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The 10 Principles of Open Business: Principle 2 – Open Capital

Part III in a series of blogposts describing the 10 Principles of Open Business

In the final analysis the most significant disruption changing the way organisations function and business is done is likely to be in the role capital has to play.

That’s why Open Capital is our 2nd Principle of Open Business.

In line with the needs of the industrial age, Capital was organised on the principles of mass and centralised control; Big blocks of cash held by small groups of decision-makers fitted that world.

But the networked world requires something new, something which delivers faster decisions together with wider distribution of both risk and reward, something which moves the role of the customer from ‘end user’ to participant and partner; something which is a better fit with networks.

We call this Open Capital: Using crowd-funding platforms or principles to raise capital through micro-investments.

We see example after example of crowd-funding platforms emerging (eg Kickstarter.org) and success upon success in their support for new products and services (see below) which Big Capital could or would not support. But today’s entrepreneurs opt for Open Capital knowing that the advantages go far beyond a new route to capital.

Open Capital shares the costs and risks and therefore the ownership and the passion. It democratises innovation. And this is valuable to organisations old and new.

In summary the wins are in:

  • Lowering the cost and risk of innovation.
  • De-risking innovation; by providing a ‘money-where-your-mouth-is’ proof of concept that a Facebook Like or a Twitter ReTweet can’t hope to match.
  • Generating pre-sales and order book – validating that there is a market to access
  • Priming a platform of advocates ahead of launch to provide a peer-to-peer marketing launch
  • Opening up your innovation process early to benefit from all of the above
  • Democratising innovation – providing  a real sense of ownership for those taking part
  • Enabling niche innovation to scale – enables organisations of all sizes to test, develop and deliver to niche need affordably and efficiently

Peer-funded partnerships also offer the opportunity to create value beyond the back slap in the boardroom and the bottom line on the balance sheet; value creation which acknowledges resources are finite, that people, communities, societies and ecologies are connected and matter to each other.

And this in itself provides a genuine competitive advantage that the wisest global entrepreneurs are quick to identify. As Sir Richard Branson puts it: “…the boundaries between work and higher purpose are merging into one – where doing good really is good for business.”

In a connected world, where to win is to work together with ever greater numbers of people who care about the same things you do, few are going to sign up to support businesses who are damaging the ecosystem in which they exist – let alone support those organisations with their own money. Open Capital will therefore be a key driver of ‘doing good is good for business’.

The 10 Principles of Open Business (Score your org)

2. Open capital:

Goal State (Scores 5/5): The organisation is 100% crowd-funded

Worst Case (Scores 1/5): All funding comes from ‘big capital’ – VCs, institutional shareholders – concentrating power over the organisation and its aims in those institutions.

Examples.

TikTok watch: Traditional routes to capital failed to find a backer for this innovative iPod nano/watch. More than 13,000 individual backers on Kickstarter (a crowd-funding site) proved old capital wrong. They wanted the watch so provided the funds. Supply and demand in perfect unison. (Source: Kickstarter.com)

Prosper.com: Has now funded £363m in personal loans in a peer-to-peer model illustrating that success with Open Business principles applies as readily to regulated industries as in more laissez faire sectors. (Source Prosper.com)

 

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