Small Business Labs

Crowd Funding and Small Business

PSFK has an interesting post about a start-up clothing company called nvohk (invoke) that claims to be (from their press release) "the first community-managed, eco-friendly, surf-inspired clothing company."

nvohk is looking for 20,000 to 40,000 members to contribute $50 each to the company.  nvohk calls this "crowdfunding" in their press release.  In exchange, the company will poll members on major business decisions, donate 10% of net profits to charity and give nvohk reward points equal to 35% of net profits to members.  These reward points will be redeemable in nvohk clothining.

The Internet now makes it possible to raise money via small amounts.  Examples include Donorschoose, a non-profit raising money for schools, and for-profit Prosper, which provides commercial money brokering services.   

nvohk is using this approach to raise $1-2 million to help start the business.  In exchange they are giving up no equity, nor do they have to pay interest or pay the money back. Instead they are committing to giving product discounts to their members.  As a source of capital, this deal cannot be beat.  Not only is the cost of capital effectively zero, there are no onerous investors or bankers to deal with. 

The members also immediately become product evangelists.  In other words, the members are paying nvohk to become product champions.  This is a very cool viral marketing campaign. 

It will be interesting to see if this works and they are able to attract 20,000 members.  I can see consumers agreeing to do this.  First, $50 is not a lot of money if you think you are going to like the clothes.  Second, it sounds like fun.  I'm thinking of signing up.

The American Prospect on Coworking; Coworking Location Map

The American Prospect has a good article on coworking.  Key quote:

"Just blocks away from its famous namesake, Independent's Hall is one of more than a dozen new "coworking" spaces that have popped up around the country in recent months. For $25 a day (or $175 a month for a 3 day/week commitment), you can drop into the space, use the wireless, meet with clients in the small glassed-in conference room, and, often, find folks to grab a drink with afterward. The feel is part dorm lounge, part ad agency and part cybercafe, and it's a hit. In its first month, the space has already had visitors from around the country; its opening bash drew more than 200 partygoers."

Related to this, there is also a Google map showing coworking locations.   The map is relatively new; it will be interesting to watch and see how many locations get added to it in the coming months.

Competing or Cooperating With Big Companies

Northwestern's Kellogg School of Business has a web site called "Kellogg Insights" that posts research done by their professors.  They recently highlighted a study called "Compete or Cooperate - Choosing the Right Commercialization Strategy as a Technology Start-Up".  The study authors investigated the commercializaton strategies of 118 start-up companies across 5 economic sectors.  They found that cooperation is a good strategy for start-ups when one or more of three conditions exist for the start-up:

1) The firm has a high degree of control over its intellectual property rights
2) The firm enjoys low deal transaction costs
3) There is a high sunk cost requirement for the firm to compete in its industry

While the study focuses on technology start-ups, we are seeing big company/small company cooperation increasing in many industries. This increased cooperation seems to be driven by two main factors:

1) cooperation to better serve the increasing number of small and specialized niche markets.  VAR programs in the technology industry are an example.

2) cooperaton to leverage large fixed assets, which is discussed in the Northwestern study.

We will covering this topic in more detail in our next research report, which is due out later this year.