Snowflakes Effect Hits Financial Models: Snowflakes funding Snowflakes

The evidence that the Snowflake Effect of mass personalization is continuing to build at an exponential rate continues to show up just about everywhere I look. One dimension of the Snowflake Effect that has not received a lot of discussion yet is the financial side if the story; how will the mind boggling numbers of personalized solutions needed every day be funded?  What are the new financial and business models going to be in a Snowflake Effected world?  If as I believe more and more of us are going to become designers and producers and creators by making our own “stuff”, and especially if others are asking us to make and share some for them, how will we pay for this?   Well, why not apply the Snowflake Effect to funding itself?

Microtizing Finance, Credit & Loans

In fact this the Snowflake Effect has already hit funding models already and we are seeing more and more examples and growth of these wild new models.  One of the hallmarks of the Snowflake Effect is breaking things down into very small components whether that be each of us as unique individuals or each unique moment in time or small parts that can be reused and reassembled into infinite numbers of unique new assemblies Lego block style.  This same “microtization” trend is increasingly taking hold of financial models and enabling each of us 7 billion plus snowflakes to not only become designers, creators and producers, we are also becoming financers and funders. 

One example you have likely heard of and many of you are already participating in is that of microloans, microfinance and microcredit.  Essentially this is where once snowflake can loan small amounts of money to another snowflake or individual cause.  As is often the case this is not a new idea or invention but what is new is the scale and reach of these models.  Back in 2006 Kevin Kelly posted this good overview of “Micro-Loans Online” which he introduced by saying:

This year the father of micro-finance and founder of the Grameen Bank won a Nobel Peace Prize for his work in inventing and promoting micro-loans in the developing world. A micro-loan is as little as a few hundred dollars invested into a one-person business with minimal qualifications. That tiny borrowed amount can launch a vegetable stand, repair shop, or bicycle taxi -- a living in other words. As each micro-loan is repaid (and most are), the effects of that small goodness are amplified and leveraged by being loaned out and invested again and again. Micro-loans are the world's only perpetual motion machines.

Snowflake Effect Hits in Financial Models in Developed Regions

Most of these micro loans and micro financing have been focused on dealing with poverty and developing regions and they continue to escalate in both numbers and positive effects.  Somewhat newer and greatly increasing the scope of this Snowflaking of financing is their application to the financing of individuals and small businesses in developed regions and markets.  One of the more noteworthy examples is Kickstarter  which has the tag line of “A new way to Fund & Follow Creativity” and bills itself as being “The world’s largest funding platform for creative projects”.  The model is essentially the same where anyone can pledge any amount, typically one to one hundred dollars, towards a specific project that someone has proposed on the site.  As they point out this is not about lending or investing as each project creator maintains complete control and ownership of their work.  Those who pledge money are also protected because no money changes hands unless the project reaches its funding goal within a set time.

You can check out the Kickstarter web site and Kickstarter blog for more information and examples of the enormous range of ideas, products and services being developed which include everything from software applications to games to art to books to home hardware.

How well is this working?  Well Kickstarter recently had a record setting day with two projects exceeding $1M each in pledges and $1.6M being pledged in 24 hours.  All this from individual snowflakes like you and me.  In fact they had quite the day as they also saw New York’s city council endorse the site as a way to highlight community projects that need funding

It was also noteworthy to me how different the two projects were that exceeded the $1M in pledges.  The TechCrunch review of this eventful day highlighted this nicely:

Often Kickstarter is thought of as a venue for people with very limited means but a good idea to execute that idea. The Elevate Dock is a good example of this.

But Double Fine is an established game studio with office space, employees, and many products under its belt? Why should it go to Kickstarter? Well, Tim Schafer explains that in the video, at least for this project: no publisher would go near a point and click adventure game, but they knew at least some people wanted it. Reasonable enough.

The question, really, is why we even question it. If people want to make something, and people want to fund it, why shouldn’t it be on Kickstarter? The easy stuff — cool accessories or small devices that need a little capital to get started — are just the first wave. Why not pothole repair on a neighbourhood street? Why not a new coffee shop? Why not a feature film? Some of these have been tried, no doubt, and perhaps failed — but the principle is sound:

If you want to make it, and others want you to make it, this is a way for you to connect.

Why not indeed!!  What if the impossible isn’t?

Snowflake Effects on Learning

As you can see then, the Snowflake Effect of mass personalization continues its exponential growth and influence on almost all aspects of our world.  For those of us who look at the world from the perspective of learning, my ongoing question and fascination is with how the needs for each of us as individuals and as societies are changing and being changed by the Snowflake Effect.  The personalization of learning itself such that each learning moment is more successfully and deeply personalized is happening at an equally exponential rate with more examples of this showing up every day.  However an even larger and multiplying effect is the need for a whole new set of skills, knowledge and competencies each of us snowflakes are going to require to survive and thrive in the rapidly evolving new snowflaked world we are creating and will live and learn in.

I fully realize that this all continues to sound unimaginably large and impossible.  And yet as the examples of financial models I’ve highlighted above show, we are surrounded daily by more and more examples of how the impossible isn’t.  The oxymoron of typical Snowflake Effect models that are infinitely scalable AND sustainable turns out to be true!  Or as Kevin Kelly put it; “Micro-loans are the world's only perpetual motion machines.” 

Add enough snowflakes together with these kinds of models and you have a perpetuating avalanche of invention, discovery, creativity, production and happiness.

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I've never heard of microlending and crowdfunding referred to as Snowflake approach before. I think it's a nice way to frame these kind of ventures, as it really does draw attention to the fact each investment/cause should be judged on its unique merits.

Back when we were studying our cfa program, we studied the traditional routes of credit, debit and various investment vehicles, but we didn't study these case-by-case person-to-person opportunities because they weren't really available at the time. But with the rise of websites like Kickstarter, I do think these new financial models are here to stay and really allow normal people to get involved (without massive capital investment!) in exciting or ethical projects.

What protections do you think needs to be offered to micro-investors? I think there is the potential for disaster if it isn't governed by central financial auditors.

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