Influencing an Election with Crowdsourcing

An article in the New York Times highlighted an interesting new political tactic: campaign resources are being used to promote certain newspaper articles online, such that they appeared at the top of a Google search for a candidate's name.

This makes for a powerful propaganda tool. For example, a Democrat could promote a negative article on her Republican challenger, such that it appeared #1 in Google for that person's name. Anyone searching for info on that Republican would get an eyeful of criticism, giving them something new to think about. The fact that a newspaper article (a supposedly objective source) is used as the target makes its impact even more compelling.

This is a great example of crowdsourcing - not just because many people were involved, but because many people's websites were being used for a focused task.

Miserable Failure

You might recall the story a couple years back, where Bush's White House profile became the #1 result for the search "miserable failure." (Yes - it's still there.) This is an example of Google bombing: a mischievous version of a marketing practice called search engine optimization (SEO).

SEO is a technique used by companies to get more visibility in search engine listings. One interesting aspect of SEO has to do with links between websites.

Search engines add-up links from other websites as a form of reputation scoring: CNN.com has a "better" score than NPR.org - not because it has better news, but because more websites link to CNN articles than NPR articles. Link scoring is Google's search sauce, and it's become standard practice for all search engines.

Link scoring is crowdsourcing at its best, because the crowd (the universe of websites) is largely unaware that their actions are being analyzed and used to serve some secondary purpose.

Gaming the System

Google bombing (and SEO in general) introduces a new twist: the idea that this "crowd" can be contacted, requested to link to a specific website in a specific way, and create an intentional outcome.

All of this brought to mind a discussion I recently had with one of the Amazon reps working with Mechanical Turk. They have a provision in their terms of service that prevents companies from using their workforce for promotional work. So you can't hire an army of Turk workers to build links from other websites.

I thought this seemed unduly restrictive, because I'm a search engine marketer and saw Turk's potential as a useful tool in my work. The rep explained that Amazon was trying to avoid having someone come-in and use their workforce as part of some "gaming" effort.

Given the New York Times article, I'm inclined to agree with the wisdom of that logic... if somewhat reluctantly :)

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Posted 23 days ago

Crowd Computing and 6 steps to make it work for you

http://codehandyman.com/2009/03/crowd-computing-and-6-steps-to-make-it.html

I have a lot of people coming to me for advice on their websites. Here is my personal philosophy on the topic and what drives my advice to pretty much everyone these days.

First of all, websites as we generally think of them, are dying or dead. The idea of a static page with some sharp graphics, perhaps a fancy flash logo animation etc. has largely become irrelevant to most people in the past few years.

I like to correct people and say web presence instead of website. Web presence means just that, your presence on the web, in all forms. Your emails, your facebook pages, profiles and groups, your blogs, your pages on other social networks like ning.com, linkedin, twitter, second life, myspace, wikipedia, and your AIM/MSN/Yahoo chat handles. That list seems to be getting longer and longer, but essentially its all just where you're at on the web.

It may seem intimidating to have all these things out there and feel like you HAVE to be on all of them. The good news is, you dont. You only have to participate where you feel most comfortable, and where you get the most "bang for your buck". Buck in this case translates to time and effort.

I watched from the outside for 10 years this blogging and social networking phenomenon, really staying out of it and focussing on my job of building dedicated flash applications for online training. I stayed out because what I saw was millions of people with what I would characterize as a very shallow web "presence" in a wide range of media. I would call it spamminating, or just dipping your toe in a lot of different pools. That sort of thing didnt mesh well with my personality. I like to get into something and go very deep, explore it to as far as its limits, and master it, THEN move on to the next thing.

As the technology evolved, I did too. With the advent of more and more cross linking between them, badges, open application architectures, and flexibility, I saw a new opportunity to dive deep. With all the cross linking done automatically by things like badges, you can now write once, publish everywhere. That exicites me.

I read this line in a book called What Would Google Do by Jeff Jarvis that talked about how linked in disseminates the hundreds of millions of photos by using algorithms that monitor the cross promotion and cross talk between members about photos, and basically could use the wisdom of the crowd(crowd computing?) to determine interestingness.

Now, like the new ad companies, my audience gets my content not by how good my SEO skills are, or my raw willingness and lack of social life to post to thousands of networks all day, rather...and this is important so I'll bold it...my content automatically goes to people who are interested in what I have to say.

This is game changing. I've always thought that the internet was the dawn of a collected conciousness, but now with vastly more intelligent search thanks to google and the like, everything we say can and will be said to the people who need to hear it.

It effectively turns everyone's brains into one giant brain, with computers as the connectors between brains.

For now, we have to post our thoughts in writing to things like blogger, but eventually I think thanks to voice recognition, our every thought, our musings, will bring us kindred spirits to develop those thoughts either into new thoughts, learning journeys, personal catharsis, and evolution.

Crowds have always been feared by people, as angry mobs with pitchforks, but in What Would Google Do, Jeff Jarvis talks about the wisdom of the crowd. If properly analyzed and understood, a crowd is vastly intelligent, it is the sum of all its parts. If you take an individual neuron, its not capable of much, but put them all together and you have the most complex thing in the known universe, the human brain.

For the first time in history, sites like Flickr and Google have begun to speak to the crowd in its language (or even give it a language for it to articulate itself) And its talking. It has a lot to say. Democratic ideals have always tried to make this a reality, but voting never really captured the true meaning of what the crowd wanted, only grunts and warbles. With AI and computing however, the crowd now can finally talk with unprecidented precision.

What will we say to the crowd? More specifically what will you say to the crowd? Here is where we get out of the clouds and return to earth with actionable items:

1. Make sure you have and control your personal brand on as many social networks as you can find. This means own your own domain www.myname.com if you can. Own your company name www.mycompany.com, myproduct.com etc.

2. Create a facebook fan page for your product or service. Get everyone you can to join. If there already is one, become an active and leading participant. Always Give Value in everything you do.

3. Create and own your facebook profile, before someone else does. Facebook is used by 150,000,000 people as of this post, and by default is quickly becoming the defacto identity source. If you dont own your facebook profile, you are wide open to someone else taking it for you. And that is still legal.

4. Create your profile on everything else. Ning.com, Linkedin.com, blogger.com, myspace.com. All these can be more or less empty but just grab and own them.

5. Now that you've experimented with all these things and learned all these new skills... :) Pick which one you like the most and dive deep. In linked in, get all your friends in there, find new contacts, find opportunities, recommend people you respect. In facebook, post funny and entertaining things to your status, make people smile daily. Tell people things they can use, share your ideas, your concerns, your hopes.

6. Watch the comments roll in, tweak what you are doing based on them. If one thing you do gets no fans or comments, but another thing does, do more of the other thing.

That is how you can, right now, capture the wisdom of the crowd.

Good Luck!

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Posted 24 days ago

Intro to Amazon's Mechanical Turk

Mechanical Turk is a crowdsourcing network set-up by Amazon. The service gives you access to a network of freelancers, who log-in to an online system and can pick and choose tasks to work on. The key distinction: unlike Elance and other outsource portals, Mechanical Turk is aimed at piecework, not entire projects.

There's an e-commerce set-up on both ends. Tasks are uploaded by "requesters" - companies and individuals that define the work to be performed. Requesters deposit funds and set pricing for the tasks, while workers who perform tasks get funds transferred to their accounts. These are conventional Amazon.com accounts, so they can be linked to bank accounts or used for purchases on Amazon.

Real world experience

That's the long-story-short version - what's it like to actually use Mechanical Turk? I've assembled some of my experiences below, as well as links to tools and info I've stumbled upon along the way.

What tasks can be performed by Mechanical Turk workers?

MTurk is ideal for any task that involves the manipulation of small amount of information: data entry, analysis of written or photographic materials, research, and transscription of audio recordings are common tasks.

So far, I've assigned work in two areas: writing content, and doing web research. As a web marketer, I'm always looking for ways to generate useful content for websites, and I've been impressed by the high quality of writing that I get from Turk workers.


Typically, I'll send out sets of 50-500 tasks. A set of several hundred tasks typically gets done in a day or two, although this will vary depending on the complexity of the task, the time of day they're posted, etc. Some requesters launch thousands of tasks at a time, which I've seen workers churn through with a week.

Why use Mechanical Turk?

As a solo consultant, MT gives me access to a very flexible, always-on labor pool. I live in Cambridge, Massachusetts and have access to college students in a wide range of disciplines - they're smart, in plentiful supply, and generally inexpensive. But MT is an easier resource, a more reliable resource, and (at least for now) a much cheaper resource.

What are the advantages, versus employing a traditional subcontractor?

From the requester (employer) standpoint, it has several advantages: not having to scout for talent, file paperwork, keep track of invoices or timesheets. Mechanical Turk automates HR, and allows you to structure freelance work in a way that isn't otherwise possible.

The key to using MT profitably is to recognize what types of projects can be diced into the taskwork that MT can digest easily. MT is best for tasks that are easy to define, and can be clearly expressed in a text message without any back-and-forth clarification. It takes a bit of upfront work to define the tasks, and prepare instructions that can't be misinterpreted - this is crucial to ensuring that the results are accurate, and returned to you in a usable format.

One aspect of the system that helps improve results is the ability to pre-screen workers using a test. If they pass the test, they receive a "qualification" which then allows them to perform tasks available only to them. I have a copywriting qualification set-up for my tasks, and other companies have created dozens more, focusing on areas like language translation or technical expertise.

Finally, it's incredibly scalable. If you have thousands of tasks, so much the better - the upfront cost of preparation work can be spread across those tasks. And workers tend to swarm on larger groups of tasks, realizing that they can settle-in for a few hours and make larger amounts of money.

What are the wages like?

Amazon sets a very low floor of 1 cent per task, so it's left to the free market to decide what rates are fair. At the moment, there are only a few companies participating on a regular basis, so there's a tendency to price tasks very, very cheaply: they know that someone, somewhere will eventually pick-up the assignment.

Wages have become a contentious matter among workers, especially now that the system has been operating for over a year. The overall sentiment expressed on MT forums and blogs is that pricing is too low, and the most active workers seem to be expressing the most dissatisfaction. I think effective wages have to go up to retain workers of the caliber that I've dealt with.

Some companies are trying to remedy this by assigning bonuses or awarding prizes to the best workers, but this creates its own inequities. It also creates a gold-rush mentality, as workers swarm-in to perform tasks that are linked to a bonus.

Eventually more companies will enter the system, and competition for workers' attention will drive prices to a more equitable level. But that depends on how well Amazon will succeed in attracting companies with large workflows to perform. If free market activity can't float a higher wage, and workers begin to drift off, then a more hands-on policy may be necessary.

What tools are available to access the system?

To access the system via any method, you first must sign-up for an Amazon account at Mturk.com.

  • True power users will want to take advantage of the API - developer resources can be found at the Amazon Web Services site.
  • Intermediate users may want to check out HIT Builder, a web-based interface for piping tasks into the system. It's a bit kludgy at times, but allows you to do bulk uploading of assignments without touching code.

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Posted 1 month ago

CLOUD COMPUTING, MEET CROWD COMPUTING

If you stay up past 10 on any given night, chances are you will eventually run across a TV infomercial promising riches beyond your wildest dreams. You'll be able to stay at home, it says, making thousands of dollars a day; in fact, you'll be able to buy a new home, like Susie did, just from your part-time, stay-at-home job.

Sure.It's really a shame, too, because the sheer workforce potential of stay-at-home moms, college kids and retired baby boomers is overwhelming.

But let's not throw the crazy fox out with the bath water. There are plenty of computer-centric, home-based jobs available that don't promise a new Ferrari and a live-in housekeeper. These more down-to-earth—and significantly less promoted—jobs also happen to be legitimate.

Take, for example, Amazon's Mechanical Turk. Based on the simple idea that computer's can't do everything (yet), Amazon is attempting to tap in to the highly lucrative market of idle human intelligence.

The premise is that some data manipulation requires human intervention. A good example would be a business looking to expand its email database. While it has thousands of records on customers it has collected over the years, no one ever thought to ask for email addresses. With Mechanical Turk, the process is quite trivial: the business creates a HIT, or Human Intelligence Task, that is uploaded with the data file to Mechanical Turks' servers along with the amount the business is willing to pay per email address found.

Magically, a global workforce springs to life, wrangling email addresses. For each HIT that is completed, a worker is paid a commission, typically in the 5-50 cent range, depending on the difficulty of finding the answer and the level of skill involved.

And, within a set time frame, Mechanical Turk sends the company new customer records, complete with email addresses. And, of course, a bill. Meanwhile, someone gets a check. The process is similar for tagging photos on online commerce sites to improve searchability; screening comments and reviews; and keeping Facebook and Twitter accounts appearing active.

It?s a little bit of money per job, but with a potentially huge crowd benefitting from, an completing, those jobs. With all the talk about cloud computing these days, it's nice to see a service tapping into the growing potential of the crowd.

For more information about HITs and Amazon's Mechanical Turk, visit their website at www.mturk.com .

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Posted 1 month ago

IBM and SAP introduce… Crowd Computing?

For those of you who missed this announcement IBM Research and SAP Demonstrate New Cloud Technology: Real-Time Application Mobility

In this innovative merger of company values and large scale product offerings IBM and SAP are coming to market with a very clear Crowd computing solution.

In this technology demonstration, IBM and SAP show how users can run enterprise applications in the cloud, in particular demonstrating the migration of workloads across physical servers and across data centers. This demonstration is another instance of IBM working with partners across the IT industry to gain insights about creating and configuring workloads, and help companies move to the clouds as smoothly as possible.

This opens the door to a ‘if the big guys can do it, so can we’ methodology and mentality which means the Cloud will not only get to be more innovative faster, but it definitely looks like we can be looking forward to a pretty aggressive and crowded set of Cloud offerings in the Enterprise space.

In this demonstration, the migration of SAP workloads across the cloud is supported by IBM’s POWER6 systems, which enable users to run separate applications on different virtual machines, called logical partitions, on the same physical server. The IBM POWER6 system’s Live Partition Mobility capability further allows for the movement of a partition from one POWER6-based server to another POWER6-based server in the data center with no application downtime, resulting in better system utilization, improved application availability, and energy savings.

Application mobility, often one of the top of mind discussions around ‘Where does my app go” and “is it portable” is becoming more of a reality and less of a concern with the big as well as the small players.

 

Don’t think that the big blue getting involved will in anyway squelch the opportunity in this exploding market.  Infact quite the opposite.  IBM’s steps here today have likely increased the opportunity 100fold and that’s only touching on the surface of the offerings which so far are present in this otherwise very immature market.

…Are you ready for Crowd computing? Your enterprise will be

 

=========================================================

Is Crowd Computing the Future?

With Microsoft's announcement at PDC this fall and with the continued growth of Amazon's EC2 service and Google's AppEngine service, the industry seems to have people's heads up in the clouds. With this shift of focus, though, comes a myriad of questions about reliability, security, and portability. Potential customers of the cloud want to know that it can indeed be depended on. Executives want to know that the security of data in the cloud will not be compromised. Software engineers want to know that if a certain provider evaporates into thin air, minimal effort will be required to move deployed assets and keep mission critical apps moving.

With so many questions about elastic hosted services, and an as of yet unclear track record for the same, I cannot help but wonder if the cloud computing model will really take hold, or if it will just be a bridge to an even more impressive generation of computing architectures to follow. Maybe it will be both. This discussion then begs the question -- of what that generation will look like that does follow.

Nearly 10 years ago, a program was created that would compel sci-fi geeks, amateur astronomers, scientists, programmers, and scholars to change their screensaver. SETI@home launched in 1999 and over the next 9 years would bring grid computing into the living rooms and dorm rooms of over 5 million people. The original software was an app and screen saver that would use idle computer time to drive the search for extraterrestrial intelligence. It harnessed the untapped power of millions of computers with unrealized potential. It was built as an experiment, to break free of the constraints imposed by a supercomputer. Even hosted clusters have their limits, and some problems go beyond those limits.

With cloud computing the sky is the limit, but what if this world is not enough? What if a single company's data centers won't cut it? What if you want to maintain your data center, while still being able to tap additional resources on demand? What if you wanted to maximize and monetize under-utilized computational resources, instead of just writing them off as depreciating assets each year?

That seemed to be the aim of now defunct CPUShare. It offered users the opportunity to sell their idle CPU time to people who needed computational resources. What if the spirit of this project was matched with the vision of Windows Azure, or the ease of entry of Amazon's EC2. What if it added storage into the mix, RAM, and even bandwidth? What if each of these was currency in a new economy? This new economy would not be comprised of just one company's slice of the cloud; it would be the whole thing.

Crowd sourcing CPU hours might very well be the future, or it may be a pipe dream that will never be possible. It has the same questions of reliability, security, and portability, and it brings with it the question of control. The way the industry deals with the questions about cloud computing today, could very well pave the way for crowd computing to be the driving force behind Web 4.0 and beyond.

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Posted 1 month ago

Better and Better: The Myth of Inevitable Progress | Foreign Affairs

Indur Goklany's The Improving State of the World offers a healthy corrective to the pervasive view that everything is getting worse. But its facile suggestion that further advances are all but inevitable misreads the true causes of progress.

James Surowiecki is a staff writer at The New Yorker and the author of The Wisdom of Crowds.

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Posted 1 month ago

Crowd computing

                                  Crowd computing is an overarching term which defines the plethora of human interaction tools that enable idea sharing, non-hierarchical decision making and the full utilization of the world’s mind space. Examples of these tools (many falling under the Web2.0 umbrella) include collaboration packages, information sharing software, such as Microsoft’s SharePoint, wikis, blogs, alerting systems, social networks, SMS, MMS, Twitter, Flicker, and even mashups. Business and society in general increasingly rely on the combined intelligence, knowledge, and life experiences of the “crowd” to improve processes, make decisions, identify solutions to complex problems and monitor changes in consumer taste.  An early example of crowd computing was the discovery of a gold deposit location at the Moribund Red Lake Mine in Northern Ontario. Using all available data, the company, Goldcorp, Inc. had been unable to identify the location of new deposits on their land. In desperation, the CEO put all relevant geological data on the web and created a contest, open to anyone in the world. An obscure firm in Australia used their software and algorithms to crack the puzzle. As a result, the company found an additional 8 million ounces of gold at the mine. The only cost was the nominal prize money awarded.

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Posted 1 month ago

Your Guide to the Crowdsourced Workforce

Crowdsourcing, a term coined by Jeff Howe in a June 2006 issue of Wired magazine, is a model of labor that has been fully embraced on the Internet over the past couple of years. Crowdsourcing takes tasks traditionally done by a single person or small groups of people, and farms them out to a global workforce. The large-scale committee approach is powerful because it leans on the concept of the "wisdom of crowds" (to a certain extent) which says basically that the more input, the better the output. We've written about a number of companies that employ crowdsourcing to produce their product or service here on ReadWriteWeb, but in this post we'll specifically look at companies that allow you to leverage the crowd to get something done.

The official definition of crowdsourcing from Jeff Howe, is "the act of a company or institution taking a function once performed by employees and outsourcing it to an undefined (and generally large) network of people in the form of an open call." Last year we laid out a set of rules for successful crowdsourcing, which might be helpful to keep in mind when employing the services of any of the companies listed below.

Graphic Design

One of the most well-developed areas of crowdsourcing services on the Internet is graphic design. Generally, these sites exist in the form of graphic design contest web sites where clients put up a call for submissions for a piece of graphic design work, and designers compete for a cash prize by submitting designs.

crowdSPRING is the latest entry into the increasingly crowded crowdsourced graphic design service market. The service officially launches today, after a $5000 design competition it held over the winter to design the crowdSPRING site itself -- a wise move because it shows that the founders are willing to "eat their own dogfood" and also attracted an initial set of designers to the site.

crowdSPRING is well set up, offering legal protections for both buyers and sellers and a guarantee that all projects posted on the site will get at least 25 entries. crowdSPRING charges a 15% commission on all posted projects.

99designs is very likely the largest graphic design contest site on the web. From its humble beginnings as an area on the web development discussion forums at SitePoint, to being spun off from the SitePoint Marketplace a few months ago, 99designs has experienced astonishing growth to become a leader in its market. The site now has 18,000 registered users -- 11,000 are designers -- with 150 being added each day. $10,000 worth of prize money is put up for grabs on the site daily and it serves 5 million page views per month.

SitePoint co-founder Mark Harbottle tells me that many designers use the site for lead generation, and that often, winning designers find that contest holders will turn into long term clients who forgo the crowdsourcing option on future projects to work directly with a designer whose work they know they like.

GFXContests is a forum-based design contest site founded two years ago that seems to attract mostly logo design jobs. Full disclosure: I was one of the co-founders of GFXContests, and sold the site earlier this year. I am no longer involved with it. An interesting note: the site's logo was designed via a design contest held on the SitePoint Contests service (now 99designs).

DesignOutpost is one of the oldest design contest services, sometimes credited with originating the idea -- though that's up for debate. The site is forum-based and relies on a "design team" (pre-approved designers) to fill out its crowd.

Designcontest.net is another large, forum-based design contest site that also relies on the pre-approved "design team" concept.

Pixish (our coverage) is a design and photography contest marketplace launched in February by well-known designer Derek Powazek. Unlike many of the design contest services in this round up, prizes on Pixish aren't always cash.

Others

A number of large web development discussion communities host contest areas, including NamePros, v7 Network, and Webmaster Talk. Meanwhile, Grapic Competitions is a directory of individual graphic design competitions (not affiliated with the above sites), many that offer cash prizes.

Programming

Top Coder uses a competition approach to leverage is distributed network of over 50,000 developers to create software for its enterprise clients.

The software development community -- especially the open source community -- has long used "bounties" to help lure developers to certain tasks. microPledge (our coverage) is an escrow service that allows people to do three things: set up, contribute to and pay out software bounties, accept donations for projects, or set up a fund/bounty for an in house project (as a developer). In essence, that means people can give the crowd an incentive to work on a software development project.

Like microPledge, Cofundos.org (our coverage) is a web service for offering and managing software bounties. Cofundos.org is focused specifically on open source software, but the team behind it has indicated that they plan to adapt the concept to other areas, including beyond software development. Expanding beyond software development (to say, event funding) is something that microPledge has also hinted at pursuing.

Customer Support

Fixya is a question and answer community, in which people ask and answer technical support queries. Think of it as Yahoo! Answers for tech support. Uniquely, though, Fixya has partnered with some companies to provide an official channel for crowdsourced tech support. Most recently, the site launched a co-branded version of their service for Best Buy.

The goal of Get Satisfaction (recent coverage) isn't really to crowdsource customer service, so much as to make it easier for people to get access to companies they have an issue with. However, people do provide one another with help on the site -- similar to at Fixya -- and companies can use it to monitor customer support issues to more quickly tell if an issue isn't just an isolated incident.

Research & Development

IdeaScale (our coverage) does for research and development what Get Satisfaction does for customer service by providing Digg-style feature request boards. Companies are able to tap the "wisdom of the crowds" to learn what their customers want from their product or service.

featurelist.org is very similar to IdeaScale, but more public, not branded, and focused on software.

FeVote is another suggestion board web application that lets companies crowdsource their research and development. Like Get Satisfaction, FeVote aims to put the control in the hands of the users by encouraging them to make suggestion boards for their favorite companies.

CollabAndRate is "organic collaboration" software that enables companies to poll their customers, employees, or partners for new ideas. Essentially, this is the same idea as the three sites mentioned above, but with a slightly different pitch.

Whatever You Can Imagine

Amazon's Mecahnical Turk service (recent coverage) is what the company refers to as an "on-demand workforce." In reality, Mechanical Turk is a 100,000 strong member crowd that people can call on to complete a wide variety of tasks. See the 10,000 Cents art project as example of how one can leverage Amazon's crowdsourcing service.

Kluster (our coverage) is a recently launched crowdsourcing site that utilizes a crowd workforce to create any sort of project. The idea behind Kluster is that a group of passionate people working together can come up with better solutions for any decision-making problem than a single person. Whether that is planning an event, designing a new logo, or creating a new product, Kluster believes their system can work, though it seems likely to be used mostly for intangibles (graphic design, copy writing, programming, etc.).

Think of BigCarrot (our coverage) as microPledge or Cofundos.org for just about anything. BigCarrot specializes in "inducement prizes," which are basically cash bounties for achieving a specific goal. In fact, inducement prize contests and software bounties operate on essentially the same premise -- dangle a carrot and let talented people fight for it. Large-scale inducement prizes aren't easy to organize, though, so BigCarrot hopes to make it easier by crowdsourcing the prize creation process and letting anyone create or contribute to a prize

 

 via:: http://www.readwriteweb.com/archives/crowdsourced_workforce_guide.php

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Posted 1 month ago

10 thoughts for small businesses and startups on financial modeling

When Ross and I were working on the crowdSPRING business model late in 2006 we needed to prove something to ourselves before we asked others to risk an investment in our business: could our idea become a profitable and viable business? For both of us there was significant opportunity cost in pursuing this venture/dream and we needed to be able to answer for ourselves (and our families) one question  in the affirmative: ”is this worth it?” In order to answer this question we needed to first analyze the historical data that our research was uncovering on the market (such as incumbent’s historical growth, revenue, and traffic) and use this analysis to build our own projections for crowdSPRING. We also needed to ascertain a value for the company, which we could justify to potential investors, banks, and other interested parties. Our approach to this was to build a model which could not just answer those questions in a meaningful way, but which would act as a tool for our financial management of the company going forward. What we ended up with was (probably) overkill, and the typical response we got was “Why did you bother with so much detail?” Well, our answer to that was “Better too much, than too little.” Here are 10 tips gleaned from our own learnings on building a great financial model:

1. Learn from your ancestors. Just as I advised last week in my post on writing business plans, you should get your hands on a template. Many others have cracked this nut before you and you can benefit greatly from their work. Find a template or ask for help from someone with experience in building complex spreadsheets. Also, read everything you can get your hands on; the business press has hundreds of great titles on this topic and the information contained in those is priceless to the entrepreneurial community. (photo credit: er1danus)

2. Gather your wits (and your data). Be sure that you are storing and organizing your data well. Your market research, historical data on comparable companies, traffic data for other websites, and any relevant information you have uncovered in your readings. When you start to construct your spreadsheet, you will need to access these raw numbers for inclusion and you will want to be able to find them quickly.

3. Stay organized. It is critical that your spreadsheet be well organized. Use multiple worksheet tabs within the spreadsheet; keep your charts and tables clearly defined and labeled; use data tables but try not to let them get too large and unwieldy. Keep in mind that if you get hit by a bus, someone else may need to access your information and make sense of it.

 

4. Always assume. Build a Table of Assumptions and take advantage of Excel’s ability to reference other cells and worksheets. This is a very important part of the process and one you will want to be able to refer to often as you justify your projections and valuation. I can also not stress enough the value of linking your formulas to this table. Why make yourself go through and adjust values in 27 cells across 8 separate worksheets, when changing one will change the others automatically?

5. Project, project, project. There are a number of viable strategies that others have used to develop projections and arrive at a valuation: 1) find a comparable company from your own industry and use historical data from that company to determine sales history and growth in its early years. From this you can extrapolate your own company’s growth. 2) If you have sales commitments already in hand, use these amounts to project your worst-case scenario and add to that for additional projected sales. 3) Conduct detailed market research to determine overall demand. Rationalize the percentage of this market which your new company might control and use this along with your own set of assumptions to arrive at your projections.  And finally as a note on setting up your spreadsheet: be sure to determine exactly what data you need to project into the future, and design your formulas so that you can change this quickly. Make sure that your projection formulas are linked to your table of assumptions, so that they will update automatically whenever you change those.

6. BWML. This is not an acronym for an obscure government agency, but rather a pragmatic approach to modeling projections and budgets. It stands for Best-Worst-Most Likely case scenarios, and you should always prepare all three. This is a real-world approach that recognizes that no one can predict the future and allows you to define a range of possible outcomes. For instance your worst case scenario could assume no growth in the first two years, your best case might assume 10% growth for those years, and your most-likely case might assume 5%. Set up your spreadsheet so that you can very quickly analyze various “what-if” scenarios and see the impact of each in a broad way. (NB: thanks to Steve Rogers for helping me to understand the value of this particular strategy)

7. Bring Value to your workA critical challenge for any start-up in the earliest stages is determining the value of your (as-of-yet-non-existent) company. This is an essential exercise, as you will need to be able to justify the equity you will give up in exchange for the capital you hope to raise, before presenting the company to potential investors. There are various methods used to value a pre-revenue venture, but whatever method you choose, be sure you have strong rationale to back up your approach. Our strategy was to use two methods and present an average of the results as our proposed valuation. Here are the two we used: (photo credit: Mykl Roventine)

A) MULTIPLE OF CASHFLOW METHOD. Different industries use different multiples of EBITDA to value businesses. Do some homework, find the current multiplier for your industry, and determine if it is the correct one to apply to your projections. For instance, when we were doing the initial valuations for our own financial modeling, we looked at 2005 multipliers for several relevant industries. Different industries have different multiple benchmarks and at that time Internet businesses had an EBITDA multiplier of 39.83 and the advertising industry was 10.83. We took a conservative approach and used a multiplier of 3x for our valuation using this model model.

B) CASHFLOW  CAPITALIZATION METHOD. This is a bit trickier, but this more sophisticated method returns a typically reliable valuation. To determine value using this method, you must first determine the Present Value of your “free” cash flows for the first 5 years of your business (the “Planning Period”) and the second 5 years (the “Residual Period”). This model takes into account your assumed Cost of Capital (or “Discount Rate”), your projected revenue (and your projected rate of revenue growth), depreciation of your assets, your working capital, and your capital expenditures to arrive at your projected Free Cash Flow.

Finally, you may want to present your potential investors with the projected CAGR (compound annual growth rate) for their investment such that they can have an idea of the future value of their investment. This number, presented as a percentage value, is arrived at by using this formula (where ending value is the present value of your Planning Period (see #2, above), the beginning value is the total of your capital raise, and the number of years is the number of years in your Planning Period):

8. Make a (Financial) statement. Don’t forget to include - front and center - your financial statements. These are what investors will want to look at and yours should be clean, simple, and honest and should project out at least 5 years. Your financial statements will include a Balance Sheet, an Income Statement, and a Statement of Cash Flows. In addition, it is a good idea to include a “Table of Key Ratios” which include projected ratios: Gross Margin, Return on Equity, Current, Debt/Equity, and a couple of operating ratios, including Days Payable and Days Receivable. Smart investors will want to perform an analysis of these ratios to gain a better understanding of your venture’s vulnerabilities and strengths.

9. Let me make a plug. Don’t. Some entrepreneurs will build out their financial model by backing into the numbers they believe investors will want to see. This is easy enough to do using excel and other tools, but it is equally easy to spot this trick. The best investors for your business are knowledgeable and sophisticated and they will spot a plug a mile away. Always use honest numbers, solid data, and defendable assumptions to arrive at a fair value and reasonable projections.

10. Make it pretty. Please. And last, but not least - try to make your model presentable and visually pleasing. Remember that you are presenting a LOT of very complex information and it should be your goal to make that information as digestible as possible. Use charts to display growth and make sure you are visually consistent with these (pick a color scheme!). Use nice, clean, well laid out tables to present historical data. Color code for readability and clarity. Have friends look it over and give you their feedback on your visual presentation. These efforts will pay off every time you share your model with an audience and are able to quickly explain the various components. (photo credit: chotda)

We have also built a little Excel budget template which may come in handy for you. Download it here and enjoy, but please send us your questions and your feedback.

Here are some links to some other posts on related topics:

10 thoughts for small businesses and startups: how to write a great business plan

Start-up Tip: What’s Your Revenue Model?

Start-up Tip: Ten Suggestions For Raising Start-up Capital From Angels

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Posted 1 month ago

a must see movie -The Age of Stupid

"why didn’t we stop climate change when we had the chance?"

pls visit the sites

and declare urself that STUPID or NOT STUPID

" swathi Is too a stupid in climate change"

http://www.notstupid.org/

http://www.ageofstupid.net

"crowd-funding"

the  Age of Stupid  adventure has been funded by ordinary people from all round the world.  228 individuals and groups -  including a hockey team and a women's health centre - invested £450,000 in 2004->2006 via our cunning "crowd-funding" (as  showered in praise by Time magazine) scheme. Then another 25 invested £150,000 for the UK distribution & publicity
in 2008/9 - and a further 384 lovely ones donated £180,294 for the Not Stupid action campaign. Now we're raising a final £180,000 for the Global Premiere on 21st / 22nd September - the film will beam live by satellite from a solar cinema tent in Central Park to 45 countries.  We may even beat Star Wars to the "biggest ever premiere" record.
Please help by either investing (in which case you might get some money back in the future) or donating (in which case you definitely won't). Either way you'll be making a positive contribution to fighting climate change in the last few months we have left to prevent catastrophe. 

this is 10:10 global

If the question is “What can I do about climate change?”, then the answer is “10:10”.

Three weeks ago we launched the 10:10 campaign in the UK. The plan is simple: by working together to cut our carbon emissions by 10% in 2010, everyone can make a meaningful difference. Within 48 hours of our UK launch we had signed up over 10,000 people, business, schools and organisations, making it one of the most successful campaign launches in history.

Now we need your help to take 10:10 global. Sign-up, donate some money and volunteer your time using the simple tools below.

 

-->

 

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Posted 2 months ago