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Thanks to Dan Woychick of Woychick Design for tipping me off to Flattr, a new “micro-payment” resource that is currently in beta stage, but seems to be gaining momentum and visibility. I think it offers some intriguing possibilities for design-driven start ups. The basic concept is similar to the social network, Digg, in that you are “voting” your approval by clicking the Flattr button; the difference is that you are also making a small financial contribution out of your Flattr account with each vote. The minimum monthly balance is only a couple bucks, and at the end of each month, your account balance is divided by the number of Flattr votes you cast, so your individual contribution could be pennies per vote if you are an active Flattr-er (or you could cast fewer, more valuable, votes). Flattr micro-payments are then transferred by Paypal to the content provider receiving the vote. This video gives an overview of the concept:

The top rated site on Flattr right now is Chaosradio Express which has received more than 2,000 Flattr clicks. The Flattr site lists top content, as well as newcomers and undiscovered gems. Flattr’s Swedish co-founder Peter Sunde discussed the project in a BBC interview: “We want to encourage people to share money as well as content. It’s a test to see if this might be a working method for real micro-payments.”

While Flattr is a long way from reaching critical mass, I see it as another example of the growing micro-financing trend that also includes Kiva, Kickstarter, and Pepsi Refresh, in which funding opportunities are becoming more direct and intuitive, and where the “crowd” can make a great idea into a big winner.

I’ve written frequently about peer-to-peer lending, or “microfinancing” and the possibilities this emerging trend might hold for design-related startup businesses. I’ve also discussed Angel Investing in my posts about more traditional funding options. So, what happens when you combine these two concepts? Daniel Weinstein, Principal of Innovance Consulting wrote a very enlightening post on his blog recently entitled “Peer 2 Peer Angel Investing: The Future of Funding Startups?” in which he discusses this convergence and the opportunities it might offer—specifically for business concepts with a social impact mission.

Weinstein makes an important observation that “there are few entities willing to make a large investment in a company without the potential of a large return on investment.” In other words, many social impact concepts are simply not in the running for traditional startup funding. Weintstein continues, “But there are lots of people interested in making social change, and in backing it financially.” Most of us contribute to charitable organizations that we feel can make a positive change in the world, so the idea of channeling our giving toward a more focused goal is really not that radical.

The important distinction in the peer-to-peer approach that Weinstein lays out is that it is an investment rather than a donation. The expectation in this scenario is that the donor will make a return on their investment, hence the possibility of larger scale contributions and even equity deals under this model.

Weinstein sites Kiva as a template for this approach, but also points us to other organizations operating in the peer-to-peer lending space, like Prosper and Lending Club.

It’s great to see the topic of alternative funding being discussed in other forums. I believe strongly that entrepreneurs from the creative world need to be more savvy about how to fund our start up concepts in order to make them viable on a larger scale. The cross-pollination of peer-to-peer and angel investing is certainly worth tracking.

(note: The peer-to-peer lending category is evolving at a rapid pace, and there has been lot’s of activity—good and bad—in the recent past. Do your research before jumping into this pool!)

What a year it has been! With a historically rotten economy, the design industry has taken a serious beating, leaving us all looking around to see who is still standing. The main theme of Merge is the idea that, in order to survive and thrive, designers must begin to look beyond the “client service” business model and explore ways to market their creative ideas in a more direct way. 2009 has certainly underscored the relevance of this point of view.

In reflecting on the year, five stories have emerged as central to the design and entrepreneurship convergence, for a variety of reasons. Some are simply emblematic of the unique time we are in, while others may offer a glimpse into the future for designers and creative professionals. Here they are (in no particular order):

1. iPhone App Development and the iTunes App Store

According to the website GigaOm, roughly $2.4 billion were spent on iPhone Apps in 2009. That’s a staggering number for a tech category that basically did not even exist a couple years ago. The good news is that this has emerged as an area in which a wide range of designers, web developers and creative professionals have been able to bring their product ideas directly to the consumer—I’ve written frequently about this phenomenon on Merge and profiled a couple of App developers with roots in the design world.

While the media has focused on the relative handful of “kitchen table” developers who hit the jackpot with app releases in the early months of the “app bubble,” I think the real story here is the iPhone Developer Program—the back-end machine that Apple has built to facilitate the process of development, sales, and distribution of these products. Without fail, when I ask would-be entrepreneurs what holds them back from pursuing a business idea, the complications—and expenses—related to the supply chain are cited as primary reasons. With the iPhone Developer Program, which feeds into the iTunes App Store, this complication has been greatly simplified.

Ironically, I see synergy between the Apple case study and other design-friendly online marketplaces, like Etsy or Mohawk Paper’s Felt & Wire Shop. My hope is that the success of these programs will inspire similar marketplace opportunities in other categories, hence making it easier for more designers to bring their ideas directly to the consumer.

Here are links to some of the posts I’ve written on this topic in 2009:
Discussing iPhone Apps with Terry Anderson
HartungKemp Gets Wasted
iPhone App Development Primer from The Nerdery

2. Necessity Entrepreneurs
Not all entrepreneurs are the same. While the classic entrepreneur is struck with that brilliant “aha” idea, and methodically develops it into a thriving business, many people starting new businesses today are doing so because they lost their job and have slim prospects for finding a new one. With the creative and design industries being particularly hard hit in this recession, one of the lasting stories from 2009 will undoubtedly be the high number of creative professionals who have opted to pursue an entrepreneurial venture rather than competing for the few remaining job openings.

While many of these new ventures will be built on the tried and true client service model, my hope is that we will see more products and services brought directly to the consumer by people with backgrounds in design, hence bringing the design sensibility and methodology to the process of building a new business.

Here’s a link to a post I wrote earlier this year about this topic:
The New Breed of Necessity Entrepreneurs

3. Service Design (or whatever you call it)
“Suddenly there is a whole population of designers trying to use their skills to have an impact on the world around them.” This is how Bill Drenttel of Winterhouse Institute and Design/Change Observer introduced the Aspen Design Summit in November. I would only argue with the “suddenly” part—in fact, I think designers have a deep heritage of working to make the world around them a better place dating back to the Bauhaus, so perhaps after decades of immersing in a relatively one-dimensional way of working, we are rediscovering how to apply our skills for a greater good.

The distinct practice of Service Design is more established in Europe than in the U.S., a result, in part, of the support and funding given to the design professions by many European governments. In fact, the term itself is not very common here—we might call it “design thinking,” “social impact design,” or even “new design.” While a single definition of Service Design is difficult to pin down, a common principle is that inter-disciplinary teams of professionals are using the methodology of design to engage in complex social problems like healthcare, poverty, and hunger.

2009 was filled with promising examples of designers putting their skills to work on such issues, as well as commenting and writing about it. Bookshelves were filled with new volumes by design gurus like Tim Brown of IDEO and Nathan Shedroff of CCA. INDEX presented their prestigious design award to Kiva, an institution that, seemingly, has nothing to do with design, provoking us all to rethink the parameters of our practice. And the Aspen Design Summit itself brought designers, policy makers, educators, and institutional leaders together for a vigorous exercise in design with a social impact emphasis.

My hope is quite simply that this trend continues, and that these exercises begin to spawn some meaningful success stories.

Here are links to some of the posts I’ve written on this topic in 2009:
Hillary Cottam and Participle
INDEX Announces a Surprising Winner
Continuing the Conversation About Service Design

4. Alternative Funding for New Business Ventures
Access to a relatively small amount of seed money can completely change the complexion of a startup business plan. As little as a few thousand dollars can allow a designer/entrepreneur to produce a run of prototypes or conduct valuable user testing. But not everyone can reach into their pockets and find that kind of cash, and traditional sources of funding like small business loans are much more difficult to come by than they were in better economic times.

That’s why the emergence of alternative sources of startup funding is such an important story right now. I’ve written several times about this in 2009 and I continue to be intrigued by the possibilities it offers. Microfinancing (also known as peer-to-peer lending), a model similar to the one used by Kiva where individual donors connect with individual entrepreneurs in an online venue, offers one way that designers can get that initial boost for their startup idea.

My hope is that alternative funding sources like microfinancing will continue to mature into a viable and stable option in the year ahead—and that more designers will take advantage of it.

Here are links to a couple of the posts I’ve written on this topic in 2009:
Microfinancing: A Model that can Work for Designers?
Peer-to-Peer Lending and Other Funding News

5. The Online Social Media Wave
Creative professionals have, for the most part, been early adopters to the online social media wave, and many of us have found ways to use it to enhance our business. This is a trend that has evolved at an explosive pace over the last few years—as evidenced by the recent story that Facebook overtook Google as the most-visited website in the U.S. on Christmas Day this year—and I don’t see it slowing down any time soon. While many of us have tired of the Facebook routine, Twitter, Flickr, YouTube and other online venues each provide distinct and unique ways to connect and interact.

One of the reasons I cite for designers not finding as much success as they should as entrepreneurs is that our professional networks are too narrow, and my view is that online social media provides a remarkable way to expand these networks and connect with the people who can help small businesses grow. My hope is that designers and creative professionals will continue to populate this online world (or to dive in right away if they haven’t already done so) and be involved in the continuing evolution of it.

Here’s a link to an earlier post on this topic:
Social Media 101

kiva_logoOne of my first posts on Merge was about microfinancing or “peer-to-peer” lending and Kiva Microlending, one of the highest profile players in this industry (Microfinancing. A Model That Can Work for Designers? March 28, 2009). Surprisingly, that post is one of the most highly searched topics on the blog—so when I came across an article about Kiva in Business Week’s SmallBiz bimonthly, it seemed like a good time for a follow up.

Kiva, a non-profit which is known for their innovative approach to facilitating loans to entrepreneurs in the developing world, is making news again because they have now created an operation here in the U.S. for domestic entrepreneurs. U.S. loans will not exceed $10,000 and the total value of U.S. loans will be capped at $800,000. Despite loaning to the smallest of businesses in the remotest of locales (a cobbler in Mongolia was featured on their homepage as I was writing this), Kiva has had remarkable success with their international lending operation, with more than $80 million loaned and a stunning repayment rate of 98.5%.

Of course, there are many other players in this growing field. Prosper is the largest U.S. peer-to-peer lender and Accion and Opportunity Fund are also prominent operations. Ironically, in the same issue of SmallBiz, there are a couple articles about the gloomy state of the traditional small business loaning process which has completely dried up in the last year. Despite efforts by the Small Business Administration to stimulate activity at this level, the recovery has been slow and sluggish. Hence, I see peer-to-peer lending as an encouraging trend for designers who are exploring ways to launch a new venture. If your new business vision has stalled out because ytou don’t have the cash for an initial run of products or prototypes, this could be an opportunity worth exploring.

Merge Workshop at Kane Mini-Camp

I will be presenting a workshop on Entrepreneurship for Creative Professionals at the Kane Consulting Summer Camps this Tuesday, August 18, 6:00PM at Aloft in downtown Minneapolis. Spots are still available.

$I’m not sure why this is the case, but designers have a hard time discussing finances. Sadly, this is probably a big reason why there are not more designers launching really bold entrepreneurial businesses. If the scope of your entrepreneurial idea is modest, like publishing a book, or producing a line of gift items, your need for outside investment in order to bring the concept to market will probably be correspondingly low. But what if you’ve got an awesome idea that will take a million dollars or more to launch? Most of us wouldn’t even know where to begin to look for that kind of money.

As you may know, the traditional types of venture funding fall into three general categories: angel investors, venture capital, and bank loans, each of which has a long list of pros and cons. In previous posts, I’ve discussed the trend of microfinancing (March 28, 2009) that has added an exciting energy to this mix—but microfinancing is in its infancy and really hasn’t matured yet into a viable alternative for most entrepreneurs. Likewise, business plan competitions are worth keeping tabs on, but the amount of money available is usually relatively small and the timing is rigid.

I’ve been coming across some interesting resources that can help educate designers about the possibilities for capital funding. Fast Company has been running an occasional series by writer Karen Post which follows, first hand, the development of a social networking start-up called Oddpodz (ironically the social network is entrepreneurship-focused). In this article, titled “Finding Funding for your Infant Brand,” Post focuses on funding and describes the process of securing the second round of funding for the concept. She does a great job of laying out the struggles, challenges, and lessons learned.

Not surprisingly, the once-veiled world of venture capital is becoming more transparent, and The Funded is an excellent example of this trend. Here you will be introduced to a complete line up of VC firms in a range of categories—and you can see the ratings and comments of entrepreneurs who have worked with them. This is a great way to glean information about the VC process.

As the business world evolves, a new breed of venture capitalists is beginning emerge exemplified by Y Combinator, which specializes in early stage start ups in the tech area. What’s intriguing to me about Y Combinator is that they not only dole out money, but they also conduct workshops and seminars that nurture and educate young entrepreneurs.

The recent BusinessWeek article “So You Want to Get Funded?” surveys recent venture capital activity and presents some interseting findings. Among them is that 14.3% of VC funding went to a category called “consumer internet.” I’m not sure how they define that category, but it appears to be an area that designers are active in.

better1I was intrigued by a recent link on Swiss Miss for a site called The Better Project, which offers a social networking venue for solving societal problems. Users create a “project” by listing a problem—which could be massive in scale like “public transportation,” or modest like “Washington Square Park”—then fellow users offer solutions and vote on the best ideas. As ideas emerge as promising (or at least popular), users are given the opportunity to join with others to engage in working toward a solution.

TBP is a creation of web developer Arc90 and grew out of Kindling, a business-focused software tool for generating ideas and community in the workplace.

I see some conceptual synergy between TBP and microfinancing (which I wrote about a couple weeks ago in a post on March 28). TBP appears to be in its early stages of growth, but the idea that social networking is moving into the realm of social change is exciting. And it offers a potential model for nurturing—and even funding—design-related entrepreneurial ideas.

Speaking of “better:”
Check out the 2009 Open Architecture Challenge for designing a better classroom. Obviously there is an architectural emphasis to this competition, but visual communication is such a strong part of learning and the classroom experience, it seems like there is an opportunity here for communication designers to offer some impactful solutions. Designer/enterpreneur Hilary Cottam of Participle is listed as a juror.

kiva_logoI first learned about Kiva, the microfinancing organization shortly after their site was launched in 2004. The premise behind microfinancing is that donors can loan as little as $25 directly to an individual entrepreneur in the developing world. A seamstress in Tanzania, for instance, can apply for a loan of up to $1,200—not much by “first world” standards, but enough to launch a successful business in Tanzania. The recipient then repays the loan when they have met their financial goals and contributors are given the chance to reinvest their money with another Kiva recipient.

Microfinancing has been touted as an innovative alternative to large-scale government aid that often never reaches the people most in need. Kiva has been wildly successful, generating nearly $65 million in loans in four years (not to mention a mountain of media coverage). Notably, Kiva reports that the current economic slump has not slowed the pace of contributions to their program; a sign that the microfinancing formula might be sustainable even in the bleakest times.

Now, Kiva has announced plans to loan up to $10,000 apiece to entrepreneurs in the U.S., a risky move that will test the core of the microfinancing concept. Will the model work at this larger scale? Will donors be enticed by businesses in their own backyard the way they have been with those halfway around the world?

I find myself wondering if microfinancing provides a model than can help designers build entrepreneurial businesses. So many great ideas die on the shelf simply because there is no access to the seed money necessary to move them forward. Often times the seed money that is needed is relatively modest and traditional forms of venture funding: bank loans, venture capital, and angel investors can be overkill.

Business Plan competitions like the Minnesota Cup, here in my home state, can offer an option for seed funding, but they’re not a sure thing and the rigid timing doesn’t always favor a time-sensitive concept. Although, I should point out that our participation in the 2005 Minnesota Cup was a pivotal point for Lisa and me in the development of HealthSimple.

I hope to see some design-driven ventures test this new domestic version of Kiva. And perhaps the success of microfinancing will inspire other organizations to develop a model of funding for start-up ventures that is more community-based, participatory, accessible—and design focused.

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