Pitching to the Crowd vs VCs

It used to be that if you wanted to start a business, you had to write a detailed business plan and pitch it to Venture Capitalists. It’s not uncommon to ask a VC to invest $100k for start up costs. What would she want in return? Well, only 40% of your company. So the pitch you make to a VC has to have a certain level of granularity and probably a lot of spreadsheets. Great ideas and passion are important, but you have to be pretty confident about every one’s Return On Investment for two reasons: 1. $100k is a lot of money and 2. That VC now owns 40% of your business.

But more and more we’re seeing entrepreneurs raise money on crowd-funding sites like Kickstarter or Indie GoGo. On these sites, you aren’t looking for one dude to invest $100k. Instead you are asking 100s or 1000s of people for small contributions of $10, $50, or $100. These people won’t own a percentage of your business. They’re just helping you get started because it’s a fun thing to do. And if you doubt that people can raise start-up money this way, just go to the “best funded” link on Kickstarter.

My question is this: What does this shift from pitching to VCs to pitching to the crowd mean for how we pitch or teach students to pitch? If crowd-funders don't care about your spreadsheets or ROI, what do they care about? What makes them sign in to their paypal accounts to make a contribution?

image: where George Eastman's mansion (left) connects with The Eastman Museum (right)

My hero and one of the most creative minds of our time

Are female inmates entrepreneurial?

There's been a bit of research done on male inmates and their capacity for entrepreneurship.  As I wrote in a recent post, many of these guys got incarcerated bc they were entrepreneurs. They just happened to be entrepreneurs in illegal businesses like selling drugs or stolen goods.

This morning I attended a meeting at UofR with reps from a Prisoner Entrepreneurship Program (PEP)  in Texas, the Cornell Prisoner Education Program, and the social services sector in Rochester. First, let me say that I am so inspired by the work of everyone involved here. Especially the ex-cons-turned-entrepreneurs who shared some incredible stories ("Thank you for convicting me - it saved my life.").

Second, let me say that I'm disappointed that no one there knew of work being done with female inmates and entrepreneurship. Perhaps we assume that women don't have the same capacity for entrepreneurship as men. Or maybe the problem is not that the inmates are female. Maybe we assume that women born into poverty aren't entrepreneurial. But these assumptions are tragic. They're tragic because more and more start-ups are being founded by women, aren't they? And more and more women are gaining more powerful positions in business. And more and more funding is becoming available for women-owned businesses.

In fact, women who are born into poverty ARE entrepreneurial. When we look at micro-loans that are granted by Grameen bank, about 97% of the money goes to women. Sure, initially these women were insecure about starting a business ("I can't start a business, my husband always handles the money"), but with a little encouragement the women got over their fears. Interesting fact: it used to be that Grameen gave loans to more men, but when the money went to the men, it disappeared. When the money went to the women, the kids gained weight. Go figure.

Not only are women entrepreneurial but, I'd argue, they are more inclined to think about the long term impacts of a successful business (such as the health of their children and community). And we've one of the largest correctional facilities for women just an hour west of RIT.

Where do we begin?

Could Co-creation + Rapid-Prototyping Save the World?

My Design-thinking class is working with a fashion firm who was once famous for employing an entire city to produce their garments. I mean, they had relationships with everyone from the folks who processed the wool, to the knitters and sewers, to the dye makers. You get the picture. In the mid-nineties, all of that changed. The firm started outsourcing production to Asia in order to keep up with their competitors who were doing the same. This firm that once had daily or weekly contact with all of the people along their product's value chain soon became just like every other fashion design firm - out of touch with the people who actually made their garments.

One of the questions we've been examining in class is "What is lost when a firm outsources production?" Of course there are obvious answers like the loss of jobs in the local economy. Or the loss of quality control - especially an increased difficulty in meeting compliance on environmental and labor standards. But other things were lost too, like the firm's ability to rapidly respond to the ever-changing interests of their consumers. Another thing that's lost is a sense of how and where and by whom is our stuff is made. And yet, we are trapped in this cycle of always wanting more.

Meanwhile, in other circles, excitement is growing about the ever-decreasing costs of rapid prototyping tools for laser cutting, 3D printing, and the printing of digital textiles. Additionally, there's this co-creation trend that you see on sites like CafePress that allow consumers - or prosumers (producer+consumers) - to design and manufacture their own stuff, like t-shirts. People want to make their own stuff and, more and more, they have the tools to do it.

Now, if you've been following Chris Anderson's "Atoms are the New Bits" or Bruce Sterling's "Spime Theory," then none of this is new to you. But I'm writing this here bc, well, it's been so much fun playing around with these concepts in class. These are exciting developments in technology and in behavior which, I hope, offer an opportunity to fix some of the things that are wrong with the globalized mass production machine we are engaged in at present.

How can designing our own t-shirts on the internet save the planet? Let me count the ways.

• SIMPLE TINKERING. I know what you're thinking - designing our own t-shirts WON'T save the world. And you're right. But as with any new technology, we hack the small stuff first just to get comfortable. So today we design our own t-shirts. Tomorrow we hack our own  triple bottom line biz models.
• IT'S A KEEPER. If we design and manufacture our own stuff, we may feel more connected to that stuff and less likely to throw it away just bc something new comes along.
• JUST ONE. If we use rapid-prototyping tools to make our stuff, then we only need to make one, not ten-thousand.
• SIDE BUSINESS for GARMENT WORKERS. I don't think crappy jobs at Asian garment factories are going away soon, but what if there were better opportunities for those workers? What if we, as consumers, could tap into the creativity of the folks over in the factories in Asia? What if we could choose from some of their designs? And what if they could make a little dough every time we did choose their designs?
• LOCAL PRODUCTION. I now this seems antithetical to the previous point, but what if each city with a population of 100, 000 had their own rapid prototyping tools, right there in the heart of the city? Would the need for mass production abroad significantly decrease?

This pairing of co-creation and rapid-prototyping has so much potential to disrupt current production models that I can hardly wrap my head around it. But I sense that some day soon all of this won't be hard to imagine bc it will be right here in front of us.

Micro-finance & Prison Entrepreneurs

NOTE. Not all of my posts will be about local food as local social and economic issues are just as important to me. I'll do my best to tag my posts accurately in case you're just after the food stuff. But don't be, don't be just after the food stuff. It's all connected.

Ok. My friends know that I am very interested in micro-finance as a response to poverty. Micro-finance is a mechanism for providing low-income people with financial services. This is significant bc low-income folks are most often locked out from a lot of things many of us take for granted, like banking or small loans. The loans are significant bc, as it turns out, there are many entrepreneurial minds among low-income people. Therefore, if they can get their hands on a micro-loan, like $20 bucks or so, then they can start a business. And the payback system on these loans are based heavily on social capital and trust among their (local) peers. It's an incredible model. If you want to know more about micro-lending, look up Muhammad Yunus. He is the man when it comes to challenging assumptions (core quality of creativity).

I've just become aware of yet another elegant response to poverty and poverty related issues - Prisoner Entrepreneurship Programs (PEP). I'm going to a talk on PEP this Friday morning and will have more to report soon, but think about it. Many prisoners are in jail for non-violent crimes like drug dealing and possession. Drug dealing is an entrepreneurial venture. Super high risk, in-depth knowledge of your customer, quick decision making, and so on. But the paybacks are lame. Lame lame. The entrepreneur either ends up dead or in prison.

In the design field we are always trying to build on the ideas of others. Or when we are consulting a firm, we might try to build on that firm's strengths. The same approach can and should be applied to convicted drug dealers. Take that entrepreneurial spirit and know-how, and focus that energy on legit start-ups. Hmmm. We'll see if this is what PEP is all about. It sure would be a nice response to the poverty related problems we have here in ROC (like high incarceration rate).  I look forward to reporting more in depth this weekend.