I was discussing Kickstarter and crowdfunding with my friend Richard Bliss (host of the Kickstarter Podcast: Funding the Dream) the other day, and how Kickstarter is changing every industry it touches. My current thought on this is that Kickstarter, where it works, alters the very structure of the economy. It moves us from Capitalism into something different, I think. I called it Post-Capitalism. Let me try to explain what I mean.
First, we need to understand Capitalism. Capitalism is a way of ordering an economy. In Capitalism, the Capitalist is the driver of the economy. Capital is, essentially, money. The Capitalist is the person who aggregates (but doesn’t necessarily supply) Capital. Most often, he aggregates that Capital by raising it from investors by selling them securities of some sort. He then takes that Capital he has raised and puts it at risk in a venture he has selected and will manage. The investors rely on the Capitalists sense of business to make them a return, but understand that their money is at risk and may be lost if the Capitalist performs poorly. The Capitalist owns the means of production, and it is the Capitalist that selects which products or services will be produced for the Customer. The Customer eventually selects the products or services that survive, by buying or not buying (this is the Market Force), but it is the Capitalist that selects the products or services to offer in the first place.
The driving motivator for the Capitalist is profit. He is required to operate his business to create profit and avoid loss for his investors. He does so, traditionally, by making his products or services scalable, replicable, by driving down costs. It was the movement of production out of the shops and homes of the artisans and into the factories that created the Industrial Revolution and Capitalism in the first place. So in Capitalism, the Capitalist, who aggregates the Capital to own and control the means of production decides what products will be created, and he tries to make those products as profitably as possible.
With Kickstarter, we remove the Capitalist from his center position between the creator and the customer. The creator reaches out, directly, to the customers and fans and backers and says “I want to make this, what do you think”. These customers and fans and backers decide what will be made, not after it is made by failing to buy it, but before it is made, by supporting it. The customers and fans and backers provide the capital to create the project, not because they want a return on their investment, but because they are fans – of the artist, of the genre, of the product or service, of art. Because there are no investors to satisfy, and because the customers, fans and backers get on board before the product or service is delivered, risk is reduced. The owner of the means of production is still there, but as a servant of the artist – he will get to make the product after the artist gets funding from his fans.
Certainly in small business, the artist and the capitalist are often the same guy. But unless the small businessman is essentially a free-lancer or independently wealthy, he will likely still need investors at some point, and at that point his capitalist role will overwhelm his artist role.
I am not arguing that Capitalism is dead or un-useful. In fact, equity based crowdfunding is merely an extension of the capitalists aggregation of capital to smaller businesses. It is the democratization of access to capital for capitalists. But Reward Based Crowdfunding is different. It is new. Or perhaps it is old, and new again. And it is changing things in interesting and unexpected ways.
To close, let me give an example of what I am talking about. I love history books. But I have noticed, and so have other people I talk to, that history books have fewer and fewer really nice color maps in them. A friend told me that this is because map making is expensive. The traditional publishing model (where the historian is the artist, the publisher is the Capitalist, and I am the customer) simply does not have a place in their paradigm to pay a mapmaker to make a bunch of maps. The artist can’t pay for it out of his cut – he is making little as it is – and the Capitalist won’t pay for it because the cost will not make a large enough return on his investment to warrant the risk. Customers will buy the book without all the maps, and the Capitalist will have lower costs and higher profit. So, we get as few maps as possible.
But historian Dana Lombardy has a different idea. He wants to write a book about the campaigns of U.S. Grant, and he wants to make his book full of maps. Colored maps. Detailed maps that really tell the whole story of each battle he describes. He bets there are fans out there that want this book to happen, even if there are not Capitalists out there who see enough return on investment to risk their capital on it. So, he is going to Kickstart it.
If he’s right, customers and fans and backers will back his project and give him the money he needs to print the book full of maps. And in return, they will get a thank you, or a signed copy of the book, or a framed map, or some other reward that Lombardy decides to offer as a thank you for their support. If he’s right, and the customers want this product to exist, it will exist.
That’s Kickstarter. That’s reward-based crowdfunding. My friend Richard Bliss and I are going to help Dana Lombardy with his project – it will be interesting to see it progress.
Have any thoughts about Kickstarter or Capitalism? Leave a comment and let’s have a discussion.