Crowdsourcing: Free Problem-Solving for Your Biz Tapping the masses for brighter ideas and bigger margins

If two heads are better than one, are millions of heads worldwide that many times better than the heads in your office?

The growing number of crowdsourcing advocates would answer this riddle with a resounding "yes." Moreover, many will argue that businesses cannot afford to ignore the trend that's driving growth in fields as varied as sneaker design, software development, mining, apartment management and restaurant marketing.

Crowdsourcing, also referred to as open innovation and community-based design, is the practice of companies putting out an open call for answers to a problem, task or question that would traditionally be tackled by their employees. Instead, volunteers, amateurs and/or experts contribute to the resolution on their own volition. Payment to participants can be in glory, pride, a flat fee or profit-sharing. Meanwhile, the organization sponsoring the call benefits from the wisdom of a group that is often faster, smarter, more creative and probably cheaper than any defined group or single person--advantages that small businesses cannot afford to ignore, says Stephen Benson, CEO of Innovation Exchange, a Toronto-based website that facilitates crowdsourcing for Fortune 500 companies.

"Crowdsourcing has created a level playing field, so small businesses no longer have to hire all the smart people, or have the most equipped labs or be leading edge in everything they do," Benson says. "Small organizations can now tap into talent they could not otherwise access and use that information to drive innovation--and small businesses need innovation to get out of today's economic tsunami."

Get in the Crowdsourcing Game

Your company will get results fast when it comes to generating new ideas for content or product designs. Here are some of the benefits:

Big margins. One of the highest-profile examples include Threadless, the Chicago-based T-shirt maker that culls its designs from the public. Anyone can log on to Threadless.com and vote for their favorite design. The winning designs are then printed and offered for sale, and winners get $2,000 cash, a $500 gift certificate and lots of publicity--a big deal because many are professional designers.

Despite an estimated $30 million in 2007 revenues, the firm employs just 60 people and famously spends zero on advertising because the competing designers' promotion of their own product via social networking inadvertently promotes Threadless.

• Customers expect it. Jeff Howe, the person credited with coining the term and author of Crowdsourcing: Why the Power of the Crowd is Driving the Future of Business, says that increasingly, customers expect to have a say in the products they consume--especially Gen Yers, who've grown up in an age of Amazon.com reviews and YouTube. "Anyone under age 25 doesn't need to read my book--they live it," Howe says. "And anyone dealing with that demographic as vendors needs to understand that world."
• If you don't crowdsource, you'll be crowdsourced. Nearly every retailer and service provider has an internet presence whether they promote a website or not, thanks to the ballooning popularity of sites like Yelp, Citysearch, TripAdvisor, and Angie's List where customers rate and comment on businesses. If you don't harness these sites, they'll lasso you instead, says Josiah Mackenzie, managing director of the San Francisco-based marketing firm Gradigio, which advises its hospitality clients on how to make the most of this seemingly unwieldy force.

"Companies don't have a choice whether or not to be involved in crowdsourcing concepts," Mackenzie says. "People are going to be talking about them and creating content about their firms--whether they like it or not."

Types of Crowdsourcing

In his book, Howe lays out four types of crowdsourcing: collective intelligence, crowdcreation, voting and crowdfunding.

The first type assumes that the masses are smarter than individuals. Spiceworks, an Austin, Texas-based software firm, built a free application that helps IT managers of small businesses manage all their software and hardware. Integral to the product is a feature that invites users to comment on its various components and vote on others' suggestions. The two-and-a-half year-old Spiceworks now has 500,000 users and the software is now in its 10th version--with revenue generated by advertising.

Make sure you listen to the feedback you receive. Spiceworks CEO Scott Abel said when they started out, it was tough to take seriously comments that contradicted years of experience and heaps of market research. "They're telling us the way things are in the real working world, and we were reverting to our old market research ways," he says. "Today customers expect to be listened to--and if they're not, they're going elsewhere."

The second type, crowdcreation, has been successfully used by companies including Threadless and 99 Designs, a site on which those in need of logo, business card or website design can post an assignment and fee, and designers submit designs for consideration. The contest sponsor then chooses one design and awards the fee. Mackenzie of Gradigio used 99 Designs and other crowdcreation sites.

"The big advantage was that we got a broad range of designs right up front," Mackenzie says. "Traditionally, you work with one designer, and you never know what you're going to get."

Make sure that you pay appropriately. Many of those who participate in this form of crowdsourcing are professional scientists, designers and other professionals. Free publicity and an ego boost are not adequate enough compensation to attract top minds.

Be prepared for an avalanche of information by creating an in-house mechanism to filter and sort information.

The third type, voting, collects public sentiment by asking individuals to give feedback on an existing idea or product--in the case of Spiceworks, software users vote on peers' improvement ideas, while TripAdvisor aggregates travelers' votes on hotels and cruises.

Use it as free market research. Take advantage of the comments and ratings by making suggested changes to your business.

Respond. In the case of review sites, log in to the sites as a representative of your business and send private messages to those making mistakes. Be careful about posting public replies, as that can have a shouting down effect that makes others afraid to comment if they fear they might receive a snarky reply from the business.

Encourage customers to post comments and reviews through messages on marketing material.

The fourth type, crowdfunding, refers to the public's willingness to finance projects they believe in: lending money to a microfinancing project, funding an independent film, sponsoring a piece of journalism, or the takeover of a soccer team, in the case of MyFootballClub's collective purchase of England's Ebbsfleet United Football Club for £700,000 in 2007.

Be transparent. People want to know where their money is going.

Show something for it. Whether it's a profit from an investment, or a meaningful story about how donations helped someone in need, show users results.

Speaking From Experience

Mervis Diamond Importers, a third-generation chain of four jewelry stores in the Washington, D.C., area, employed crowdsourcing to generate a series of successful newspaper advertisements with the help of crowdsourcing facilitator Genius Rocket. For a $500 fee, Jonathan Mervis sent out a query looking for one-line ad copy to accompany the front page of the local edition of satirical newspaper The Onion, which is popular with young adults. Genius Rocket publicized the contest, and Mervis spread the word through his company's blog and his own contacts.

The query promised to select between five and 15 responses and award $100 to each.

The query netted more than 500 responses, many of which were outstanding, Mervis says. He personally read all of them and wrote checks to 10 entrants, which were "brilliant" and many of which are often quoted by customers in his store and strangers on the street. Standouts include, "She likes the Beatles, but she loves the Stones," and "Conflict-free diamonds for a conflict-free bedroom."

"This doesn't even compare with working with my usual ad agency," Mervis says. "If I just sit down with my agency to discuss an ad in The Onion, it costs me $1,000 and it doesn't get me 500 options, it only gets me two or three. Often I don't really love those two or three, but I don't want to pay for more so I just go for it."

He says the return on investment is tough to calculate, but he plans to launch more crowdsourcing queries. The time and monetary investment were minimal, quality of responses phenomenal, and the ability to control the creative process rewarding and productive, he says. "It's almost like a free shot."

Tips include giving potential responders lots of information about your company, the type of responses that you're looking for, and your target audience. Also be careful to attach an appropriate fee. Mervis sponsored a second crowdsourcing competition for an online video advertisement he hoped would go viral. The eight responses were so-so, and Mervis wonders if the $1,000 reward was too small to attract top talent.

"What if I doubled the reward money? Would I get double the number of good videos?" he asks. "That's the thing: There are no statistics to support any of this."

Low budget? No budget? Doesn't matter. With the right choice of crowdsourcing venue and the proper incentive, even a small company can achieve ad agency-like results. Open innovation may just level the playing field.

Emma Johnson writes the MSN Money multimedia series "Launch your Life," which explores personal finance topics for people in their 20s and 30s.