The song is so old that you cannot find the lyrics online, but in 1965 “Spider John” Koerner wrote and recorded “Rent Party Rag” on his first solo album. The gist of it was a story about what to do when you don’t have enough money to pay the rent. You get a barrel of beer, lots of food and some music. You tell the musicians, “I’m gonna feed you and let you drink for nothin” and then you are “jumpin’ til the break of dawn.” You charge everyone a little to come, and you have enough left over to pay your rent for the month. So simple!
I’ve been watching the growth of crowdfunding, and it has some of the same feel. In fact, after reading Ben Paynter’s article in Fast Company, “How Will The Rise Of Crowdfunding Reshape How We Give To Charity” it was clear that, in some ways, crowdfunding is the latest version of the rent party. It’s immediate, personal, limited in scope and everyone gets something out of it. As well, it is growing in the same way and for the same reasons Clayton Christensen describes something that is truly “disruptive.” He writes, “Initially, a disruptive innovation is formed in a niche market that may appear unattractive or inconsequential to industry incumbents, but eventually the new product or idea completely redefines the industry.”
Genuine disruptions do not improve or reform or update. They replace existing products with something that is just good enough initially but over time completely displaces the old options with lower cost and sometimes even better quality. Think about what Uber is doing to the value of taxi medallions in New York City; online colleges and free courses to brick-and-mortar universities; Amazon to J.C. Penney; and Wikipedia to Encyclopedia Britannica. Is it possible that crowdfunding is a true disruption that will change the game or is it just another low cost, trendy and short-lived option to organized philanthropy?
Mark Penn’s book, Microtrends: The Small Forces Behind Tomorrow’s Big Changes makes an interesting observation about small things that become big. All it takes for something to change the game is to capture 1 percent of a market. Mark writes, “The whole idea that there are a few huge trends that determine how America and the world work is breaking down. There are no longer a couple of megaforces sweeping us all along. Instead, America and the world are being pulled apart by an intricate maze of choices, accumulating in ‘microtrends’ – small, under-the-radar forces that can involve as little as 1 percent of the population, but which are powerfully shaping our society. In fact, by the time a trend hits 1 percent, it is ready to spawn a hit movie, best-selling book, or new political movement. The power of individual choice is increasingly influencing politics, religion, entertainment, and even war. In today’s mass societies, it takes only 1 percent of people making a dedicated choice – contrary to the mainstream’s choice – to create a movement that can change the world.”
In 2015, the crowdfunding sector generated $34 billion in cash and, according to Ben Paynter, is on pace to do nearly 10 times that within the next decade. Today, there are more than 3,500 social giving platforms internationally and that number is growing because “most millennials want to see their money make an immediate impact that is tangible and real.” Even though the average GoFundMe campaign raises just $1,500 the cumulative effect is remarkable. GoFundMe expects it will account for $40 billion in giving in the next 10 years, and very little of this will be going to existing non-profit organizations. Instead, the rise of crowdfunding is a reflection of a generation that mistrusts nonprofits and has a compelling interest in relieving the immediate need of an individual rather than contributing to the solution of a larger societal problem. More than 70 percent of all the funds raised are for individuals. Painter writes, “For individuals in need, requests like the few hundred bucks they need to prevent whatever tragic twist of fate is going to screw up life until the next paycheck might have once happened over the back fence or at a block party.” But now, with those traditional in-person social connections being replaced by online relationships we help our neighbors we’ve never even met.
Would it not be ironic that at the very time all we read about is strategic and highly rational philanthropy that is based on data and results that we would be surprised by a microtrend like crowdfunding? While a good friend of mine calls it “silly giving” when compared to the rigorous process he uses for his foundation, it may become too large to discount in a few years. The scale may not compare to the $715 billion in assets of private foundations in America or the $316 billion in private giving but let’s not discount the possibility of a genuine disruption and the power of a microtrend. Yes, there will be abuses by people who figure out how to manipulate our emotions while larger causes and organizations may be affected. But, maybe what a new generation wants is more rent parties.