Financing Freedom Slides - Final

How to Organize and Fund Free Culture Projects

Kevin ShockeyFounder, Mis Tribus

What?

Free culture projects often fail

due to a lack of resources.

So What?

By focusing on raising funds (resources),

a project can increase its' chances

of survival

Why me?

Computer Science, Math,

Financials, and Software Development

Why now? Declining interest in FLOSS

Lingering confusion surrounding free software

Lack of unity, more division

- Freedom

Cloud computing and proprietary platforms, like iOS, are:

- Reducing awareness of FLOSS contribution

- Reducing interest in freedom

O'Reilly Home Page (06/16/2012)

Disclaimer

Some of this class

Is based on theories

I'm currently researching

And using

Key Takeaways from Tutorial Now:

- Ideas are easy, execution is hard

- Most FLOSS projects fail

- Lack of resources

Financing Freedom:

- Funding is available

- Most popular FLOSS foundations aggressively pursue funding

- Success requires a methodical process

- Mastery of Internet marketing

Software Development Project Methodologies Waterfall

Microsoft Solutions Framework

Rational (IBM) Model

Open Source

Expert Programming

Agile/SCRUM Development Method

Lean Startup

Tutorial as a Startup Eric Ries – Lean Startup

Financing Freedom - “How to organize and fund free culture projects”

- Slides

- Handout

- eBook

Supporting Materials

- Background

- Data

- Illustrations (Graphs)

- Vision for Maximum Strategy

Community

So far...Startup Progress Funding Free Culture:

- Blog: news.financingfreedom.com

- Homepage: www.financingfreedom.com

- @_ff12

- Tumblr: FundingFreeCulture.Tumblr.com

One Blogger post triggers:

- 5 Automated tweets on 3 different accounts

- 3 Twitter accounts

- Linked In

- Financing Freedom Page on Facebook

Bridge

Assumptions Free Culture

Project Execution

Project Funding

Free Culture Assumptions Free culture projects often fail

- Never shipping

- Unable to attract a community

Division makes free culture weaker

- Contributors must choose

- Only able to sustain two or three projects

“Free” Assumptions Ambiguity between free and open source software

In many cases there is a an unequal value transaction:

- Many use “free” software

- Few look for ways to give back to the community

- Volunteer

- Recommendations

- Donations

- Merchandise

- Services

State of FLOSS? Projects in emergent, growth, & maturity stages

State is Mixed

- Enterprise recognition

- Limited user recognition/support

- Finances (resources) are limited (often to just one person)

Top 10 FLOSS Hall of Fame 1. Linux Kernel

2. GNU Utilities & Compilers

3. Ubuntu

4. BSD

5. Samba(Top 10 Open Source Hall of Famers. (2009). http://mstrb.us/zjn6zK)

Top 10 FLOSS Hall of Fame6. MySQL

7. BIND

8. SendMail

9. OpenSSH & OpenSSL

10. Apache

Measuring FLOSS Through search, Google Trends

Through search, Google Scholar

Through investigation, Mining SourceForge.net Repository

Search is relative (Rabbit Hole) Search is a simulation;

- By measuring “reality” we affect reality

- It is a proxy,

- We humanely can not understand the math involved

- Artificial intelligence

What SEO Tells Us Many Thanks to Stephen O'Grady and his SEO research, which he shared: “The State of

Open Source: Startup, Growth, Maturity or Decline?”

General trends for mature projects - Linux

Apache

MySQL

PHP

Open Source

GPL

Emerging Technologies Dominated by FLOSS – Linux Cloud

NoSQL

Hadoop

Another Bridge

Google Scholar Advanced Search Parameters

- “Open Source” exact phrase all in title

- “Engineering, Computer Science, and Mathematics” subject area

- Year to Year (eg; 2012 to 2012, 2011 to 2011, etc.)

2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997

0

100

200

300

400

500

600

700

800

900

Direct Results

Open Source Academic Papers by Year

“Open Source” vs “Free Software” (since 1983)

2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983

0

100

200

300

400

500

600

700

800

900

Open Source Results

Free Softw are Results

Academic Paper Analysis Growth reversed in 2011, but 2012 will show new growth

Free software has not been researched much

- Out-published by a margin of 5 to 1 by open source.

Academic Paper Questions Has research on “open source peaked?

Why isn't anyone researching “free software?”

Has “open source” obscured the importance of free software?

Most Famous Bridge

SourceForge Research Data Archive (SRDA) Many tables archived from February 2005 to present

Data includes any churn in the number of active users, projects, messages, etc.

Observations

Monthly additions of users is slowing down

User base is STILL growing- Just over 3 million users

Sharp increase in the number of projects

Number of packages is also up.

Number of releases are down

Number of files are down.

Downloads are generally rising- Extreme variances are unexplained

3.6 Million in January 2009 *

Is GitHub Eating all of SourceForge's Candy?

SourceForge and GitHub Smackdown Three comparisons

- Number of Users

- Number of Academic Papers

- Number of Repositories

Round One - Number of Users:

- SF (3 Million to 1.6 Million)

Round Two – Academic papers

- SF (195 to 8)

Round Three – Repositories

- No correlation for repositories

Possible Conclusions Certain aspects of open source are in decline:

- Open source has moved beyond technology maturity

- Cloud computing and apps are more popular

Another Bridge

Project Execution Assumptions Most projects end in failure

A successful project organization has emerged

FLOSS projects are similar to startups

Execution is achieved through testing assumptions

Open Source Failure A project that is unable to grow a community beyond the founder.

A project that fails to ship anything.

Abandoned projects

Open Source Failure A project that is unable to grow a community beyond the founder.

A project that fails to ship anything.

Abandoned projects...when either of the 1st two conditions reoccurs

SourceForge Projects 324,000 projects

268,554 projects with only 1 developer (83%)

44,446 “viable” projects (14%)

Developers Per Project

Open Source Success Constant and synchronous communication

Consistency in methodological development approach

Geographical dispersion management through an extensive testing culture

FLOSSD experience in accepting and handling the environmental limitations

Critical Success Factors Obligatory use of project methodology

An extensive testing culture (Lean Startup)

- Build Measure Learn or your competition will

Irrelevance is your enemy

- Mastery of Internet and Social Media marketing

Create, nurture, and manage a viable community

An Infinite Marketplace Thousands of new OSS projects every month

Thousands of new apps on Android and Apple

A hundred thousand new e-Books

Millions of social media updates

- Photos

- Videos

- Blog entries

Irrelevance is Your Enemy

Build Measure Learn (Rabbit Hole)

Build

A good design is

one that changes customer behavior

for the better.(Ries, 2011)

Modeling

If we do not know who the customer is,

we do not know what quality is.(Ries, 2011)

Questioning Assumptions

“What if they don’t care about [fill in the blank]

in the same way we do?”(Ries, 2011)

Questioning Assumptions

“In fact, piercing the reality distortion field

is quite uncomfortable. ”(Ries, 2011)

Thought Experiment Put the following non-profits in order of size of assets (donations):

- Apache Foundation

- Free Software Foundation

- GNOME Foundation

- Mozilla Foundation

- Perl Foundation

- Other?

Breaking Bridge

Free LOSS

Session Two – How to Organize

and Fund Free Culture Projects

Project Funding Assumptions Our software (product) is sufficient to obtain resources

- Build it and they will come

- Free beer will fuel our project

Not much is known about how to raise funds effectively

- Only one level “information”

Funding is an independent function, different from __________________

Resources = Time = Opportunity Most projects fail

They fail due to a lack of resources

What resources?

- Community

- Contributions

- Participation

- Money

- Attention

Paying for FLOSS Software is “free.”

Recognition that projects are highly sensitive to resource constraints

Usual methods available:

- Project donation page

- Merchandise

Missing most lucrative donors:

- Corporations

- Governments

- Customers

Common Fund-raising Alternatives Bootstrapping

Donations

Merchandise

Grants

- Private

- Government

Seed funding

Dumb money

Corporate Donations 501.3(c)

Raise resources not only money

- Building community

- Creating a platform for donating time

Why Do People Give?1. Belief in the cause

2. Recognition and honor

3. For a tax deduction

4. Family tradition

5. Religious beliefs

6. Joy

7. Guilt

8. Fear

9. To make a difference

Why we give, or don't Experience internal satisfaction, the “warm glow”

Helper's high, which increases our feelings of self-worth

Different kinds of giving, and therefore different explanations

- People who are religious give more

- People who have more, don't necessarily give more

- Senior citizens who volunteer live longer

- People who plan donations, give more

Some research links oxytocin to generosity:

- Amygdala has oxytocin receptors that control feelings of safety and fear

Examining Popular Foundation Revenues

Foundation Metrics If they are a 501(c)(3), they must file publicly their financial statements

Form 990 or 990EZ

Case Study: Perl Foundation Perl Foundation Revenues

$-

$50,000.00

$100,000.00

$150,000.00

$200,000.00

$250,000.00

$300,000.00

$350,000.00

2006 2007 2008 2009 2010

Case Study: GNOME FoundationGNOME Foundation Revenues

$-

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000

2002 2003 2004 2005 2006 2007 2008 2009 2010

Case Study: Apache FoundationApache Foundation Revenues

$-

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

2006 2007 2008 2009 2010

Case Study: Free Software FoundationFree Software Foundation Revenues

$-

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

2003 2004 2005 2006 2007 2008 2009 2010 2011

Case Study: Mozilla Foundation Mozilla Foundation Revenues

$-

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

2003 2004 2005 2006 2007 2008 2009 2010

Case Study: Wikimedia Foundation Wikimedia Foundation Revenues

$-

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

2006 2007 2008 2009 2010

Mozilla Foundation

2011 Annual Report (sort of)

Mozilla Foundation Drill Down July 15, 2003 - The Mozilla Foundation is born with a $2 million start-up support from

America Online's Netscape division

FY 2005 - The Mozilla Foundation added $28 million in revenues in royalties

August 3, 2005 - The Mozilla Corporation was established to handle the revenue-related operations of the Mozilla Foundation.

- The Mozilla Corporation (abbreviated MoCo) is a wholly owned subsidiary of the Mozilla Foundation

Mozilla and Subsidiaries

2003 2004 2005 2006 2007 2008 2009 2010 $-

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

$140,000,000

Mozilla Versus the World

Free Software Foundation Drill Down Primary channels are:

- Website

- Email

- Conference participation

Internet Marketing

- Discover the niche communities

- Adding value to relationship

- Earning trust

Assumption Take Aways... Mixed State of Open Source

- Acceptance of open source decline is misguided

Best projects use project methodology

- Growing a community

- Shipping in iterations

Financial support (donations, purchases, memberships) is lacking

Large difference between public relationship strategies

- Most successful projects use modern strategies

Niche groups who are content with scratching their own itch

- Dogmatic approach to community

Another Bridge

Top Ten Startup Fund-raising Lies1. All we have to do is get 1% of the market

2. We filed patents so our intellectual property is protected

3. Our management team is proven

4. The large companies in our market are too big, dumb, and slow to compete with us

5. Our product will go viral

Top Ten Startup Fund-raising Lies (Continued)6. Hurry up because our other investors are about to do our deal

7. No one else can do what we're doing

8. Several Fortune 500 companies are set to do business with us

9. Jupiter says our marker will be worth $50 billion in ten years

10. Our projections are conservative (Kawasaki, 2012)

Fund-raising Best Practices Build a Foundation

501(c)(3)

Establish a Fund-raising Program

Obtain Grants

Corporate Donors

Community

Best Practices for Startups Build something interesting

Innovation Accounting

- Testing

- Methodology

Team

- Talent

Leadership

Use Web2.0 and Cloud Computing

Build a Foundation Incorporation

- Think about SEO first

Mission/Vision

- Ensure your mission matches up with the charitable activities you plan for your 501(c)(3)

Board of Directors

Transparency

- Expect to make all of your founding documents public

- Required by IRS for all 501(c)(3)

Setting up a 501(c)(3) Choose an available business name

Formal articles of incorporation

Create corporate bylaws

Appoint the initial directors

Hold the first meeting of the board of directors

Financial data

- Financial statements

- A current balance sheet

Open to foreign corporations

- Donations are not exempt

IRS Application Form SS-4 – Employer Identification Number

IRS Form 1023 – Application for Recognition of Exemption

IRS Form – Power of Attorney

Organizations must usually file a form 990 (or 990-EZ) every year

How to Start a Fund-raising Program Create a fund-raising committee

- 5-7 members

Put your fund raising goals in writing

Develop a plan of action

Revise your plans

- Build-Measure-Learn

- Contingency

Share your plans

Finding Government Grants Grants.gov

Department of Health and Human Services

- http://www.hhs.gov/grants/

National Institute of General Medical Sciences

- http://www.nigms.nih.gov/Research/

National Institute of Health

- http://grants.nih.gov/grants/guide/

- http://grants1.nih.gov/grants/funding/sbir.htm (*)

Finding Government Grants (continued) National Science Foundation

- http://nsf.gov/funding/

National Endowment of the Arts

- http://www.nea.gov/grants/index.html

Department of Defense

- http://www.dodsbir.net/ (*)

How Can Grants Fund A Project? Must be able to align project's needs with needs of the CFP

Whether it is research or development, the needs can be the same

Examples:

- DARPANet

- The US DoD has spent > $100 million on social network sentiment analysis

- The NSF just initiated a multimillion dollar CFP for Big Data projects

Finding Private Foundation Grants Other 501(c)(3) Organizations

Private Foundations

Best Practices; Be clear about:

- Purpose of your program or project.

- Type of support that is needed to carry out the project.

- Total amount of money that will be needed to complete the project.

The Number One Complaint of Foundations?

- People do NOT do thorough RESEARCH!

- If you do NOT qualify – do NOT apply!

Top Private Foundations by Giving (June 2012)1. Bill & Melinda Gates Foundation - $2,486,342,209

2. Walton Family Foundation, Inc. - $1,479,636,053

3. Genentech Access To Care Foundation - $587,337,392

4. Pfizer Patient Assistance Foundation, Inc. - $569,495,443

5. GlaxoSmithKline Patient Access Programs Foundation - $555,867,032

Top Private Foundations by Giving (June 2012) - Continued6. Abbott Patient Assistance Foundation - $482,610,604

7. Ford Foundation - $424,695,000

8. Johnson & Johnson Patient Assistance Foundation, Inc. - $416,443,559

9. Sanofi-aventis Patient Assistance Foundation - $392,778,999

10. The Bristol-Myers Squibb Patient Assistance Foundation, Inc. - $392,567,134

$7,787,773,425

Total Giving By Top 100 US Private Foundations (June 2012)

$18,498,784,792

$46,900,000,000

Why Corporations Give? Creating programs to use company employees as volunteers

Forming partnerships

Promoting the corporation

Gaining cost effectiveness

Creating a win-win situation

Best Practices for Corporate Donations Create list of corporations

Identify A-list prospects

Personal contacts make a difference

Don't take “No” for an answer

Stay in touch

- Thank you

- Add to social network

Most Common Forms of Corporate Support Matching donations of employees

In-kind

Cash

Employee time

Corporate Solicitation Kit Current list of board of directors

Mission statement

Budget information

Audit information

Purpose of funding request

The Power of the Crowd

Crowd Funding &

Sourcing

Contributions From the Crowd Crowd source

- Bugs, testing, documentation, code, design

- Governance

Crowd funded

- Donations

- Merchandise

- Customers

- Crowd funding platforms

The Crowd Funding Battle Royale There will be an estimated 530 platforms by the end of 2012

$280,600,000 raised by CFPs in 2012

Majority are ONLY for 501(c)(3)

Kickstarter

56% of all projects fail!

Drill Down on Kickstarter Success

Fashion Technology Publishing Games Design Photography Film & Video Food Comics Art Music Theater Dance

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

27.29%

28.80%

31.86%

33.83%

35.47%

38.30%

39.62%

40.83%

45.49%

48.22%

54.18%

63.81%

69.00%

Success Rate By Category

Overall Average is 44%

Kickstarter Failure Analysis

22.51%

60.70%

11.19%

3.89%1.19%0.52%

Funding for Failed Kickstarter Projects, by Percent

0% Funded 1% to 20% Funded 21% to 40% Funded 41% to 60% Funded 61% to 80% Funded 81% to 99% Funded

Kickstarter Best Practices You're already a 501(c)(3) non-profit

You have an existing brand, fan base, or personality

- Kickstarter does not grow your network it harvests existing engagement

Your project explanation is clear and concise

- Extensive pre-launch preparation and testing have already taken place

Your social engagement platform is working optimally

You consistently share valuable status and progress and communicate effectively

You maintain constant contact with anyone granting you permission

Imbalance between offer and value

- Getting too greedy

Kickstarter Best Practices

Crowdfunding forces a proof of concept before the product

hits the shelves:

The Crowd as Customer Merchandise

- Make it cool

- Make it limited

- Use it to drive engagement

- Badges (The gamification of community)

Services

- The most successful open source businesses model

The Crowd as Donor? In 2009, the Giving USA Foundation reported individual donations were $217.79B

Of a grand total $298.42B donated, the top 5 recipients were:

- Religion (32%)

- Education (14%)

- Human Services (12%)

- Gifts to Foundations (9%)

- Public-Society Benefit (7%)

Direct marketing to the crowd is the most challenging

Crowd Sourcing = Building Community Who ever has the biggest social network wins

Using Social Media

Build-Measure-Learn

The Art of Community

Final Bridge

Transmedia Production and Lean Startup Mashup Max Strategy

Big Data

Innovation Accounting

Expert Systems

Machine Intelligence

Transmedia Production and Social Media Caves

Supermarkets

Rain Clouds

Better To Give

Afraid Of Caves?

Caves Are Like…

=

Social Media Is… The Unknown

Dark

Scary

- Most of your customers are in there

- And they’re probably talking about you!!!

Filled With Treasure

Unusual Characters

Just Do it!

Do Whatever It Takes Hire a guide

Get some tools

Learn the ropes

Talk to people

The Internet Is…

Social Media Is Like A

How big is ∞? Facebook – 700,000,000

Twitter – 140,000,000

LinkedIn – 125,000,000

MySpace –19,7000,000

Flickr – 32,000,000

YouTube – 3,000,000,000

∞ Needs Max-Strategy ∞ means you can’t predict:

- Who will become a customer

- Where you will find them

- What products they will buy

Need to:

- Simplify around keywords

- Find better tools

- Data & AI

Social Media Is Not…

About About You!You!

Social Media Is About Your customers:

- How do you give THEM more value than you get?

- How do you gain your customer’s trust?

With trust comes permission

Using Social Media Doing nothing is not an option

Have to answer the critical question: “Now what?”

- Engage/Converse/Ask/Answer

Can’t implement and forget

Deliver value

Final Suggestions Those who use social media will learn what works

Break it down:

- 3-5 simple tasks

- Do them daily

And…

Grow your Network!

got permission?got permission?

The Biggest Social Graph Wins All major networks:

- FB, LI, Twitter, & YouTube...

All the large networks:

- Flickr, Tumblr, Hi5, & MySpace...

All the small networks:

- About.Me, Paper.li, PhotoBucket, Pinterest, Wikia...

All future social network systems...

Cutting Costs Significantly reduces cost of advertising

- Nothing is unacceptable

- Cost approaches $0

- Less direct or email costs

- Generate leads (24/7/365)

E-Commerce

- Potential to sell (24/7/365)

- Cost approaches $0

Cutting Costs

If you can spend less time marketing, recruiting, and networking…

Spend more time producing

The Era of Big Data Many accepted business metrics are obsolete

Engagement is the only metric that counts now

Only a max-strategy has a chance

Mining the Internet for permission

Using Artificial Intelligence to predict engagement and permission

The Singularity is Coming Sentiment analysis is coming:

- HLD: Predicting terrorist activity

- CDC: Tracking epidemics

- Big Data

- Data Mining

- Machine Intelligence

A Minority Report Future

- Followed and interrupted

- Face recognition will track us

- We already carry a tracking device

kevin@mistribus.com

@shockeyk

@mistribus

@_ff12

Questions & Discussion