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How Small Businesses Can Utilize Crowdsourcing and Crowdfunding

Fri, 11/09/2012 - 4:26pm | by Guest Contributor

Never before have the resources been available to start your own business, or to expand your business, as they are today. With the Internet, we have the ability to connect with people from all over the world with the click of a single button. This new frontier opens a world of possibilities for small businesses to garner the money and support needed for a start-up, for new products, and expansion. No longer do businesses have to rely on professional investors with the introduction of both crowdsourcing and crowdfunding. Here's how both concepts can help your small business.

Crowdsourcing is a kind of spin-off of the idea of outsourcing. Meaning that you outsource labor, tasks, and other responsibilities to people who work outside of your company. Crowdsourcing is an invaluable resource for entrepreneurs and small businesses, first, because it's usually free. The idea is to delegate tasks to an unknown and unpaid public who agrees to help. It's different from outsourcing because when outsourcing, you delegate responsibility to a specific and known group who requires payment. It allows a small business owner to expand their intelligence and skills pools using the general public. It's also a good way to connect with your customer base to see what they want so you can cater to your customers' changing wants. You never know what an expanded group of thinkers will produce for you and often you might be presented with ideas, solutions, and answers that no one within your business would think of.

Crowdsourcing can be mutually beneficial for the people providing the free service as well if they need to build their experience and gain some references within their specific industry.

Crowdfunding is often likened to a brainchild of crowdsourcing. With crowdfunding, small businesses can use Internet platforms to raise monetary support from individual investors. Common and every day investors can use crowdfunding to invest in start-ups and small businesses. Only recently legalized in the Jobs Act introduced in April 2012, crowdfunding has two major types: equity-based and reward-based. The reward-based model, also widely considered as a donation-based model, is self-explanatory but an investor will receive some kind of reward for contributing financial support. An equity-based model means that the investor owns a small part of the company in return for donating a sum of money. Many experts agree that to raise more money, the equity-based model is usually much more successful though don't discount the generosity of your crowd as some small businesses and new enterprises have raised millions through donation- and reward-based platforms.

The reason the SEC was hesitant to legalize crowdfunding is that it's a new frontier for investors with few set rules and regulations. While it provides an amazing opportunity for small businesses to earn capital, it also opens the possibility for people to take advantage of the model and perform fraudulent practices to procure investments. Further, many investors who use a crowdfunding platform may be more inexperienced investors who don't have much information available to make the wisest investment choices or the ability to protect themselves against fraud.

With Obama's support, crowdfunding and crowdsourcing are now options for small businesses. The Internet makes it much easier to start and maintain a successful businesses for entrepreneurs through resources like these, best website builder, and endless blogs, articles, and essays to stay up to date on everything in your industry.

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