Want To Invest In People Instead Of Companies? Now You Can! (Entrepreneurial Intelligence)

Crowdfunding is a busy place these days.  While the largest and most popular site, Kickstarter, continues to fund a variety of creative projects (last year Kickstarter funded more creative projects than the National Endowment for the Arts...), specialty crowdfunding platforms are now available for everything from education to issues in the developing world to scientific research to, of course, porn.

For me, understanding crowdfunding is becoming an increasingly important part of what I call "entrepreneurial intelligence" - or, stuff that is outside entrepreneurs' control but is still critical to their success or failure.  Crowdfunding is rapidly filling a space left untouched by bootstrapping, angel investors and venture capitalists and understanding the strengths and weaknesses of various crowdfunding platforms would seem to me to be a critical intelligence requirement for entrepreneurs.

One of the most interesting of the new crowdfunding platforms is Upstart.  Upstart allows you to invest directly in a person.  In other words, you give them some money now to pay off a loan or to learn to code or to expand a business, and they promise to pay you a small percentage of their income over the next 5-10 years.  Repayments are capped (typically at 3 to 5 times the amount invested) so people can pay off their backers early if they make a lot of money.

 

Like a venture capitalist or angel investor, you could lose all of your money if the person you backed doesn't make enough.  Upstart uses statistical models to predict how much the "upstart" will earn over the next ten years based on degree, school attended, test scores, number of job offers, work experience, etc.  The amount the upstart can ask from backers is based on this model but as Upstart notes:  "Any estimate of returns is highly speculative, subject to a high degree of variability, and not based on historical experience. The pricing engine is novel and untested and relies on broad-based statistical data that may not be representative of any individual’s actual future income."

This is, however, a pretty good deal for investors if everything works out as planned.  A $300 return on a $100 investment over 5 years represents a nearly 25% annual rate of return.  Sure beats the 2 bucks your average money market fund will likely yield over the same period...

30 Hours To Go On My First Kickstarter Project - A Pre Post-Mortem

My first Kickstarter project, for my card game Widget, will end at 1758 on Saturday April 6 -- about 30 hours from now. The chart below shows the progress to date.

Most people wait until after it is all over to capture their thoughts about the process. I wanted to do something a bit different: Capture my thoughts just before the project ended and then compare these impressions to my more considered ones after the campaign was over.



Best Surprise: The level of support from all sorts of people - many of whom I don't know (or didn't know until this project began). Family, friends, former students, colleagues, other game designers(!), artists, and people I have never met from countries I have never visited have helped get Widget to its goal and well over it. I absolutely love this aspect of Kickstarter! It is incredibly rewarding to work directly with the people most interested in the game. 

Worst Surprise: My level of exhaustion. I am tired, folks -- bone tired. While eminently rewarding, this process has worn me out both physically and emotionally much more than I expected. It is kind of like having your first child. You have no idea what to expect next and your "baby" keeps throwing surprises at you. 

Most Interesting Finding: My total inability to use Twitter to help generate pledges. I spent a lot of time on Twitter and got extraordinarily good responses from people - lots of re-tweets and some interesting conversations. 100s of thousands of people have received tweets about Widget at this point. Return on time invested? 4 pledges, $65. While I am not discounting the intangible value of the experience, it is clear I am either "doing it wrong" (likely), Twitter can't really help in this way (hmmm...), or Twitter can't really help at all (unlikely but possible). Something I intend to think hard about... 

My next steps are to make it through the next 30 hours or so and then get the game printed and out the door. And yes, I am already working on my next project!

Just Launched My First Game, Widget, On Kickstarter; ENTINT Questions Generated At A Staggering Pace... (ENTINT)

You might notice something different about the site.  Over to the right you will see a small box that contains details on my first game, Widget.  I launched this game last night on Kickstarter.com and the text box you see now will stay up there for the next thirty days or so (clicking on the box will take you to the Widget website in all its glory).

Kickstarter gives you anywhere from 30-90 days to make your target (in my case $4000.  I set my time limit for 30 days -- which Kickstarter recommends).  If you make it, you get the money.  If you don't, you get nothing (and all of your backers do not get charged anything).  Basically, failing costs your backers nothing and costs you only your ego...

So far the launch has generated as many intelligence questions as it has answered.  More next week!

(PS.  On a personal note, I genuinely appreciate the readers of this blog who have backed this game already on Kickstarter.  I have a long way to go yet, but it is both encouraging and humbling to be the recipient of so much good will.  While I also understand that this game might not be perfect for many of the rest of you, I do appreciate those of you who have taken the time to post to Facebook, tweet about it, or otherwise share it with your friends and family.  I am pretty certain that there is someone in everyone's social network who will enjoy this game.  My challenge is to the get word out to them and your help has been invaluable!  Thanks! Kris)

What Is Crowdfunding And Why Is It Important To Intelligence? (ENTINT)

http://widget.launchrock.com/

Six more days...

If all goes well, in six days, I intend to launch my first game, Widget, on Kickstarter  (if you are interested in the game itself, you can get more info by clicking on this link).  Once launched, I will have 30 days to get "funded" by various "backers".  If I fail to reach my pre-designated goal, I get nothing at all.

That's how crowdfunding works.

Well, at least, that is how Kickstarter works.  Kickstarter is the oldest and most popular crowdfunding platform currently available.  For those of you unfamiliar with these platforms, you probably should be.  This is not just for entrepreneurs or people interested in entrepreneurial intelligence, either.  There are implications here for intelligence professionals at all levels of business ... and law enforcement and national security, too.  

Let me explain.  Kickstarter is by no means the only crowdfunding site these days.  IndieGoGo and RocketHub are two popular alternatives, but there are a growing number of these sites.  The pace of this growth is likely to increase in 2013 as new laws are set to come into effect that will allow contributors to take small equity interests in start-ups (the current crowdfunding model centers on what typically amounts to pre-sales of a product or service).  Forbes expects revenues generated by crowdfunding sites to double, from 3 to 6 billion USD, in 2013.  Increasingly, this is the way everything from music to games to books to electronics will be funded at start-up.     

Savvy intelligence professionals in the business world should be watching these sites for potential competitors that might emerge from successfully funded projects.  Likewise, given the underfunded nature of most start-ups, it makes equally good sense to see successful crowdfunded projects as a no-cost extension of your own R & D programs - buying out small companies with proven products may well be less expensive than developing them in-house.   Finally, understanding crowdfunding is going to be an increasingly essential element of providing entrepreneurs any meaningful intelligence support.

Law enforcement intelligence professionals should also be taking note.  While there is little evidence of criminal activity in crowdfunding activities to date, with an increase in money, crime is virtually certain to follow.  Fraud of all kinds, money laundering, illegal or unsafe products are all activities which the reputable sites work very hard to avoid but, with the expected growth, criminals will inevitably carve out new niches in the market.

While national security intelligence professionals might not be interested in some artist's new comic book, many of these sites either specialize in or actively promote innovative hi-tech product development and design.  In fact, some academics are even turning to crowdfunding sites to fund their research.  Everything from geo-mapping to verification of information on the internet to pens that can draw in 3D have been funded by crowdfunding.

Crowdfunding is both an innovative and disruptive practice that is set to become much more important in the coming years.  In my opinion, it is worth staying ahead of this particular curve.

On The Intelligence Requirements Of Entrepreneurs (ENTINT)

(Note to readers:  This is the continuation of an occasional series of posts about providing intelligence support to entrepreneurs   This issue interests me for both academic and personal reasons.  Academically, I can think of no one who has touched it and, personally, I have recently started a games company and am about to launch my first game, Widget.)

To understand the intelligence requirements of entrepreneurs, it helps, I think, to have an understanding of what makes a "good' entrepreneur.   When you consider that both the guy with 10 million dollars in venture capital and the guy with 50 bucks of used CDs are both technically entrepreneurs, such a task might seem difficult, if not impossible. 

Recently, though, some very good research has come out of the Darden School of Business at the University of Virginia. Saras Sarasvathy, (who, it should be noted, got her start at Carnegie Mellon working with Nobel Laureate, Herbert Simon), has done extensive research on how great entrepreneurs think.

Great entrepreneurs, it seems, are "effectual reasoners".  They start with broad goals, assess their means - the birds in their hands - and then move as far as their resources will allow.  This is in contrast to more typical "causal reasoning" which starts with a specific goal and a clear plan for achieving it.  The image below, from the Society for Effectual Action, visualizes the difference: 

http://www.effectuation.org/learn/effectuation-101

Entrepreneurs, according to Sarasvathy's research, operate on five principles.  These principles, in turn, give an insight into the intelligence needs of entrepreneurs:

• Bird in the Hand.  Entrepreneurs start by imagining what they can do with what they have rather than setting a goal and then abandoning it if they do not have the means to achieve it.  Helping the entrepreneur identify what they "have" in this global economy would seem to be at least one intelligence requirement. 
• Affordable Loss.   Instead of large all or nothing plans, entrepreneurs seek, like Napoleon, to conduct "a well reasoned and extremely circumspect defensive, followed by a rapid and audacious attack."  In other words, they seek to determine what they can afford to lose at each step rather than hyper-focus on expected return.  Intelligence should, then, focus on the near-term, external, potential causes of loss.
• Lemonade.  Entrepreneurs tend to see surprises as opportunities.  Intelligence would be useful in helping the entrepreneur explore, understand and exploit those opportunities.  
• Patchwork Quilt.  Entrepreneurs worry less about competition and more about building partnerships with people who want to work with them.  Intelligence could play a significant role in helping the entrepreneur identify potential partners.
• Pilot in the plane.  Entrepreneurs believe that the future is "neither found nor predicted, but rather made."  Sarasvathy contrasts this to managerial thinking which accepts that trends will hold and the future is predictable.  

This last principle would seem to fly in the face of most intelligence analysis activities but I don't think so.  What it highlights for me is a trend I see throughout the five principles - a focus on the immediate (or, at best, the near term) when it comes to intelligence support to entrepreneurs.  

This certainly tracks with my own experience to date.  I don't need perfect answers.  I certainly don't need long-term predictions about the health of the tabletop gaming industry.  I need good-enough answers about things I am working on right now.  

This, in turn, suggests the form of an intelligence activity designed to support entrepreneurs.   It would have to be staffed by a variety of high-quality generalists, able to provide answers on a wide range of topics quickly.  Since almost no entrepreneurs have money to burn, it would likely have to provide support to a number of entrepreneurs at a number of different low-cost support levels (perhaps by subscription or even by the question).  It would have to be available 24/7 and, it almost goes without saying, it would have to be available online and possibly through phone or text message.

Such a service already exists.  Called Fancy Hands, this online site bills itself as a virtual assistant service.  While it provides a wide variety of services, all at a reasonable flat fee per month for a pre-defined number of requests, I have used Fancy Hands almost exclusively as a research service - a proto-intelligence service for entrepreneurs, if you will.  

Fancy Hands, of course, does much more than research for their clients and, I am sure, would dispute any claim that they are an intelligence service of any kind (proto or not).  My point is not to disagree with them (I like their service too much to gratuitously seek to irritate them...).  My point is that any organization seeking to provide intelligence services to entrepreneurs could learn from them.  Much of what they do and, more importantly, the way they do it, is exactly what entrepreneurs require.

Entrepreneurial Intelligence (ENTINT?)

All entrepreneurs are crazy. 

Nuts.  Cuckoo.  Certifiable dingbats.  Need evidence?  How about this:  According to a study published last year, only about 25% of companies that take venture capital are able to make any money off it -- the other 75% lose at least some and perhaps all of the money.  

Need more?  According to the US Bureau of Labor Statistics, only about a third of all small businesses make it for longer than 10 years and 30% fold within the first two years!  You have to be crazy to go up against those odds...

Intelligence analysts live to forecast and one of the easiest forecasts you can make, or so it seems, is the sooner-rather-than-later demise of a new business. 

Easy but worthless.

It is a situation that is sort of like the 1990 National Intelligence Estimate on what is now the former Yugoslavia.  It was completed just before the war broke out in full force.  It turned out to be extremely accurate but was virtually useless to the policymakers of the day.  In fact, it was probably counterproductive as it validated the inertia that was prevalent in Washington regarding the issue at the time.

You see, it was in the US's interests -- heck, it was in everyone's interests -- to keep Yugoslavia from breaking up or, if it had to break up, to do it in a way that was neither bloody nor lengthy.  Saying, as the NIE did, that the breakup was inevitable and that there was nothing policymakers could do about it was singularly unhelpful.  The policymakers needed to try and they could have used some intelligence insights to help them.

So it is with entrepreneurs.  Telling them that they are likely to fail probably isn't going to dissuade them from trying; its just going to make them think that intelligence isn't going to be very valuable.  This is a shame, since entrepreneurs probably have more questions about things that are critical to their success or failure but are outside their control (the essence of an intelligence question) than most businesses.

For the last several months I have been busy starting my own company and working on a number of games (one of them - Widget - is about ready to launch.  You can find out more about it here if you are interested).  I know intelligence has a role to play in entrepreneurship but am just beginning to understand what that role is and how it is both different and the same as more traditional notions of intelligence in business.  As I learn new things and gain understanding, I intend to explore these ideas in an occasional series of posts on the topic.