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Limiting Entrepreneurial Risk Through Crowdfunding

fish bone how to limit risk

Rewind to January 7th, 2013. Brent Garcia, a Las Vegas artist who enjoys DIY projects and product creation, is about to launch his first crowdfunding project on Kickstarter. He has invested a grand total of $11 in his prototype, which he created “from one square inch of sheet metal” and called the Fish Bone. The simple product was designed to help secure paracord, which is a thin rope typically used by rock climbers and other outdoors enthusiasts.

 

He has created a basic video to show how his product works, taken a few humble pictures, and set his funding goal to $1,000.

 

Brent logs onto Kickstarter, looks over his campaign page one last time, and apprehensively pushes the green “Launch” button.

 

Thirty days later, on February 6th, 2013, his project closes with $89,525 committed.

 

To this day the project video still shows Brent sitting on a hunk of concrete in the middle of a desert, holding up his prototype and uttering the remarkable words, “right now, this is the only one.” Just to the right of the video player, in huge black font, a metric reads: “3,050 backers”.

 

The Fish Bone project illustrates the innovation-accelerating power of crowdfunding. With only $11 invested and a single prototype in existence, Brent was able to sell thousands of units and raise enough money not only to produce his product, but feasibly start a full-blown, full-time business, all in the short space of thirty days.

Our research indicates that the ultimate sign of validation is sales–people can tell you that they love their product, but it is not until the have to get their wallets out that you know if you have something worth pursuing.  Crowdfunding platforms like Kickstarter.com have become incredible pre-sales and validation platforms that greatly reduce negative risk to creators by enabling them to test demand for a product before producing large quantities.  Welcome to the new era of entrepreneurship.

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