Enterprise: crowd funding, co-operatives and starting a business

Thousands of strangers paid for a headset before it was made. When Facebook later bought the company for about two billion dollars, what did they get? It was the Oculus Rift, and its online campaign raised nearly ten times its target of a quarter of a million dollars. Most people guess the backers got a share. They got none. Their pledges had paid for rewards, like an early headset, not a slice of the business.

Enterprise means turning a good business idea, a new product or a new way of selling, into a business that makes money. The hard part is usually the money to start. Picture a young designer, Priya, with a phone stand that folds flat enough to slip into a wallet. Friends want one, but a first batch costs thousands of pounds she does not have. Crowd funding is raising money from a large number of people, each pledging a small amount online, usually through a platform. In return, each backer is promised a reward, often one of the first products off the line. Is a pledge to Priya a loan, a gift, or something else? Something else. It is not a loan to pay back with interest, and it is not a gift. It is payment in advance, so Priya owes that person a phone stand. Some platforms only release the money if the full target is reached by the deadline. Miss it, and nothing is collected at all. What are two advantages of crowd funding for Priya, each tied to her stand? It tests demand. If too few people pledge, Priya finds out before she pays for a single stand to be made. It is publicity. The campaign page, shared on social media, advertises the stand to thousands of people before it is even on sale. And it keeps her in control. Hundreds of small pledges replace one big investor, so she gives away no part of her business. A bare answer like it's cheap says nothing about Priya at all. If you came up with two of those, you are in good company. One examiner's report on a question like this records many clear responses with lots of references to low start-up costs, promoting products, and raising additional investment funds in small amounts from a group of people. The habit that turns those into strong answers is tying each one to the product. Low start-up cost, so Priya risks none of her savings on stands nobody wants. Now the other side: what is one drawback of crowd funding for Priya? The idea is public, so a bigger firm could copy the stand. If the target is missed, the money may never arrive. And backers expect their stands on time.

Crowd funding brings a calculation with it, and every line carries pounds. A start-up needs twenty-four thousand pounds to make its first batch of eight hundred stands. The founders put in six thousand pounds of their own savings, and crowd fund the rest. First, the crowd funding target. Twenty-four thousand pounds, take away the six thousand pounds of savings, leaves eighteen thousand pounds. What percentage of the twenty-four thousand pounds is that eighteen thousand? Eighteen thousand divided by twenty-four thousand is nought point seven five. Times one hundred gives seventy-five per cent. So the crowd must raise three quarters of the cost. Now part two. The campaign is a hit, and it closes well above what it asked for. It ends thirty-five per cent over target. What is the extra, and the total pledged? The extra is thirty-five per cent of the eighteen thousand pound target. Nought point three five times eighteen thousand is six thousand three hundred pounds. The total pledged is the target plus the extra. Eighteen thousand plus six thousand three hundred is twenty-four thousand three hundred pounds. As a check, eighteen thousand times one point three five gives the same. Now a student's answer to that same part two. A student gives twenty-four thousand three hundred pounds as the extra. What went wrong? They handed in the new total, not the extra. Multiplying by one point three five gives the total. The extra is only the part above the target. One examiner's report saw the same slip on a different sum. Many responses were seen whereby candidates had simply multiplied the one hundred and fifty thousand pounds by one point three to get an answer of one hundred and ninety-five thousand pounds. Had they then taken away the original sum of money they would have had a correct answer of forty-five thousand pounds for the full two marks. The fix is to underline the word extra in the question, then work the extra and the total as two separate lines.

Once the stands exist, people have to hear about them and buy them. Virtual marketing is using websites, social media and online adverts to make people aware of a brand or a product. It is cheap, and it can be aimed at the people most likely to buy. Virtual retail is selling online, through the business's own website or an online marketplace. There is no shop to rent, customers can be anywhere, and it is open all hours. But delivery and returns cost money, and buyers cannot hold the stand before they pay. The difference fits in one line. Virtual marketing makes people aware of the stand. Virtual retail is where they pay for it. Priya has three ideas. Pay for adverts shown to students on a video app. List the stand on an online marketplace with a checkout. Post photos of it to her followers. Which of those three ideas is virtual retail? The one with the checkout is virtual retail, because that is where the money is taken. The other two only make people aware, so both are virtual marketing.

A co-operative is a business owned and run by its members, who share the decisions and the profits. The members can be its workers, its customers or its suppliers. Arla, the dairy company, is owned by the farmers who supply its milk, and the Co-op shops are owned by their member customers. A co-operative is not a charity. It aims to make a profit like any business. What differs is who owns it, and who shares that profit. Members share the cost of equipment and the risk, and each gets a fair share of the profit, which keeps them motivated. The drawbacks are slower decisions, because many voices must agree, and a profit split many ways. Here are two answers to one question: explain one advantage of forming a co-operative for a group of small furniture makers. Answer one says: it is fairer. Answer two says: each maker becomes a member and part-owner, so together they can afford a CNC router, a computer-controlled cutter, that none could buy alone. And each gets a share of the profit it earns. Which answer is better, and what makes it the better one? Answer two is better. It names the advantage, a shared cost, gives the reason, joint ownership, and spells out what it means for these makers: a machine out of reach for any one of them. Answer one is a bare word with no reason. Fair trade is one more enterprise model, built round paying producers a fair price.

Let's see what stayed with you, with one question from each part of the video.

Two thousand people each pledge online for a copy of a new board game. What is that? Crowd funding. Each backer is owed a copy of the game, not a share of the company. Now a sum: a ten-thousand-pound target is beaten by twenty per cent. How much extra? Two thousand pounds, because nought point two times ten thousand is two thousand. The new total would be twelve thousand pounds. Try this: a bakery posts videos of a new cake. Is that marketing or retail? Virtual marketing. The videos make people aware of the cake, and nobody pays until a checkout. Here's another: bike repairers jointly own a workshop and split its profit. What is it? A co-operative. The members own it together, share the decisions, and share the profit. One more: why did the Oculus founders still own their company after the campaign? The founders still owned it because the backers had pledged for rewards, like an early headset, not for shares. A pledge for a reward buys no part of the business.

With crowd funding clear and the extra right first time, that's in the bag, and the thumb under the video is your note that it's finished. If the sum still wobbles, save it and write part two out once by hand.

Next in the chapter: New technology in industry: automation, robots and the workplace. Hopefully that's next in your feed, but if not, search for ScholaFly D T oh five, oh three.

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