many potential customers on essential features and other possible improvements. These advantages can help the startup stay competitive through sustained innovation.

While crowdsourcing can be a powerful tool for supporting innovation, there are also some potential disadvantages. First, it isn't easy to coordinate and manage large groups of people, especially if dispersed across various locations and time zones. Founders can mitigate this challenge using an established platform like those mentioned earlier. With increased ideas, evaluating and selecting the best ones to continue exploring becomes more challenging. Not all ideas generated through crowdsourcing will be feasible or practical, and implementing the best ones may be difficult or costly. Finally, crowdsourcing can be time-consuming and require significant resources to manage and coordinate effectively.

There are several intellectual property issues when using crowdsourcing to generate innovations. It is vital for a company to carefully evaluate and address these issues to protect its rights and interests. Ownership of the ideas and innovations generated through crowdsourcing is a primary concern. In many cases, the company using crowdsourcing to generate ideas will retain ownership of any ideas and innovations submitted by participants. However, it is crucial to have clear terms and conditions to protect the company's rights and avoid any disputes or misunderstandings.

A second concern has to do with the Infringement of third-party IP rights. When using crowdsourcing to generate ideas, it is essential to ensure that the ideas submitted by participants do not infringe on the IP rights of others. This situation requires thorough research and vetting of the ideas to ensure they are original and do not violate any existing IP rights.

Thirdly, sometimes, a company may want to license the IP rights to an idea or innovation initially discovered through crowdsourcing. This action requires negotiating a licensing agreement with the individual or group who submitted the idea and ensuring that the terms of the agreement are clear and legally enforceable.

Finally, once a company has obtained ownership or a license to an idea or innovation generated through crowdsourcing, it is vital to protect those rights. Founders may need to apply for patents or trademarks and take other appropriate legal measures to prevent unauthorized use or Infringement of the IP.

As with all legal considerations, founders must seek the advice of a legal professional before deciding to participate in a crowdsourcing activity to apply ideas generated to company-owned products.

Summary

Crowdsourcing can be an effective way for startups to tap into a large group of people's collective knowledge, skills, and resources to achieve their business goals. By leveraging the power of the crowd, startups gain access to a wide range of expertise and perspectives, generate funding, and build a community of supporters. First, however, it's essential for startups to carefully consider how they will manage the crowdsourcing process and ensure that it aligns with their overall business strategy.

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