Business From the Magazine

How Customers Pay to Help Big Companies Innovate

Illustration: Keith Negley

Now even corporate giants are turning to crowdfunding to get innovation to market faster.

When crowdfunding platforms like Kickstarter and Indiegogo emerged nearly 10 years ago, they helped entrepreneurs launch products by collecting preorders from anyone who was willing to support their idea. In many cases, the approach was a last resort for people who couldn’t find investors on their own or didn’t want to take on debt. It was generally understood that the product might not ever ship, but backers got the opportunity not only to support a fledgling concept they admired, and to get the resulting product at a fraction of the eventual retail price. Indiegogo has now served as a conduit for over $1 billion in capital.

But big companies, too, are turning to these platforms. Executives know their often-plodding behemoths can face significant internal challenges in bringing innovation quickly to market. So they need new ways to get products off the ground. And platforms like Indiegogo offer an additional advantage: they enable corporate R&D departments to engage with early adopters who want to help the company innovate.

Indiegogo is now working directly with corporate giants including GE, Motorola, and Whirlpool. They use the crowdfunding platform to gather ideas, validate hypotheses, and distribute new products.

Indiegogo’s management watched Google, Philips North America, and other large companies launch campaigns on its platform. So in 2015, the company decided to launch a crowdfunding offering specifically for large enterprises. Since big companies are under great pressure both to innovate and grow profits, crowdfunding provides a way to validate interest and compress the time to market. “We provide a way for organizations to be profitable on products before they even ship,” says Indiegogo Cofounder Slava Rubin, who until recently served as CEO. “We’ve helped brands like Hasbro bring their product research time down from 18 months to 6 months.”

With these new systems, consumers are able “to vote with their dollars,” says Noel Dolan, a category manager at W Labs, Whirlpool’s innovation incubator. That makes the process very different from traditional means of gathering consumer feedback, like focus group or surveys, explains Dolan, who has also held various positions within Whirlpool. W Labs has successfully funded two new products that diverge from the rest of the core Whirlpool home appliance business—the Vessi Beer Fermenter and Dispenser and the Zera Food Recycler. The Vessi is targeted at home-brewing enthusiasts and had an initial goal on Indiegogo of selling 100 units. After shipping 200 orders, Whirlpool now is moving the fermenter into broader test markets using both e-commerce and brick and mortar distribution channels. If the product continues to succeed, it may get added to the core Whirlpool business.

“The first phase was to crowdfund,” says Kelley Rich, a senior category manager at W Labs. “Then we test market through traditional retail. Then if that is successful, the product can move into one of the traditional businesses and scale.” There was initial nervousness at Whirlpool about how consumers might react to a large company asking for preorders on a product that might never ship. Executives at W Labs were ready for potential backlash. “We had prepared in case we got beat up in the media or by consumers,” says Dolan. In the end, the substantial savings Whirlpool offered its initial customers on Indiegogo seems to have overcome any issues. In fact the backers not only validated the product ideas, but the W Labs team says they have never seen a customer group more engaged and eager to provide feedback. Indiegogo’s Rubin says that sort of reaction is becoming common: “The backers love doing it and are excited. They want to influence what large companies are making.”

The 125-year-old GE Appliances business was also painfully aware of the institutional barriers to bringing innovative new products to market, so it launched a new brand it calls FirstBuild around three years ago. There was no shortage of ideas. In fact, says GE Appliances veteran turned FirstBuild Product Evangelist Taylor Dawson, there was a “backlog of innovative new appliances” the company wanted to bring to market. GE CEO Jeff Immelt was urging the company’s divisions to figure out how to act like startups, so FirstBuild was the idea of a group of longtime GE employees who knew they needed both a new culture and operating system for the business. “GE has very efficiently-running factories,” says Dawson, “and introducing new products throws a wrench into that efficiency. So we started a micro factory to produce small quantities rather than millions of units. We opened a maker space to nurture creativity and talent, inviting entrepreneurs to create things potentially relevant to GE appliances. We wanted to create a new brand that speaks to early adopters.”

FirstBuild plans to release 12 products a year and has even built its own cocreation platform so consumers can engage with it directly on challenges as well as post new product ideas. Its most successful product to date, the Opal Nugget Ice Maker, had a goal of $150,000 for a 30-day Indiegogo campaign. But it exceeded all expectations by bringing in $450,000 on its first day, ending up with a total of roughly $2.7 million in Indiegogo sales. “GE does not typically make small countertop devices,” explains Indiegogo’s Rubin. “The campaign was created to validate the concept that consumers wanted this form of chewable ice. Now that idea is penetrating the entire GE refrigerator business.”

Not unlike W Labs, FirstBuild’s goal is to bring new products to market that can ultimately be commercialized by GE Appliances, which was sold to Haier Group in 2016. It will be interesting to see whether the new Chinese parent company maintains an appetite for such an innovative strategy. But both Whirlpool and GE Appliances are gaining valuable insights from these projects and learning ways to integrate some of the lessons into their core businesses.

Appliance manufacturers aren’t the only ones using crowdfunding to bring existing ideas to market. Other brands are tapping the energy of the Indiegogo community to help them understand the next products they should consider making. Hasbro has launched what it is calling Hasbro Gaming Lab, to discover and develop new games. Motorola is leveraging the community to source ideas for modules, referred to by Motorola as ‘mods,’ that work with its state-of-the-art Moto Z phone. Already more than 30 crowdsourced mods are taking preorders on Indiegogo, from a biometric module that does iris- and fingerprint-scanning for secure transactions to a breathalyzer module that detects alcohol levels to combat drunk driving.

Working directly with consumers through Indiegogo enables companies to find ways around sometimes-recalcitrant finance departments that may not want to fund risky development projects. “We know we don’t have all the ideas,” says John Touvannas, senior director for product management at Motorola. “To continue to foster innovation, we need to provide tools that enable others’ ideas to be prototyped and brought to market. Too often great ideas never come to light due to lack of funding, and working with Indiegogo is a way to overcome that barrier to entry.”

The sophisticated and multi-layered infrastructure and personnel that once gave big companies a competitive advantage has in many ways become an impediment to innovation. The giants are struggling to innovate within the confines of their current operating models. Shareholders are pressuring them at the same time to continue growing profits, which makes it harder to act as nimble as the startups they are almost universally trying to fend off.

Crowdfunding harnesses the creativity of entrepreneurs and early adopters. The challenge will be bringing this new way of thinking into the core organization, rather than just creating ‘skunkworks’ projects or spinning up new innovation labs that don’t alter a company’s core DNA. These new products and services, even when they are successful at a small scale, usually do not offer much help to the bottom line. But the process helps brands think differently about speedy innovation. That is the kind of change, over the long term, that will determine who succeeds and who fails.

JOSH KAMPEL is Techonomy’s president.

Tags: , , , , , , , ,