Crowdsourcing and crowdfunding are both methods that leverage the power of the crowd to achieve business goals. However, the objective of each is quite different, and it’s important to understand the distinction.
This article will help you decipher the difference between crowdsourcing and crowdfunding, and how both work together to bring solutions to complex projects and business processes.
What is Crowdsourcing?
If you are thinking of starting your eCommerce business, or already have one, crowdsourcing is a great way to source for the best ideas, information, products, or services that will help speed up the growth of your business. It is a way to look beyond your internal business's capacity for ideas and turn your problems over to a wider group of thinkers.
But what is crowdsourcing?
Let’s start out with a crowdsourcing definition.
Crowdsourcing is a powerful method used to find solutions to complex and difficult tasks through a distributed problem solving approach. It leverages the knowledge, skills, talent, and the power of the crowd to outsource creative ideas, valuable information, goods, or services that help speed up a process.
Crowdsourcing works in a pretty simple way. A difficult business project is broken down into microtasks. Then, the owners of the project reach out to the crowd to find an on-demand workforce with the exact skills for each task to complete it quickly and efficiently.
That way, an otherwise complex project that would have taken longer to complete using internal business capacity is completed quickly by outsourcing solutions from the most talented individuals. Most of these workers are independent freelancers who require minimal to no supervision.
The main use of crowdsourcing is to gather a group of people to share valuable ideas, knowledge, and wisdom to help build a better product, get valuable information, or provide a better service.
Popular Crowdsourcing Platforms
There are so many crowdsourcing platforms that connect you to the best minds in almost every field to help you grow your business faster and cost-effectively.
Some of the best ones are:
- Upwork: You can find top freelancers and agencies across the world in almost every field on Upwork.
- 99 Designs: You can crowdsource your favorite design in over 90 categories on this site. Popular categories include log design and website design.
- Kaggle: this platform allows you to leverage the skills of data scientists and machine learning engineers across the world.
- Ponoko: this site is famous with top product designers for products like jewelry, guitar, among others.
- Top coder: it connects you with developers, competitive programmers, data scientists, and designers.
Top 6 Benefits of Crowdsourcing
Crowdsourcing offers a lot of benefits to businesses in any field.
Here are the top 6 benefits of outsourcing business solutions from the crowd.
- Flexible workforce: crowdsourcing connects you to self-driven flexible on-demand freelancers across the globe who require very little management or supervision.
- Access to creative talent: you have broad access to the most talented minds in any field of specialization.
- Cost-effectiveness: by leveraging crowdsourcing platforms, businesses can complete large scale projects more cost-effectively than using traditional ways.
- Increased business capabilities: embracing new ideas and diverse thinking from the crowd helps businesses unlock new possibilities that would otherwise be difficult with their internal capacity alone.
- Faster project delivery: talented freelancers are known to complete microtasks faster, helping complete an otherwise time-consuming project quickly.
- Generating marketing buzz: Crowdsourcing helps you build a communal and competitive aspect of project implementation. Those who contribute ideas towards a project are likely to become brand ambassadors and help spread the word about your product or services.
4 Disadvantages of crowdsourcing
Crowdsourcing has its share of drawbacks. The most common ones are:
- No confidentiality: outsourcing ideas, products, or suggestions from the crowd can expose your plans and competitive advantages to your competitors, who can then use that to their advantage.
- Poor quality entries: some contestants have little knowledge about your industry, and are not willing to take time to learn a thing or two about your business before they submit their entries. That means you may have to wade through tons of wildly off-target entries before you find great entries.
- Popularity misleads: it may be misleading to rely on popular views or suggestions from the crowd to make a decision. What is popular may not be good for your business and may backfire down the line.
- You may miss the best talent: those with the best talents may be engaged in doing something else for a handsome pay and may be reluctant to contribute to a crowdsourcing competition.
What is Crowdfunding?
You may have a great business idea, a talent, or a special skill that you want to share with the world, but lack the capital to implement your ground-breaking concept that has the potential to revolutionize the world and make people's lives better. This is where crowdfunding comes in.
Crowdfunding is a method of raising small amounts of money from a large group of people. Instead of using traditional ways such as bank loans or getting funding from angel investors, an entrepreneur reaches out to friends, family, potential customers, and other individual investors from the crowd who chip in relatively small amounts to create a lump sum.
Crowdfunding takes advantage of social media and online crowdfunding platforms. The person behind the idea runs a campaign on a crowdfunding platform and leverages their online networks through social media and other channels for a greater reach and exposure of their campaign.
Those who find the idea interesting give small amounts say $5, $10, $100 or more to support it. By getting contributions from a large pool of people, you end up with a large amount of capital, which would otherwise be difficult to raise through traditional methods.
Crowdfunding can be reward-based, donation-based, or equity-based. The type of crowdfunding method an entrepreneur chooses depends on their goals for growth and the type of product or service they offer.
Top 4 Benefits of Crowdfunding
Crowdfunding offers a host of benefits to startups and small business owners who may have difficulties getting seed capital from banks or big investors.
Four of the top benefits of crowdfunding include:
- Capital with hedged risk: you can access capital at no interest or at low-interest rate compared to going for expensive bank loans.
- Marketing: other than raising money, you get an early opportunity to test-market and market-fit your product idea through crowdfunding.
- Raise money easily: crowdfunding is an easier way to raise money compared to demanding traditional channels. Anyone who can engage the crowd with a fantastic idea can use it.
- Early customers: those who support your idea become potential loyal customers and brand ambassadors who spread the word about your products or services.
Disadvantages of crowdfunding
- Risk of failure: the main downfall of crowdfunding is that most startups fail, which increases the investment risk for backers' contributions.
- Naïve investors may misuse it: Since it is an easier way to raise money, naïve and inexperienced investors who have less resilience to risk may go for high-risk investment opportunities. This can spell doom to the future of the investors and the startups.
For more information about crowdfunding, visit Easyship’s blog posts about crowdfunding. Popular crowdfunding platforms include:
- Kickstarter: this is a project-based crowdfunding platform
- Indiegogo: this is a product crowdfunding platform
- Fundable: this is a business crowdfunding platform
- GoFundMe: this is a cause-based crowdfunding platform
What is the Difference Between Crowdsourcing and Crowdfunding?
Crowdsourcing is the process of outsourcing ideas, knowledge, products, or services through mass collaboration to fuel growth, increase efficiency, and speed up a process.
On the other hand, crowdfunding is a method of raising small amounts of capital from a large pool of investors to fund an innovative project or support a cause.
In other words, crowdsourcing seeks to source for innovative ideas from the crowd, while crowdfunding seeks to raise funds. Although both methods leverage the power of the crowd, the goals they seek to achieve are entirely different.
How Crowdsourcing vs Crowdfunding Work Together for Projects
Crowdsourcing and crowdfunding work together for projects. Entrepreneurs reach out to the crowd through crowdfunding platforms such as Kickstarter or Indiegogo to raise funds that enable them to implement their innovative ideas.
But such ideas cannot be brought to fruition with funds alone. You need to have the best team of talented individuals too. Using crowdsourcing platforms such as Upwork, 99 designs, or top coder, you can outsource the most talented and knowledgeable on-demand freelancers to help you implement different parts of your project and create better products or provide outstanding services.
That way, crowdsourcing, and crowdfunding work together through mass collaboration to tap into the crowd for talent and capital to get things done by making the implementation of difficult projects possible.
Crowdsourcing Examples vs Crowdfunding Examples
Examples of crowdsourcing and crowdfunding include:
- Wikipedia: Wikipedia is a great example of a crowdsourced encyclopedia. Thousands of people across the world can access, edit, and contribute valuable information every day. The pages are filled with knowledge from the crowd.
- Gathering opinions and viewpoints: another example of crowdsourcing is when bloggers and journalists reach out to the crowd to gather a wide range of viewpoints or opinions using sites like HARO.
- Solving technology problems: GitHub, a hugely popular technology development site, relies on crowdsourcing, where programmers contribute pieces of code to create complex algorithms that help solve complex technological problems.
- Great examples of crowdfunding campaigns are Waverly labs, MATE X, Keyboardio, and Modest Mark. The clients behind these crowdfunding examples tapped into Easyship’s expertise and crowdfunding tools to plan and set realistic goals for their campaigns, hence achieving runaway success.
How Easyship Helps Crowdfunding Campaigns
After using crowdsourcing to source for the best ideas to unlock new possibilities in your eCommerce business, you may be thinking to use crowdfunding to raise money to fund your creative business project and speed up the implementation process.
Easyship has a wealth of Crowdfunding expertise and tools that you can use to plan and set realistic goals for your campaign.
Here is how we can help you achieve your crowdfunding goals:
- Fulfillment: we can help you plan your campaign’s fulfillment so that shipping costs will not eat into your raised funds.
- Crowdfunding calculator: you can use our calculator to compare duties, taxes, and shipping costs for your backers in different countries.
- Crowdfunding expertise: we have worked with clients on both Kickstarter and Indiegogo to run some of the most successful campaigns such as Modest Mark, Keyboardio, and Ostrich pillow, among others.
- Best couriers: we connect you to over 250 fast and cost-effective couriers to ship your campaign’s rewards anywhere in the world.
- Shipping tools: Easyship helps you grow your business with a suite of shipping tools such as pre-filled customs forms, customized packing slips, automatic tracking pages, and emails that match your branding.
As you can see, crowdsourcing is a great way to source talent, innovative ideas, products, or services, while crowdfunding helps raise funds needed to bring such innovative ideas and creative products to life.
Don't forget that Easyship helps you tap into the power of crowdfunding by offering you valuable crowdfunding expertise and fulfillment tools.
Create your Easyship account today to supercharge your crowdfunding fulfillment.
Looking for more resources about crowdfunding? We've got you covered, from crowdfunding vs crowdsourcing to crowdfunding consultants, we've got you covered: