2013-11-01

Co.Exist

Sharing Can Truly Disrupt Business—By Mixing Money And Social Change

A look at how the new sharing economy can—and should—knock down the divide between social entrepreneurship and just plain entrepreneurship.

Enough fair trade cafes and T-shirts. Entrepreneurs intent on changing the world should stop dwelling on copycat and non-scalable models and focus on becoming business model hackers.

In the same way that lines of code create software, and genetic code gives shape to physical identities, business models encode the incentives and behaviors that shape social and economic realities. Health disparities, housing shortages, environmentally ruinous practices and many other ails all trace their roots to malignant business model algorithms.

Viewing society through this lens also counters the default perception that we live in a bifurcated world—a social, cultural, and civic sphere separate from the economic sphere. Reality is far messier and more interconnected. A world subdivided between social entrepreneurs and "regular" entrepreneurs is one in which only half feel obliged to mind the impact of their ambitions. Instead, we should aspire to a unified approach to change.

Social change emerges from disruptive innovations—business model hacks that upend industries, enlarge markets, extend access, and stir power dynamics. Disruptive innovations challenge the prevailing economics of industries by finding ways to offer products drastically cheaper or more accessibly. This was how the computing revolution accelerated from million dollar mainframes to mobile for the masses, all the while changing every aspect of social life. The phenomenon, observed by Harvard University researcher Clay Christensen, provides something of an instructive guide for entrepreneurs who are serious about changing the world.

Solar rooftop installations have traditionally required upfront investments of $20,000 or more by homeowners, dramatically limiting the market to wealthy and willing households. Enter SolarCity, whose business model hack (the insight of Elon Musk, no less) was to front the full cost of inventory and installation, in exchange for retaining the tail of revenues for the next 20 years. With $280 million in help from Google, the cost to homeowners evaporated. At the same time, startup Solar Mosaic took a more democratic approach to the same problem, creating a crowdfunding platform that has mobilized $3.8 million toward rooftop installations so far.

These are not rarities. Indeed, there are great hacks fuelling at least a few trends that stand to alter society as much as they alter industries. Over three posts, we’ll take a look at some of them: collaborative consumption, the maker movement, and the Internet of things. These trends highlight opportunities for social change on a scale no social entrepreneur should ignore.

All Together Now

At the arrowhead of these shifts is the collaborative consumption movement. Its main hack has been to replace ownership with sharing as the main form of consumption, in domains previously (and even currently) considered impossible, and often through technology platforms.

Sharing is proving disruptive across remarkably diverse sectors, from transportation (Zipcar, Autoshare), and hospitality (Airbnb) to crowd financing (Kickstarter, Angel List, Kiva) and education (Udemy, Skillshare). Its value is not merely in providing cheaper alternatives. The downstream effects have also been numerous and notable:

Sustainable, Efficient, Shared

While the shared product is often cheaper, in many cases it is also more socially beneficial. Zipcar claims that every one of its cars replaces 15 personally owned vehicles. As with its fleet, companies like ParkAtMyHouse and Kitchen Library are enabling more optimal use of dormant physical assets—space, tools, even parking spaces—where creating or buying new inventory is just redundant and wasteful.

Spreading the Wealth

Companies like Airbnb, Udemy, and TaskRabbit are also providing average citizens with new opportunities to earn income on the side. TaskRabbit CEO Leah Busque estimates thousands of users earn up to $60,000 annually on the site’s odd jobs market, and Airbnb recently claimed it provided New Yorkers with $632 million in additional income last year. In an era when 95% of income gains since the recession have accrued to society's richest individuals, these new income streams are not to be dismissed.

Advancing Equity

Collaborative models are also evening out deep inequities. JustAccess, a Toronto-based startup, wants to enable crowdfunding for legal fees to eliminate wealth disparities in the justice system. Crowdfunding has enabled hundreds of makers and artisans to bring their creations directly to markets without much risk or much capital—a major departure from the status quo. Crowd investment platforms have also enabled startups to overcome hurdles in accessing investors, and are starting to allow average people to become early-stage investors without being accredited (read: wealthy). Finally, crowd financing pioneers like Kiva have catalyzed a huge mobilization of much needed capital from the developed to the developing world.

Of course, nothing good comes about without a struggle. Over the last century, we have programmed society with legislative, regulatory, and normative code to accommodate a model of ownership, so sharing companies may appear to the system as foreign insurgents. Zipcar had a notoriously difficult web of auto insurance policies to untangle. Meanwhile, Airbnb and Uber have found themselves in protracted legal battles against municipal laws and lobby groups.

But the movement marches on. Sharing as a business model hack is proving not only socially nutritious but also financially potent. Airbnb's recent round of investment valued the company at $2.5 billion. Kickstarter meanwhile, has mobilized $893 million, collecting 5% along the way, and TaskRabbit has persuaded venture capitalists to hand over $38 million in capital so far.

For social entrepreneurs, the sharing economy provides a fertile mix of proven success stories, uncharted waters, social impact, and financial scale. Bring on the business model hackers.

[Image via Shutterstock]

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4 Comments

  • Tom Foremski

    Businesses of many types can be viewed as "sharing platforms" and have been such for many years. A car rental company is essentially the same as Zipcar except that Zipcar has locations in local car parks, which makes it more convenient but often not cheaper than car rentals. My point is that there's nothing disruptive about sharing the disruption comes from being able to dramatically lower costs of a product, or service. Apartments represent lower cost inventory so the comparable cost of a hotel room is potentially disruptable but only for a certain type of customer, Airbnb is unlikely to disrupt any hotel chains. And as for sharing my drill or food mixer, that only works in your neighborhood and most urban neighbors would rather not be on too close terms with their neighbors, while rural neighbors already know each other and such ad hoc sharing takes place anyway.

    Social sharing of products is a red herring it's the lower overall costs of doing business where a business can succeed against incumbents. It's not the sharing its the costs of business that counts.

  • Assaf Weisz

    Tom,

    The examples in the article showcase situations where sharing has been a lever to reduce costs/risk and increase access and participation. It's not that sharing is the disruption, it's that sharing is one way to achieve disruptive economics in certain industries.

    My point is that the value of this disruption to society is not solely cheaper products, but new social/power relationships and experiences. It has the potential to achieve both at once, which is why it's exciting.

  • Assaf Weisz

    Tom,

    I generally agree on your first point. The examples in this article showcase models where sharing is a lever for reducing cost/financial risk, thereby increasing access and participation.

    On the second, it's not that everyone is sharing because of some renewed civic enlightenment, it's that various technological/business model innovations have made it good economics to do so.

    But that doesn't capture the full value of what's happening here. The economics enable new social relationships & power dynamics. Couchsurfing is free, but anyone who has done it knows that much of the value is in getting to know cool locals. I don't think it would have taken off in the same way if it was purely functional cost reduction.

    In this case, lower costs are a great way to achieve something much more important.