Crowd-funding is typically viewed as a way to raise finance for projects from strangers. But what happens when crowd-funding techniques are brought within the bounds of an organisation, for purposes of democratic decision-making? Here, Nina Pohler, Visiting Fellow at PERC, discusses some of her current research which examines this possibility.

Since the emergence of the internet, it has spurred dreams of more democratic, decentralized communication and organization. From anonymity, to freely accessible information, to decentralized, democratic discourse, step by step, most of the hopes that were linked to the internet have been severely dampened. There is a growing sense of discomfort with this seemingly opaque infrastructure, which is controlled, surveilled and monetized by big tech companies, as well as governments and their secret agencies.

But there have always been people exploring some of the utopian aspects that digital technology and the internet promise, and they offer instructive alternatives to the depressing status quo, from commons-based peer production (Benkler and Nissenbaum 2006) to free and open source software, to the movement for platform-cooperativism. The following text introduces such an example of an innovative way to use technology for the social good. It will describe the use of crowdfunding as a device for decentralized decision-making and valuation inside a worker co-op that wants to ‘unleash technology’s potential to make the world a fairer, better place‘.

The Promise of Crowdfunding

Since the first crowdfunding platforms emerged around 2009, they were hailed as the start of a revolution, that would lead to the gamification of progress, fundamentally alter the development process from top-down to bottom-up, democratize venture investing, and allow people to put their money where their values are. Crowdfunding is a very appealing idea: People who need money for a project, a product or their education, are literally given a platform to reach out to a wider audience, beyond the people they could usually ask for money, like their relatives and friends. People who are willing to support other people’s projects can do so, without having to invest large amounts of money. Most projects on Kickstarter, for instance, start with a minimal pledge of 5 dollar. Funding of a good cause or an innovative product can now be distributed amongst many people with varying financial resources. Since it is not large companies who are ultimately responsible for the decisions, there is hope implied, that the wisdom of the crowd will lead to better decisions.

The current reality of crowdfunding is far from the expectations that have been surrounding it. The most popular (i.e. most funded) Kickstarter project of all time is a smartwatch for 189.99 pounds, followed by a cooler with a built-in blender and a bluetooth speaker for 400 pounds. In general, the most popular Kickstarter projects tend to be gadgets for hip and wealthy people, who need jackets that are optimized for airplane travel – with a built-in neck pillow and eye mask – for 200 pounds. While Kickstarter is the place to go to finance your next favourite gadget, Patreon has been founded to allow artists and content creators to be directly funded by their fans. Looking at the top Patreon creators, it seems that it has developed into a platform that funds mostly creators of blogs, vlogs and podcasts and video games, while the only musicians amongst the top 50 Patreon creators are Amanda Palmer, and Peter Hollens, a guy who has a YouTube channel with acapella versions of mostly Disney songs.

What happens when crowdfunding is used in an organization?

Outlandish, a London based a co-op that builds digital applications and websites, uses a variation of crowdfunding, the open source collaborative funding app CoBudget, to distribute their surplus. CoBudget has been created by Enspiral, ‘a DIY social enterprise support network’ based in New Zealand, which has been founded on the idea, that technology can be used to create different management structures. Enspiral uses CoBudget to distribute member organization’s contributions to the collective fund amongst proposals for new collective projects.

At Outlandish the CoBudget process works like this: Every quarter, the surplus is distributed proportionally to the hours that people have spent working for Outlandish to their CoBudget accounts. These funds can then be allocated to finance different ‘buckets’, that is projects that people from Outlandish have proposed. All People who are either members of the coop or close collaborators – what they call ‘Outlanders‘ — can create proposals for projects to be funded.

Mandatory information for these proposals is the description of the project goals, as well as the people who will be working on the project and the estimated time and money needed for the work. The projects should all in some way or another serve Outlandish’s mission and they should not be business as usual. Amongst the funded projects is an internal workshop to help people up-skill in wire framing, a (paid) hack retreat for everyone and the prototype for the site This site features an interactive infographic to show how your local schools are being de-funded. It turned from a successful CoBudget project into a commercial project in cooperation with the National Union of Teachers and won silver at the digital impact awards 2017. CoBudget has also been used to sponsor projects that are less tightly linked to Outlandish, but benefit Outlandish’s broader mission. They match-funded a contract from a research organisation fighting corruption in order to include additional functionalities for an anti-corruption portal.

Sociocracy for business as usual, Crowdfunding for Exploration

When Outlandish is doing ‘business as usual’, they use sociocracy as a coordination framework. Sociocracy is an organizational framework that has been first used and developed by two peace activists in a school in the Netherlands. The main idea behind Sociocracy is to create a form of governance that presumes equality of members of an organization and allows for self-determination. Sociocracy is a popular framework for organizing among NGOs and co-ops. Sociocracy has a more formalized and trendy sibling, Holacracy, which is targeted at for-profit companies, the most famous example of a company using Holacracy is Zappos.

At Outlandish Sociocracy allows their work to be organized and governed by semi-autonomous working groups, so called ‘circles’, which meet regularly and are responsible for certain key issues, like design or business development. People who are not regular members of a specific circle are still allowed to attend the meetings. The circles use a consensus-finding procedure for taking decisions. Finding a consensus in Sociocracy does not mean, that all people are equally convinced of a decision. Some people might not like a proposal very much, but if they do not have any critical concerns and can accept it, they consent.

In contrast to the sociocratic decision-making procedures that Outlandish use for their business-as-usual operations, decision-making with CoBudget follows a different logic. In sociocratic decision-making, if you want to propose something, the process makes sure, that there is a discussion on the proposal and that everyone’s opinion on it is heard. The main determinant of a successful proposal is that there are no people who have critical concerns with it. In CoBudget, if you have an idea, you don’t have to ask everyone for their opinion on your idea, you just need to convince enough people to fund your project, so that it is sufficiently financed. While sociocratic decision-making procedures are thus based on a logic of precaution and affirmation, the decision-making in CoBudget is based on a logic of exploration and affirmation.

CoBudget is used for the distribution and re-investment of surplus, in other words, CoBudget is to distribute Outlandish’s organizational slack. Organizational slack is a concept from organization theory that was introduced by Cyert and March in their classic ‘A Behavioral Theory of the Firm’ (1963). They define slack as the resources in excess of ‘what is required to reward the dominant coalition that governs the organization’. In the case of Outlandish, this dominant coalition is the workers, therefore surplus or slack accrues, when all people have been paid adequately and there is still money left.

For Cyert and March, slack is a crucial factor that allows organizations to explore new routes and engage in experimentation and innovation. Which is exactly what Outlandish does with their slack, when they specify, that CoBudget projects should not be about ‘business as usual’ work. They encourage to use their surplus for experiments, development of prototypes or to invest in in-house education. The idea is to use surplus either for in-house training and capacity building, or for projects that might potentially be a high-risk capital investment, but can create long term value. With a platform-like coordination, where projects can be proposed by members and Outlanders and everyone who wants to contribute can do so, CoBudget offers a quite adequate logic of democratically distributing funds, which enables decentralized valuation and decision making.

The Promise of Intra-organizational Crowdfunding

When crowdfunding is translated in an organizational context, it changes some of its underlying logics. First of all, unlike with conventional crowdfunding the ‘crowd’ is made up of an actual community, that is, a group of people who know each other and have a common interest – their coop. In conventional crowdfunding, people are putting their money, where there individual interests or values are – from premium earphones to basic school supplies for underprivileged children. At Outlandish people too follow their individual interests or values, but they are united by  a common interest. They are collectively, but decentralized, deciding over the distribution of a resource that is collectively created and accessible to all members.

Furthermore, resources are probably allocated more appropriately than in conventional crowdfunding, since the knowledge of the people who want to start a project, and thus the knowledge of their abilities and qualifications, is considered in the evaluation of potential funders. In contrast to conventional crowdfunding, the projects are proposed by the same group of people who are able to finance it.  Thus, the surplus –as well as the coop as such –  is effectively treated like a commons.

CoBudget is, furthermore a ‘compromise device’ in the sense of Laurent Thévenot (2001), linking and reconciling two different evaluation principles: The ability to fund projects is proportionate to the hours worked, which is a meritocratic regulation. At the same time, the ability to propose projects and get them funded is dependent on the ability to craft persuasive proposal, as well as people trusting in your abilities to actually realize what you have proposed. This is a meritocratic principle as well, but with different measures.

CoBudget, just like conventional crowdfunding platforms, allows decentralized valuation and decision making. Decisions are not subject to  the formalized discussion and decision making process of Sociocracy and the strong imperative of a central, general consent. This seems to be an ideal way of coming to decisions regarding the investment of organizational slack, where you want to encourage experimentation and innovation. At the same time, it would not be a good idea for decisions concerning fundamentals of Outlandish’s business or the day-to-day operations. CoBudget as an organizational application of crowdfunding is an interesting and positive example of a market-device being used for intra-organizational coordination and allocation of resources. CoBudget would be a terrible idea for decisions that concern the core of Outlandish’s business and thus highlights the importance of choosing adequate coordination logics for different purposes. It shows, that organizations can use platform-enabled decentralized decision-making and coordination in a way that facilitates innovation as well as the social good.

Nina Pohler is a PhD student at Humboldt-Universität zu Berlin, Research Assistant at the CityScienceLab, HCU Hamburg and currently a Visiting Fellow at PERC