MONEY Small Business

Tennis Star Andy Murray Ventures Into Crowdfunding Start-Ups

What kind of businesses will the UK tennis star invest in?

MONEY Startups

4 Secrets of Crowdfunding Success

150604_EM_Crowdfunding
Andrew Paterson—Getty Images

Turns out, it's not as easy at it looks.

Driving a tricked out BMW motorcycle with a refrigerated compartment attached like a sidecar, Simon Anguelov earns money to pay for community college in San Diego as a mobile ice cream vendor. The 20-year-old MiraCosta College student took out $30,000 in bank loans to create the customized bike with help from his sister, who cosigned for him.

Recently, it dawned on Anguelov that it would be easier to generate business if there was an Uber-like app people could use to order ice cream deliveries from vendors like him or ice cream stores. In May, he launched a campaign to get funding for IceCreamZilla, an app-enabled network, on the crowdfunding site Kickstarter. Kickstarter enables donation-based crowdfunding, where individuals make donations to business ideas they want to bring to life.

“Ice cream vendors like me would benefit from an app like this,” says Anguelov. “It would draw a lot of business to the industry.”

But Anguelov was in for a surprise. It has been harder than he expected to raise money on Kickstarter. By the time his campaign ended, he had raised only $1,980 toward his $25,000 goal. Under Kickstarter’s rules, that meant he didn’t get to keep any of the money. “It’s really hard to spread the word,” he says.

But he didn’t give up. He restarted his campaign on June 1, this time with a smaller goal of $5,000—and on his first day had already hit $3,015, with 59 days to go.

It’s easy for new entrepreneurs to get excited by the potential to raise money on sites like Kickstarter, where fundraisers have collectively snagged $1.7 billion since it launched in 2009. Some entrepreneurs have hit the jackpot. Pebble Watch, a smartwatch, raised $20.3 million in the site’s most funded campaign to date, and the Coolest Cooler—a picnic accessory that comes with a waterproof Bluetooth speaker—raised $13.2 million, which was good for second place.

And Kickstarter is just one option. In 2014, crowdfunders in North America raised $9.46 billion, a 145% increase from the year before, according to a recent global report from Massolution, a research firm in Los Angeles that collects data from 1,250 active crowdfunding sites around the world. Its data included both donation- and equity-based crowdfunding, where companies typically sell an ownership stake to investors.

Still, as Anguelov discovered, crowdfunding isn’t as easy as the success stories we constantly hear make it sound. Here are four key things to know before you start your campaign.

Successful campaigns start way before the launch. Many crowdfunders start building their following on social networks months before they actually launch a campaign. There’s a reason for this. Crowdfunding campaigns have a time limit. It’s not easy to reach your funding goal if you don’t start working on building up your social media following—a primary way to share these campaigns—until the day you launch.

“It’s hard to get viewers unless you have a presence on Facebook,” says Anguelov, with 20-20 hindsight. “I don’t have any followers.” This time around, he has started building his Facebook following and plans to join groups on the social media site where he can talk about his project. He has also changed his rewards. Previously, he offered discount coupons; this time, he is offering some extras to local donors who pledge $99 or more, such as a chance to meet him and have him personally deliver 25 ice cream treats.

It pays to set realistic goals. Each donation-based site has its own rules, but on some donation-based sites, including Kickstarter, you don’t get to keep any of the donations if you don’t hit your funding goal. However, it is possible on the site to set a stretch funding goal once you meet your initial goal and try to raise additional funds.

Other sites will cut you more slack, but you’ll pay for it. For instance, Indiegogo lets you keep all the money you raise, even if you miss your target. However, it charges a 4% fee if you hit your goal versus 9% if you get part of the way there. That means that if you raise $100,000, you have to pay the site $9,000.

Industry-specific sites may work best if you’re a niche player. If you’re looking to attract the attention of high-net worth investors, equity-based crowdfunding sites that target investors in your sector may be your best bet. Visio Financial Services, a 45-employee company in Austin that was founded in 2011, used this approach. It lends money to private investors who are purchasing single family homes to flip or rent. About a year ago, the firm raised $10 million in a debt facility through the real-estate crowdfunding site Realty Mogul, says CEO Jeff Ball. “There are a lot of accredited investors who have money they would like to invest in alternative asset classes,” he says.

However, gaining entry to such platforms isn’t easy. “It’s getting more crowded,” says Richard Swart, crowdfunding and alternative finance researcher and scholar-in-residence in the Institute for Business and Social Impact at the University of California, Berkeley’s Haas School of Business. “It’s becoming more difficult to attract interest.” Plus, they have little incentive to promote deals that aren’t right for their particular investors. “Many of these platforms are rejecting 90% to 95% of companies seeking funding,” says Swart.

Crowdfunding may not help you get more financing. Getting a bank loan or credit card and making timely payments can help you build a financial track record. But raising money on a crowdfunding site may not carry much weight with future lenders. Ask David Goldin, president and CEO of AmeriMerchant, a New York City firm that provides working capital to small businesses. “It’s irrelevant,” says Goldin. Why? Interest by people who aren’t professional investors or lenders doesn’t necessarily signal to someone like him that a business has staying power. It’s similar to the world outside crowdfunding platforms. “A lot of people invest in a restaurant—and most restaurants fail,” he says.

MONEY Small Business

New Ways to Invest in Small Businesses

Cafe owners
Getty Images

When nonprofessional investors are able to put money into small businesses, everyone can benefit.

I met with Paul on Tuesday. He is the CFO of a business start-up. He’s not sure if the next phase of his company’s financing is going to go through. Although he believes in the business model and the mission of the company, some days he thinks he won’t have a job in three weeks.

I met with David on Wednesday. While he’s a great saver and earns a decent buck, he isn’t wealthy. He wants to invest in small companies so much that we’ve set up a “fun money” account, which is 10% of his otherwise well-diversified, passively managed portfolio. “Fun money” is specifically set aside so that he can make individual investments he believes in.

Because of the way small business investing is structured in this country, the likelihood of Paul and David connecting has been infinitesimally small.

This drives me mad.

It’s not just these two who are missing out. Because small companies drive job and economic growth, the economy of the country loses when Paul and David don’t connect. And because the current system of funding is biased, some small businesses are a lot less likely to get funding despite their worthy ideas.

Recent developments could change all this.

To raise their initial start up money, small business owners typically first use their savings, and then appeal to their friends and family. Next, they go to banks. If they get big enough and have certain ambitions and contacts, they can get venture capital funding or private equity funding, which is what Paul was waiting on.

These sources of capital are all enhanced if you are affluent and well connected. Do your friends and family have extra money to invest in your business? Do you know anyone you can talk to at a bank? What about impressing people in the venture capital world? A lot of people with good ideas are shut out.

Enter the Internet. Raising money got a lot easier.

The Power of Reward Sites

With reward sites, startups with good ideas raise money in exchange for rewards.

Sesame, which opens doors remotely from smartphones, raised over $1.4 million on Kickstarter.com. The reward here was a chance to order the device.

Then there is Lammily, Barbie’s realistically proportioned cousin, whose designer raised almost $500,000 through Tilt.com. The reward for funding Lammily was the chance to pre-order the doll, and sticker packs with stretch marks, cellulite, freckles, and boo-boos.

The reward sites show that companies can raise large amounts of money through small contributions from a large number of people. Research suggests that Kickstarter.com reduces company funding gender bias by an order of magnitude and reduces geographic bias as well. Reward sites cater to consumers who love new products and want to support new ideas.

You may get first dibs on a cool new doll, but sending money to a reward site isn’t investing.

The Risks of Private Equity

Traditionally, to get private equity funding, you have to sell to accredited investors — the richest 1% of the population, roughly speaking.

Accredited investor regulations were set up in in the wake of the 1929 crash, when a lot of people got ripped off because they invested in dubious enterprises. The idea was that people with a high level of wealth are sophisticated enough to understand investment risk. Unfortunately, this leaves the Davids of the world — investors who are sophisticated but wealthy — shut out of these types of investments.

Private equity placements are not always a great deal. When I’ve looked into them for clients, I’ve concluded they are expensive, risky, and difficult to get out of, even if you die. The middlemen who offer these and the advisers who sell these seem to be the ones most likely to make money. The best deals I’ve looked at weren’t hawked by sales people or investment advisers, but came through clients’ friends and family.

The rise of Internet portals set up to connect small companies with accredited investors has the potential to cut down on intermediary costs. Still, the sector remains small.

In 2012, President Obama signed the JOBS act, which directed the Securities and Exchange Commission to devise rules opening up small business investing to non-accredited investors.

Some organizations didn’t wait for the SEC to issue the rules. Instead, they dusted off exemptions in the securities legislation that most of us have ignored for 80 years.

States Get Into the Act

Some states have picked up on crowdfunding to boost their economies. Terms vary, but generally investors are subject to investment limits and companies are subject to a cap on raising money. Each individual, for example, might be limited to investing $10,000; each company might be limited to raising $1 million. Both investor and company are generally required to reside in the state.

This is music to ears of people who want to invest locally. The first successful offering using this type of exemption was in Georgia in 2013, where Bohemian Guitars raised approximately $130,000 through SparkMarket.com.

Other Exemptions

Village Power is another example of raising money using an exemption. This intermediary helps organizations set up and fund solar power projects. Village Power coaches their community partners to use an exemption in the SEC rules, which allows for up to 35 local, non-accredited investors.

New Rules Open Doors

New rules issued March 25 by the SEC removed a lot of the barriers for companies raising money and for non-accredited investors.

Companies will be able to raise up to $50 million. Non-accredited investors are welcome to invest, sometimes with limits — 10% of their net worth, say, or 10% of their net income.

Although Kickstarter has said that it won’t sell securities, other fundraising portals, such as Indiegogo, are looking into it.

And if all goes well, Paul, David, and I can start looking for the new opportunities in June of 2015.

———-

Bridget Sullivan Mermel helps clients throughout the country with her comprehensive fee-only financial planning firm based in Chicago. She’s the author of the upcoming book More Money, More Meaning. Both a certified public accountant and a certified financial planner, she specializes in helping clients lower their tax burden with tax-smart investing.

TIME Crowdfunding

The Most Successful Kickstarter Campaigns of All Time

Pebble Pebble Time

From smartwatches to exploding kittens

Crowdfunding the next great business, product or project is often a thankless endeavor. There have been over 200,000 Kickstarter campaigns to date; over 100,000 failed to reach their funding goal. Another 20,000 were canceled or suspended, regardless of whether they were able to raise money. Many projects barely reach their funding goals, only to fail later anyway, when the creators realized the money simply wouldn’t go far enough.

On the flip side, a select few projects have gone on to raise tens of millions of dollars, blowing away early funding goals and turning modest ideas into worldwide phenomenons—in some cases, literally overnight.

So with Exploding Kittens (a card game) recently blowing by OUYA (a micro video game console) in the overall Kickstarter rankings, it’s time to take stock of the all-time record holders. Using our database of Kickstarter campaign data, we ranked the 15 most insanely successful projects to date. In each case, we’ll break down the total backers, the percent funded and a brief history of how things played out. Without further ado…

Double Fine Adventure

Campaign ended: March 13th, 2012

What it is: A point-and-click adventure video game, paired with a documentary that catalogues the development process.

How it turned out: The game was released in January 2014 under the title Broken Age, receiving generally positive critical reviews. The documentary series continues to this day, as the developers work on the game’s second installment.

The Dash – Wireless Smart in Ear Headphones

Campaign ended: March 31st, 2014

What it is: Smart, wireless earphones that track fitness and play music, all without wires.

How it turned out: Though the product has faced a series of delays, it’s scheduled for release later this summer.

The Micro: The First Truly Consumer 3D Printer

Campaign ended: May 7th, 2014

What it is: A 3D printer at a price point friendly to consumers (~$500)

How it turned out: Some models have shipped to early backers, while later backers and the general public are still waiting.

Reaper Miniatures Bones: An Evolution of Gaming Miniatures

Campaign ended: August 25th, 2012

What it is: A line of affordable, intricately designed gaming miniatures, ready to paint out of the box.

How it turned out: The first Bones campaign was so successful that Reaper ran a second campaign just one year later, which again raised over $3 million.

Mighty No. 9

Campaign ended: October 1st, 2013

What it is: A 2D, side-scrolling video game, considered the spiritual successor to the classic Mega Man series.

How it turned out: The project reached its funding goal in just two days. The final version of the game is expected within the next month or two.

Project Eternity

Campaign ended: October 16th, 2012

What it is: A party-based role-playing game with an isometric (pseudo-3D) perspective.

How it turned out: The game was released under the name Pillars of Eternity on March 26, 2015, and received nearly universal acclaim.

Torment: Tides of Numenera

Campaign ended: April 5th, 2013

What it is: A fantasy role-playing game and spiritual successor to Planescape: Torment, a popular role-playing game from 1999.

How it turned out: Originally scheduled for a December 2014 release, Tides of Numenera is now set for late 2015.

Bring Reading Rainbow Back for Every Child, Everywhere!

Campaign ended: July 2nd, 2014

What it is: A campaign to bring classic Reading Rainbow materials to more classrooms and modern platforms, like web and mobile.

How it turned out: The campaign was a success overnight, raising $1 million in just 24 hours. Celebrity Seth MacFarlane also chipped in a full million on his own.

The Veronica Mars Movie Project

Campaign ended: April 12th, 2013

What it is: A Veronica Mars movie developed after the TV series was canceled.

How it turned out: Starring Kristen Bell, the film debuted to mixed reviews and became a box office flop.

Pono Music – Where Your Soul Rediscovers Music

Campaign ended: April 15, 2014

What it is: A music playing device that delivers uncompressed audio, such that it will sound much more like real life and less like a recording.

How it turned out: The PonoPlayer launched in early 2015 to mixed reviews, where technology writers questioned just how much better the PonoPlayer actually sounded, compared to standard MP3s.

OUYA: A New Kind of Video Game Console

Campaign ended: August 8th, 2012

What it is: A little cube that lets you control Android-based games with a gamepad and play them on your TV.

How it turned out: The OUYA launched in mid 2013 to mediocre reviews and low sales. Today, most gamers consider the product a flop.

Exploding Kittens

Campaign ended: February 19th, 2015

What it is: An irreverent, social card game designed by Matthew Inman (creator of the popular cartoon and comic site, The Oatmeal).

How it turned out: The cards will ship to backers over the course of the summer, but there are no plans yet for a wide, retail release to the general public.

Pebble: E-Paper Watch for iPhone and Android

Campaign ended: May 18th, 2012

What it is: One of the first smartwatches to ever hit the market, designed by a small, independent developer.

How it turned out: Pebble went on to sell over a million smartwatches by 2015, an impressive figure given how young the market is.

COOLEST COOLER: 21st Century Cooler that’s Actually Cooler

Campaign ended: August 29th, 2014

What it is: A multi-purpose cooler that can charge your phone, blend cocktails, play music, and much more.

How it turned out: Creator Ryan Grepper originally promised to ship the cooler by February 2015, but due to manufacturing constraints, the release date has been pushed back to sometime in the summer.

Pebble Time – Awesome Smartwatch, No Compromises

Campaign ended: March 27th, 2015

What it is: Pebble’s third edition of its popular smartwatch, complete with a new color e-paper design and timeline interface.

How it turned out: The watch will be shipped to Kickstarter backers in May, but the company will face its biggest test yet as it goes up against the Apple Watch.

TIME Innovation

Five Best Ideas of the Day: April 7

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. It’s time to give up the uniquely American institution of the network anchorman.

By Frank Rich in New York magazine

2. On Billie Holiday’s 100th birthday, her “spiritual endowment” endures.

By Wynton Marsalis in Time

3. How to save crowdfunding from scammers and flakes.

By Klint Finley in Wired

4. Here’s how Putin could lose power.

By Amanda Taub in Vox

5. What if the secret to racial harmony is more uplifting internet videos?

By Katie Jacobs at Penn State News

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

MONEY the photo bank

An Artist Mints Her Own Take on Bitcoin

How one photographer is using digital currency to rethink the value of money and art.

Virtual currency like Bitcoin has captured the imagination of a lot of people, from techies to economists to drug dealers. Now, artists are riffing on the idea, and one is trying to use it to fund her work—and to raise some new questions about what makes both money and art precious.

Sarah Meyohas, a Wharton School of Business grad who is currently finishing up her MFA in Photography at Yale University, is launching her own digital currency, which she calls, cheekily, BitchCoin. (“If you’re a woman who is taking a stake in your future and aggressive, you’re a bitch,” says Meyohas.) Unlike Bitcoin, which is computer-generated by its users, BitchCoin represents a claim on a tangible asset, in this case Meyohas’ photographic prints. One virtual coin is supposed to correspond to 25 square inches of print. Each time Meyohas creates a coin, she’ll set aside a print in bank vault.

BitchCoin will be “mined” inside of Where, a gallery/shipping container in Brooklyn. Meyohas will be camped inside producing her work, while being streamed live via a webcam. Coin buyers will receive a certificate with key number encryption allowing access to an account on a free BitchCoin software program in which BitchCoins can be sent and received.

At one level, this is really just a clever take on crowdfunding art, similar to Kickstarter, IndieGogo and the relatively new Fotofund. The initial BitchCoins will sell for $100 each, and that money goes to Meyohas. But she also says the project is about “the role of value in reproducible objects like the photograph.” And about the value of money. Since the end of the gold standard, regular money is just pieces of paper with pictures, backed by nothing. Meyohas describes BitchCoin as a virtual currency backed by a real asset, the art. But that art, of course, is just pieces of paper with a pictures. That paradox is especially relevant to her own medium. As Meyohas puts it:

For a long time, the art world wouldn’t seriously collect photographs because they seemed too reproducible. It was only once printed and editioned, made materially scarce, that they could be valued. There is something about the value of money which you can print endless copies of that parallels the photographic print.

Meyohas is also exploring where the value of an artist’s work should be placed, on individual pieces or on her entire body of work. Unlike crowdfunding or indeed traditional art buying, in which a patron invests in a specific project or publication, BitchCoin is supposed to represent a piece of Meyohas simply “as a ‘value producer’.” Meyohas says a BitchCoin is exchangeable not for a specific photo, but for any of her “editioned, unframed archival chromogenic photographs.” She believes this approach gives her more of a controlling stake in her art and career; if her career is successful and her works grow in value, she can tap into that by creating new, more valuable coins.

By getting buyers to support a career, not merely one work, she’s harkening back to an older type of arts patronage. In the fifteenth and sixteenth centuries, the Florentine House of Medici which controlled Europe’s largest bank and thus exerted unrivaled social and political influence over the region—used their wealth to underwrite art, architecture, literary and scientific projects. They supported the careers of those geniuses lucky enough to be aligned with their inner circle: Michelangelo, Donatello, Leonardo, Raphael, Galileo, Brunelleschi and Vasari—among others.

This Sunday, February 15, at 8 p.m., Meyohas will be launching BitchCoin at the Trinity Place Bar, a bar in a bank (of course) at 115 Broadway, in the Financial District of Manhattan. At its initial offering, BitchCoin will back the edition of one photograph, aptly titled “Speculation.” Afterward, the exchange rate will fluctuate based on demand for BitchCoin, and of course the value of Meyohas’ artwork in the market.

Virtual currencies are wildly speculative, and buying art is all the more so. And the idea of BitchCoin as a store of value is, well… complicated. If you see BitchCoin as really a part of Meyohas’ artwork, what would it even mean to try to trade it for 25 square inches of her pictures? Since she says a BitchCoin would be destroyed whenever it was converted to art, wouldn’t that in turn destroy part of the art, and part of its value? Prompting such knotty, unanswerable questions is of course what Meyohas is up to with this project.

This is part of The Photo Bank, a recurring feature on Money.com dedicated to conceptually-driven photography. From images that document the broader economy to ones that explore more personal concerns like paying for college, travel, retirement, advancing your career, or even buying groceries, The Photo Bank showcases a spectrum of the best work being produced by emerging and established artists. Submissions are encouraged and should be sent to Sarina Finkelstein, Online Photo Editor for Money.com at sarina.finkelstein@timeinc.com.

MONEY Workplace

Now That You Can Surf at Your Desk, Standing Is So Passé

Surfdesk
Rebecca Farmer

First came standing desks, then treadmill desks, now say hello to surfing desks.

To hear Joel Heath tell it, standing was just too hard.

“I started experiencing pain in different places,” he told Fast Company about his experience using a stand-up desk. “I just felt like there had to be a better way. I started to play with the idea that if you put a subtle rocker under the foot, you could move out of a sedentary state.”

So Heath created the Level, a surfboard-like platform that requires users to constantly shift their weight in order to keep their balance. FluidStance, the company behind the product, says that research conducted by the Heeluxe Testing Lab in California shows that introducing movement beneath one’s feet increases heart rate by 15% compared with sitting.

It’s the next evolution of the standing desk, which grew in popularity after studies showed that sitting for long periods of time could be bad for your health.

Kent Hatcher, ergonomics director and engineer at HumanTech Inc., likened using the Level to balancing on a stability ball, which requires your core muscles to work continually to keep you from falling over. “I see a product like this being great for some conference rooms, or occasionally used by people at a standing desk,” he says. “But it would take a period of acclimatization to get good at using the mouse and keyboard while wobbling around.”

Indeed, similar products like treadmill desks have been shown to affect performance-related tasks like typing. Heeluxe’s testing of the Level found no statistical difference in the number of typing errors made by Level users compared with those sitting at a desk, but even the occasional typo might be worth it. “Generally, the scientific community seems to think that the overall health benefits of standing and movement on the muscles and skeleton outweigh any sort of [performance] declines,” Hatcher says.

Level has clearly tapped into an enthusiastic niche market. The company’s crowdfunding campaign, launched on Jan. 12, raised $126,255 in less than a month—more than three times the original goal of $40,000.

FluidStance offers three different versions of the product: the Original Handmade Level ($389), the American-made Level ($289) and the Pacific Level ($269). That’s a lot more than the $22 you’ll spend building your own standing desk, but it certainly looks like more fun.

 

TIME Innovation

Five Best Ideas of the Day: February 5

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. Could Blockchain — the secure, encrypted network that powers Bitcoin transactions — be used to build a safer alternate Internet?

By Scott Rosenberg in Backchannel, on Medium

2. One NGO is crowdfunding the fight against human trafficking.

By Leif Coorlim at the CNN Freedom Project

3. High-achieving, low-income students get into selective colleges when they actually apply. Virtual college counselors can make sure they do.

By Bloomberg Philanthropies

4. “Vocal fry” and other patterns in the speech of younger women might signal a change for generations to come.

By Chi Luu in JSTOR Daily

5. Scientists are hoping genetically-modified coral can save the Great Barrier Reef.

By Laura Clark in Smithsonian Magazine

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

TIME Web

Kickstarter Passed Half a Billion Dollars in Pledges in 2014

168955119
PM Images—Getty Images Exchanging money digitally

More than 3.3 million people pledged $529 million total

Kickstarter had its biggest year yet in 2014. The crowdfunding website saw more than 3.3 million people pledge $529 million to various projects over the course of the year, up from 3 million people pledging $480 million in 2013.

Like past years, 2014 brought a slew of highly memorable crowdfunding projects. The Coolest Cooler, a high-tech icebox that plays music in addition to storing drinks, earned $13.2 million in pledges last summer and became the most-funded project in Kickstarter history. In July, Levar Burton’s campaign to resurrect Reading Rainbow generated more than $5 million in pledges and became the first Kickstarter project to gain 100,000 backers.

Other highly successful projects included Neil Young’s high-fidelity digital music player Pono ($6.2 million in pledges), the Micro 3D printer ($3.4 million) and a pair of wireless earbuds that can store music and track your vital signs ($3.4 million).

Since Kickstarter only doles out money if projects reach their initial funding goals, that full $529 million wasn’t paid out to project starters. However, more than 22,000 projects were successfully funded in 2014, the most ever in a single year. Music was the most popular category for campaigns, with about 4,000 projects being successfully funded. However, technology attracted the most pledged dollars, as backers offered up $125 million to fund various gadgets. Here’s a breakdown of how many pledged dollars each category attracted:

image (2)

This year Kickstarter also shed some light on when projects are most likely to be funded. Wednesdays are the most popular day for pledging money to projects, while Sundays are the least popular. During a single given day, the most pledges occur around 1 PM, indicating that people may be browsing Kickstarter during work more often than they do at home.

Check out more stats at Kickstarter’s “Year in Review” presentation.

TIME Innovation

Big Idea 2015: Make This the Year You Finally Launch Your Own Startup

small-business-meeting
Getty Images

Don Tapscott is CEO of The Tapscott Group, and was founder and chairman of the international think tank New Paradigm. Tapscott's new book is "The Digital Economy Anniversary Edition: Rethinking Promise and Peril in the Age of Networked Intelligence".

Consider being a social entrepreneur

2015 will be the time to start a business. Here’s why and how.

Around the world we are facing unprecedented unemployment – even in the developed world. Youth are particularly hard hit. In 2014 more than 1.6 million students graduated from American colleges and universities. Many moved directly into the swollen ranks of the unemployed. After taking on enormous debt to finance their studies, they ended up competing for unpaid internships or low-paying jobs for which their education is irrelevant. This violates the tacit pact made with them: If they were industrious, law-abiding and diligent students, their lives would be prosperous.

The U.S. isn’t alone. According to the International Labor Organization, youth unemployment in most of the world is stuck at about 20 percent. “Young people [are] nearly three times as likely as adults to be unemployed,” says the ILO. In Spain more than 50 percent of young people are unemployed, in Italy it’s 35 percent, and in France the rate is more than 25 percent. When considering under-employment, these numbers could be doubled.

Such unemployment is corrosive to all societies, no matter what their level of development. All citizens want to play a productive role and contribute to their community. Unemployment gnaws at an individual’s well-being, and makes them feel surplus to society’s needs.

But traditional methods of job creation are stalled.

One of the keys to solving this problem is entrepreneurship. Research shows that 80 percent of new jobs come from companies 5 years old or less. So the need for entrepreneurs has never been greater, in both developing and developed countries. When given the right conditions to flourish, entrepreneurs are the foundation of growth, prosperity and even innovation. They bring fresh thinking to the marketplace and fuel the creative destruction that makes market economies prosper.

In addition to creating jobs, new companies are the foundation of the economy and the source of much innovation. They also create the new goods and services on which our standard of living is based. The Internet slashes transaction and collaboration costs for almost every institution in an economy. This is leading to a change in how societies orchestrate capability to innovate, create goods, services and public value. With such costs falling precipitously, companies can increasingly source ideas, innovations and uniquely qualified minds from a vast global pool of talent.

Many big companies benefit from startup entrepreneurship. They acquire small companies with great innovations rather than relying solely on their research and development departments. As the new saying goes, M&A is the new R&D. Entrepreneurship is also critical to social cohesion and avoiding the radicalization of youth and their recruitment to anti-social and dangerous causes.

Waiting for governments or big companies to solve the problem is not the answer. Necessity is the mother of invention. Is it time to take the bull by the horns and make your own job?

The best thing I ever did in my professional life was to become an entrepreneur. It was tough, but it worked out well for me and I have a life of influence, prosperity and fun beyond anything I ever dreamed. Here’s my advice to you.

  1. Create a business with customers. This may sound silly but so many startups are focused on getting traffic to their site, going viral or getting traffic to their website. Peter Drucker said years ago: “The purpose of any business should be to create a customer.” Create some value that a customer would want to pay you for. As for funding listen to Tony Hsieh the CEO of Zappos, who said: “Chase the vision, not the money; the money will end up following you.”
  2. Don’t seek venture capital. These days virtually no venture capitalist invest in a business plans or even early-stage companies. Besides, you don’t need them. Fortunately, it is less costly than ever to create a company. Thanks to the Internet, little companies can now have all the capabilities of big companies, without the main liabilities: stifling bureaucracy, legacy culture and processes. Talent can be outside enterprise boundaries and companies can use the new media to market and engage stakeholders in radically new, low-cost ways. One study found that readily available resources such as open-source software, cloud computing, and the rise of virtual office infrastructure has driven the cost of launching an Internet venture down from $5 million in 1997 to less than $50,000 in 2008. The best is to have a product or service that generates initial revenue so you don’t have to borrow money or give away equity. Or get a loan or small investment from your family or friends.
  3. Consider crowdfunding. The Internet offers a new solution for companies seeking capital, based on peer-to-peer networks that bring people together to achieve a common goal. New firms can source capital in new ways, and it should be no surprise that a young business builders are harnessing the power of mass collaboration to fund their companies. Individuals and new companies have used crowdfunding to raise billions of dollars in debt and equity during the past five years. In 2012, crowdfunding raised almost US $2.7 billion around the world, an 80 percent increase over the year before. Since 2009, Kickstarter has channeled more than US $815 million to nearly 50,000 projects. The early success of crowdfunding in the developed world shows how much potential this new way of raising capital has for aspiring entrepreneurs in the developing world. No jobs? Take a page from my daughter and her best friend who created Knixwear, a company that makes high-performing underwear for women. (“Women are multi-taskers, their underwear should be too”). Their crowdfunding campaign not only raised capital, it lead to a big deal with one of their most important target retailers. A year later, the company is a rocket.
  4. Consider being a social entrepreneur. With the rise of social entrepreneurship – businesses that seek to create social good – there are vast new opportunities to advance social development, sustainability and justice that supplement the efforts of traditional government and civil society institutions. Governments are increasingly inept at solving societal problems. So increasingly it’s up to us. I’m constantly inspired as I travel around the world by the new generation who want to do well by doing good.
  5. The Internet enables startups to focus on what you do best. Partner to do the rest. Companies such as Amazon are opening up their technology infrastructures to create an open stage where large communities of partners can create value, and in many cases, create new businesses. They set a context for innovation and then invite their customers, partners and other third parties to co-create their products and services.
  6. Don’t give up. From my experience, the conventional wisdom is correct — not banal. “Ninety percent of everything is just showing up.” “Success is 90 percent perspiration and 10 percent inspiration.” Or as Winston Churchill said, “If you’re going through Hell, keep going.”It’s a lot of hard work to build a business. But if you’re like me or the women at Knixwear, it’s worth it.

This Influencer post originally appeared on LinkedIn. Don Tapscott shares his thoughts as part of LinkedIn’s Influencer series, “Big Ideas 2015” in which the brightest minds in business blog on LinkedIn about their predictions on ideas and trends that will shape 2015. LinkedIn Editor Amy Chen provides an overview of the 70+ Influencers that tackled this subject as part of the package. Follow Don Tapscott and insights from other top minds in business on LinkedIn.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

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