Additive manufacturing based innovation, small firms, customer involvement and crowd-funding: from co-creation to co-financing

The potentially disruptive additive manufacturing technology is having an effect on the traditional model of economics of scale and the industrial firms that are associated with the traditional model of mass production (Da Silveira et al 2001). The traditional model characteristics that can be changed include; logistics, design of products and storage and warehousing (Petrick and Simpsons 2013). The assumption of cost reduction being associated with mass production and mass customization being associated with high cost may no longer hold for the new technology because it allows for mass customization at low volume and low cost (Rayna et al 2015). Unlike the customization in traditional manufacturing, which requires expensive and time-consuming retooling and changes in setup of machinery, customization in additive manufacturing may require only a minimal change in the digital design or software (Petrick and Simpson 2013).

The difference between the two technologies: traditional mass production based manufacturing and AM technologies is analogous to the customization allowed by advent of word processing and office printer technologies with respect to the traditional printing press (Volz et al 1998). During the printing press era, a slight change in words or sentence structure of a document lead to time-consuming manual rearrangement of printing press letters. Printing even one page required the same detailed set up of printing press as printing ten thousand copies of the same page. With advent of word processing technologies and office printers it was economical to print pages in low volume and to easily customize the pages as needed with a minimal effort (Tripsas 1997). Similarly, additive manufacturing allows low volume production without the need for expensive and time-consuming setup and allows to make changes in the product by merely using software commands in the 3D printing software (Lipson and Kurman 2013).

The ability of AM to mass customize products is heralding a new of source of job and wealth creation and entrepreneurship (Kianian 2015). This mass customization allows producers and companies to involve customers in the creation process and 'co-create' the product based on their personal specification at the design and manufacturing stage (Rayna et al 2015). This allows companies to involve customers in product development and innovation at an extremely low cost (Wong and Hernandez 2012). Such customers can be considered as no-cost employees of the company and their satisfaction with the product and the co-manufacturing process can lead to many benefits including improved financial performance of the company (Ahluwalia 2012). The benefits of AM for prototyping were first realized for rapid prototyping (Kruth 1998). AM based customization and maturity to the level of production ready equipment along with lower investment requirements for production is making AM approach disruptive technology status (Campbell and Ivanova 2013). The Co-creation experience aspect of AM, have prompted many customers to transition from being a customer to being a producer or entrepreneur especially in the DIY community (De Jong and De Bruijn 2013). Thus, the consumers themselves become the path to the market (Baldwin et al 2006). Similar phenomena is being observed in IoT mediums like YouTube, Facebook, and emerging internet mediums, where viewers and consumers of contents have transitioned to being producers and creators of content and generating wealth for themselves. AM has potential to unleash similar entrepreneurial instinct in customers thereby creating new wealth in the process (Pullen 2013).

However, despite the tremendous potential and opportunities that AM offers and even though the capital expense is much less than traditional manufacturing facilities, the technology is still financially out of reach for many would be entrepreneurs and often requires outside funding. Even though the use AM machines are becoming more inexpensive, A home unit can cost as little as less than $200 for a low-end unit. Industrial use AM machines cost well over two hundred thousand dollars, limiting their adoption by small businesses and entrepreneurs. However, low cost open open source AM services are plentiful (Anzalone et al 2013). Further the initial use of AM almost exclusively for rapid prototyping has moved toward production (Bak 2003). Today AM has achieved an annual growth rate of about 30–40 percent with additive manufacturing market reaching about $4.1 billion in 2015 (McCue 2015). Yet AM based manufacturing it still is in very early stages of its development cycle with many entrepreneurs/customers using open source AM capability from others (Wittbrodt et al 2013). In order to sustain and build in the current embryonic growth stage, we need to find an innovative solution to bridge the resource gap that potential entrepreneurs utilizing the additive manufacturing technologies face in launching their venture. The financial resources will not only allow AM solutions to become cheaper and better, but also allow it transition to the growth stage of the product life cycle by achieving the projected 400 percent increase in growth rate over the next five years along with a 40 percent drop in prices (Columbus 2015).

AM is an innovative technology with potential to disrupt existing manufacturing market by unleashing entrepreneurship in the economy. Entrepreneurship is a combination of entrepreneur (i.e. actor), opportunity (i.e. mass customization at lower cost), and resources (financial and/or non-financial) (Shane and Venkataraman 2003). Even if opportunity and entrepreneur are present, the lack of resources especially financial limit exploitation of the opportunity. Most entrepreneurs lack the ability to self-fund a new venture, especially in technology and knowledge intensive industries, which require significant amount of financial resources (Khanin et al 2009). The most common source of funding for entrepreneurs of technology firms is venture capital (VC) (Khanin & Turel, 2015, Kassicieh et al 2015) and informal investor better known as 'Angels' (Mason 2006). However, AM based entrepreneurs struggle to obtain this type of funding sand search for other funding sources due to many reasons including the probability of AM industry becoming fragmented because of low entry barriers for entrepreneurs and small business owners. This has caused the AM based business to search other funding avenues and most recently crowd funding (Riedl 2013).

Funding is further complicated due to the proclivity of disruptive technology based firms to develop mew business models as is the case for micro, nano, bio and computational based pharmaceutical solution that is disrupting that industry (Allarakhia and Walsh 2012, Tierney et al 2013). It is then not surmising that innovative AM technology has compelled scholars and practitioners to search for matching innovative business models (Rayna and Striukova 2014). Increasingly Crowdfunding is being utilized (Riedl 2013)

Crowdfunding is a good fit for AM due to the amounts of money required for an AM based venture and the characteristics of both the users and providers of both crowdfunding and AM. Co-Creation is important to both crowd investing (Brüntje and Solf 2013) and AM based entrepreneurs users and SME's (Rayna 2015). The co-creation perspective proposed for AM has blurred the lines between producers and consumers of products and services. It is fitting for us to extend this model by dissolving traditional lines between investors (owners of the capital), entrepreneur, and consumers of the traditional economic theories (Teece 1986, Tapscott and Williams 2006, Shah and Tripsas 2007). Even if traditional sources of funding for AM based firms were not difficult to embrace, crowdfunding based financing seems to match the innovative model of additive manufacturing.

Crowdfunding like additive manufacturing blurs the distinction between investors, entrepreneur, and consumers. It is this similarity in AM and crowdfunding models that promotes consumers to become investors and producers. While AM technologies and innovation is democratizing the manufacturing, crowdfunding is democratizing investing.

Crowdfunding fills a gap in the funding of innovative start-ups. A typical AM start-up often requires less than $100,000 in its initial stages. The traditional avenues of raising outside financing are the banks (debt), and angels or venture capitalists (equity or convertible debt). Banks are reluctant to fund start-ups because they lack collateral and credit, however established SME often fair better. A startup typically has no assets to collateralize and has no history of accounts receivables or accounts payables. In addition, as mentioned above, VC are constrained by general partners' time devoted to grooming and developing their portfolio companies. Thus, they rarely make investments under $1 million. Moreover, the competitive nature of VC industry makes it difficult for smaller startups to procure VC funding and be successful (Mahto et al 2017, 2018). Angel investors have historically filled this gap but they are concentrated in limited cities. Also, entrepreneurs are often unwilling to accept financing from angel investors due to aggressive equity negotiation tactics angel investors employ. Thus, the crowdfunding platforms like Kickstarter, Gofundme, and Indiegogo have become popular alternatives for entrepreneurs in recent years.

The crowdfunding platforms complements additive manufacturing in innovation as it allows entrepreneurs and companies to approach their customers directly for funding in exchange for early access to novel product or service offerings. Entrepreneurs or companies seeking to tap customers and raise financial resources offer customers or audience of the platform access to their idea or products. In order to engage audience and achieve success for their funding campaign, entrepreneurs employ marketing tactics that utilizes multiple modes of communicating their messages (e.g. written, oral and video). In the popular crowdfunding models, potential customers and/or investors can decide to financially support the development of a product or idea by pledging a varying level of financial support that can range $1 to thousands of dollars. If the promoter of the idea is able to achieve the set funding goal, then the funds flow from investors to them minus the 3%–5% fees charged by the crowdfunding platform.

Typically, the investors and or potential consumers who support the product or service take active interest in the development of the product or service. There is an active two-way communication between the promoters and investors that helps investors to understand the product better while at same time it helps the promoters or developers of the product to better understand the consumer needs. The developers also give frequent updates on the progress and development of the product or service and investors can give feedback and suggestions at each stage. The customer is involved in each stage of the development process. Many entrepreneurs engage crowdfunding not just for its ability to allowing obtaining financing resources from the crowd, but also for its ability to tap wisdom of the crowd.

Crowdfunding funded AM based ventures are migrating toward Crowdfunding as a result of the implementation of the 2012 'Jumpstart our Business Startups (JOBS)' act in the United States (Goulding et al 2013). This act allows entrepreneurs and small business owners the flexibility to seek investment from the general public often in the form of Crowdfunding (Stemler 2013). The act has allowed various intermediaries to take advantage of financing innovations that utilizes the wisdom of the crowds. The new law allows startups to offer securities such as stocks and bonds directly to consumers as long as they meet certain regulatory requirements (Martin 2012). Thus, the financial supporter/potential consumer of a product or open use crowdfunding platform facility pivoted from a DIY activity or an expectation of receiving the finished goods to an investor opportunity. This customer transformation to an investor, co-creator and the end customer of the products and open use facilities based on the additive manufacturing technologies has been initiated (Goulding et al 2013).

Yet it is not only the interested consumer who can avail themselves of the crowdfunding opportunity. Additionally, entrepreneurs and small business owners also have access to traditional crowdfunding platforms, such as Kickstarter. Entrepreneurs offering personal 3D printers have already experienced success in tapping crowdfunding platforms for bringing their creation to the market. According to the data available from the popular crowdfunding platform Kickstarter, at least seven AM based manufacturing companies have raised over $750,000 in each year since 2012 (Mitra 2012, SBA 2015, Saunders 2017). Kickstarter has been stated as the 'Mainstay' for AM enterprises seeking crowdfunding platforms and has had as many as 18 AM based offering at one time in 2017. The consumer is becoming the funder, the creator and the end user of innovative products and services that are generated in this resulting self-contained eco system (Bianchini and Maffei 2012). We next provide the funding Model over the last 25 years for manufacturing based entrepreneurial and SME firms.