In some cases, it can pretty objectively be argued that a company is really making something the world needs; if they’re innovating on renewable energy or a cure for a terminal illness, for instance.

In most situations, assessing whether the company has a net positive impact on society is nonetheless difficult. Some devout defenders of entrepreneurship might argue that any company that creates jobs is already making the world better by default, even if the impact of the company’s products is neutral. This view can, however, be challenged, especially if the employees of the company consist mostly of “scarce resources” like programmers or designers, who are high in demand. Opportunity cost needs to be taken into account.

The Upright Project, a company that measures the net impact of companies, argues that if a company mainly employs people from this group of “scarce resources”, its impact is, by default, negative: if this particular company wouldn’t exist, these people would immediately find jobs elsewhere in companies that might produce something more valuable. In other words: if a company is taking these scarce resources off the job market, it better do something useful with them.

Companies that reach profitability are, of course, providing value to certain stakeholders: their customers, employees and shareholders — and to society in the form of taxes. However, if this value is created by burning fossil fuels or convincing people to smoke cigarettes or buy more things they don’t need, it can be argued that the net value is negative.

I’ve been a tech entrepreneur for almost 7 years. What drives me to startups and for-profit entrepreneurship is the scalability of my impact. If I was a doctor or a teacher, my work would certainly have a high positive impact, but it would only benefit a small group of people. If I build a company that manages to develop a cure for a common disease or create educational technology that helps millions of kids in developing countries learn to read, the impact of my work touches a vastly larger group of people even though the amount of hours I put in is the same. That’s powerful.

During all these years, I’ve struggled when trying to figure out how to make sure that our business — or any business — is truly serving society, not taking more than it’s giving. I’ve come to the conclusion that the answer lies in how the company is structured, and what kinds of incentives it offers its management.

Why being “mission-driven” is not enough

Many modern technology companies are created by teams of young, idealistic founders who truly want to make the world a better place. Their business ideas are often born from a genuine desire to fix a certain societal problem. In an ideal scenario, they can align their purpose and their profits: every dollar they make also advances their cause. Think of a company that produces solar panels or makes an app to buy food that would otherwise go to waste. On the surface, this sounds like a perfect equation: as the company’s business scales, so does its positive impact.

Unfortunately, this genuine willingness to be mission-driven is not enough. The world is complicated. What sounds like a business model that generates a purely positive impact can have surprising negative side effects. As the company grows bigger, it might need to venture into business areas that are no longer aligned with its original mission in order to sustain growth.

If a company is structured in a traditional way, it still needs to ultimately listen to the demands of its stockholders. If the stockholders are primarily interested in maximizing their profits — and this is often the case for any company that is public or has sold more than 50% of its equity to venture capitalists — the company’s management is incentivized to put its social mission on the backburner and focus on profits and growth instead.

Let’s take a few examples to illustrate this problem. My work is in the field of the sharing economy and peer-to-peer marketplaces, so I’m choosing my examples from this industry. I’m picking three companies that seem to have genuinely mission-driven founders who have always heavily emphasized the social impact side of their business: Airbnb, Lyft, and Etsy.

Airbnb

Airbnb is a pioneer of the so-called sharing economy. Their claim has been that we have lots of underutilized space that should be put to better use. If people use the extra space in their homes to turn them into hotels, we will need less new hotels, and the space for hotels can be used for something else.

It sounds great on paper. Unfortunately, reality isn’t quite so straightforward. The hotel industry is seeing more profits than ever. My theory is that instead of decreasing the demand for hotels, Airbnb has simply expanded tourism — because of more affordable places to stay, more people choose to travel. This also means a lot more flights, and with them a lot more emissions. And Airbnb doesn’t even want to disrupt hotels anymore; it just announced that it is now offering its platform to hotels as well, helping them find more guests.

But doesn’t it still mean that Airbnb increases the utilization of existing spaces? Not necessarily. According to some studies, 40% of Airbnb’s revenues come from professional landlords. They have turned the apartments they own, formerly available for permanent rental, into vacation rental homes. This means there are fewer apartments available for people living in a city, all the while vacation rental apartments are empty half of the time during the off-season. Because of this, rental prices have gone up in some cities, pushing less well-off people into the suburbs.

This is, of course, not what the founders originally intended; it’s simply a side effect of their business model — something economists call an “externality”. But there’s no denying that it’s an important factor when considering whether Airbnb’s impact on society is net positive.

Lyft

For a long time, the Lyft founders have been working towards a noble goal: reducing congestion and car ownership. On the surface, it sounds that Lyft’s business model is doing just that. Who wants to own a car in a city when I can summon a personal driver in a matter of minutes, for a relatively affordable cost? Lyft’s main competitor, Uber, has the same effect, but it’s been Lyft that has made its claim to fame by focusing on this positive aspect of its business model.

However, like Airbnb, Lyft is also causing externalities it probably didn’t expect. Several recent studies show that Uber and Lyft actually increase congestion in cities. Because of their affordability and convenience, they often convert people from biking, walking and public transport. Meanwhile, between rides, Uber and Lyft drivers spend on average 50% of their time alone in their cars, adding to the problem of congestion.

Etsy

Etsy was born as a statement against the world of mass-produced goods, best represented by Amazon. Etsy wanted to get more people to buy hand-crafted goods while providing an income to micro-entrepreneur crafters.

Etsy went further than Airbnb and Lyft to emphasize its position as a company that puts its mission before its profits. It acquired a B Corp certificate, which obliged it to submit annual proof that it meets rigorous standards of social and environmental performance, accountability, and transparency. In a speech to his employees, Etsy CEO Chad Dickerson read the Milton Friedman quote about profit maximization as a sole responsibility of a business, and said: “You’re all free to hiss”. Then he hissed himself, showing his distaste for Friedman’s thinking.

Similarly to Airbnb and Lyft, Etsy decided to raise lots of venture capital to accelerate its growth. Eventually, this meant that Etsy needed to offer investors a way to liquidate their investments, which meant going public in 2015.

In 2017, a hedge fund called Black-and-White Capital saw an opportunity to make profit. It started buying Etsy stock, after which it launched an activist campaign, accusing the company of careless spending and demanding that Dickerson be ousted as a CEO. The company’s board proceeded to fire Dickerson, along with 8% of the company’s staff.

Friedman 1 — Dickerson 0.

Etsy used to have a “Values-Aligned Business” team, which oversaw the company’s social and environmental efforts. The new CEO Josh Silverman dismantled this team. Etsy also gave up its B Corp certificate. Even before going public, it had started allowing the sales of manufactured goods on its platform.

These moves have been applauded by Etsy stockholders: it has tripled its share price within the past year. But Etsy is no longer the same company it used to be.

The ultimate solution: remove the incentive to maximize profits

An attentive reader might have noticed a pattern in the three stories above. All three companies had a clear way to tackle the negative externalities caused by their business models. Airbnb could ban professional landlords and only allow people to rent out the places they themselves live in and their second homes. Lyft could make its services less attractive during peak hours by volunteering to pay a congestion tax that would increase its prices. Etsy could reinstate the B Corp certificate, ban manufactured goods, and monitor the origin of goods sold through its platform more carefully.

In reality, these companies are not in a position to do so because of their company structure. They can’t escape Friedman. The main incentive for their management is to grow the business and maximize shareholder profit. All the proposed solutions are in conflict with this goal as they could have a significant negative impact on revenue and growth for these companies. And that’s why we most likely won’t see them happen.

Their structure. Their incentives. Perhaps therein lies the answer to the original challenge: how to build companies that are a force for good in society.

One can’t argue with Friedman since he is simply stating the facts: this is how companies are structured, and this is what their duty is. But what if we change the structure and duty?

In her excellent 2017 book Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist, economist Kate Raworth explains that we need to build an economy that lifts people out of poverty and brings them well-being while respecting the natural ceiling for growth caused by the limited resources of our planet. She believes that in order to achieve this, we need to make fundamental changes to our society and to our organizations. She writes:

“The most profound act of corporate responsibility for any company today is to rewrite its corporate bylaws or articles of association in order to redefine itself with a living purpose rooted in regenerative and distributive design and then to live and work by it.”

The key insight here is that we don’t need to create companies that maximize profits at all costs. In their articles of association, we can write that their profits are only a means to pursue their social mission, not an end goal in themselves. In some cases, this means that the company might make decisions that deliberately decrease its profits or slow its growth if its management feels that it is the right to do, all things considered.

Such company structures can be created without changing our current legislation, and some pioneering tech startups are already adopting these structures. Kickstarter, the world’s largest crowdfunding platform, paved the way in 2015 by reincorporating as a public benefit corporation, and stating it will never sell or go public. By remaining independent from the control of outside stockholders, it can be sure that its management is forever incentivised to put its mission first.

Putting our money where our mouth is

Our company, Sharetribe, helps entrepreneurs and organizations create their own peer-to-peer marketplace platforms. With our technology, you can essentially create something like Airbnb, Lyft, or Etsy. Like these three companies, we also have a social mission. In our case, it is to democratize the sharing economy by making platform technology accessible to anyone. We truly admire these three companies and the tremendous technological and cultural innovations they’ve made. However, we’re also worried about the negative consequences of their pursuit of even higher growth. Our thinking is that if we make their innovations available to local platforms operated by small businesses, social enterprises, co-operatives, non-profits or even cities, we can reap the benefits of the sharing economy without causing many of the downsides.

When our founders travelled the world telling people about this mission, many asked whether there was a risk that we would become another profit-maximizing platform giant ourselves. What if we started generating unintended negative externalities as well, and our shareholders wouldn’t allow us to do anything about them? At the time, we didn’t have a good answer. After all, we’ve had a traditional startup structure, and we’ve recognized that if we raised any more money with that structure, the final decision would no longer be in our hands. Even if we decided not to raise money, there was no way for us to make a binding commitment to our stakeholders that we wouldn’t do so in the future.

This made us worried and frustrated.

Finally, we decided to do something about it. A few weeks ago, the Finnish Trade Registry approved our new articles of association that officially transition our company into a structure called steward-ownership. We are the first company in Finland and one of the first tech startups in the world to do so. Steward-ownership is a company structure designed to ensure that our company’s profits are purely a means to pursue its mission, and forever removes any personal financial incentive of profit maximization from the company’s management. Unlike B Corp certificates, the steward-ownership structure is protected with a foundation structure and can never be dismantled once introduced.

From now on, it’s in the best interest of our management to put our social mission first, even if that means slowing down our growth. Everyone working in the company is incentivized, first and foremost, to make decisions that benefit not just the owners of the company, but all other stakeholders, the environment, and society at large. After this change, we can finally — confidently — say that our company will always be a force for good in society.

How does our steward-ownership model work in practice? That is the topic of another post.

***

If you’re inspired by this story, it is now possible to join us on our journey! We have just launched an equity crowdfunding campaign that is unlike any other crowdfunding round seen before due to our new structure. It’s now possible for anyone from around the world to invest in Sharetribe and own shares in our company, for amounts starting from 500 euros. Check out the campaign here.

A mandatory regulatory disclaimer: remember that investments in unlisted companies like Sharetribe always carry a risk of losing capital. Invest responsibly. Because of financial regulations, certain restrictions in terms of who can invest apply to residents of the following countries: United States, Canada, Australia, Hong Kong, Singapore, Japan, New Zealand, and South Africa. You will find more information about this on the investment platform.

This post was originally published in Better sharing
Photo by Volkan Olmez on Unsplash

The post How to build companies that are a force for good in society appeared first on P2P Foundation.

This logic — the endless hunger to consume and grow — is what drives the global marketplace today. It is a mindset of consumption that chews up communities, steals from the commonwealth of nations, and does not hesitate to destroy the environment. These are considered acceptable byproducts of profit-making in this mindset of insanity.

The sooner we recognize that for-profit entities are designed to behave like cancer in the capitalist economy, the faster we’ll see which rules need to be changed in order to get to the next paradigm. For example, it is helpful to know that modern capitalism began with the Enclosure Movement in Britain as peasant farmers were kicked off their land and forced into wage slavery in nearby factories.

This was accompanied by the first wave of mass poverty in the modern era. It is one part of the Story of Poverty Creation that needs to be told again and again until we dispel the myths of consumerist propaganda that claim all the wealth in the world was created by the industrial capitalist system. Only after these myths are dealt with can we get on with the real work of evolving to whatever comes next for humanity.

Want to tackle the climate crisis? Recognize that we will not be able to fund an energy transition so long as wealth hoarders keep trillions of dollars hidden away in a system of tax havens.

Want to end poverty and inequality? Realize that systems of wealth hoarding hide in our own minds and begin the delicate process of deprogramming your mental habits.

Want to repair broken political systems? Recognize that the artificial “construction” of choice in major elections is done to distract us from our collective power to rise up and create meaningful, systemic change.

All of these problems are connected — along with many more we could name like police brutality, structural racism, money laundering for war, land grabs, and so much more. Yet at their core is the same essential logic of the parasite.

Take what you can, the rest be damned.

That is the overriding ethic of “business-as-usual” taught in MBA programs around the world. This is why students leaving these programs are more selfish and greedy than when they entered. The norms being programmed into them are keeping social change from spreading through the marketplace, keeping us from the future we really want and need.

Until we recognize this cultural blight for what it is, it will not be possible to replace the outdated models for governance and economics that hold us in a death spiral today. We are literally in “overshoot-and-collapse” mode right now and the future looks pretty grim. But if we can recognize the profoundly social nature of humanity — we are NOT the greedy creatures that economists claim us to be — then there is much hope for a brighter alternative.

The logic of extractive capitalism goes like this:

Those with the capital get to choose what is created by society, directing their monetary resources to the places with the largest “return on investment.” Profit is then extracted by these owners as they parasitize the social infrastructure built up with taxpayer dollars.

This is a medical problem for societies. And it has a medical solution: Bolster the cultural immune systems that keep selfish behavior in check.

We can learn from the anthropologists on this one. In the work of Christopher Boehm, for example, it is now clear that hunter-gatherer societies were egalitarian because they kept the cheaters in check. This was done through gossip (to manage social relationships) using storytelling that would shame anti-social individuals. When these tactics didn’t work, the community would move to more severe practices like ostracism and, in rare cases, execution.

The important thing is that our ancestors survived for more than a hundred thousand years by keeping the bullies and cheaters in check. Yet today the parasites among us are revered as “captains of industry” as they pillage and plunder every commons imaginable for the sake of power and profit.

An example can be seen in the extractive practices of for-profit scientific publishing. Research funded by taxpayer dollars (mostly done at public universities) is published in peer-review journals that extract up to 39% of the money that changes hands as profit. In other words, the investors have set up a syphoning hose to the academic institutions we collectively paid for to create artificial barriers — both for the researchers to publish (which they have to pay for with research funds) and for the public to access (in subscription fees).

This is paralleled in the for-profit health insurance industry that created middle man businesses to extract money from the exchanges between patients and doctors in the United States. Billions of dollars that could be used for prevention and universal health care are instead transferred into the coffers of wealthy investors — many of whom have self-serving relationships with policymakers by greasing their pockets at election time.

Note how the profit-making does nothing of value. It was the investments from taxpayers to universities that created the scientific knowledge and medical findings. Yet systems were put in place to extract and parasitize this public infrastructure in the name of “free market” ideology. The truth is that market systems — which are excellent for allocating resources efficiently — are distorted and corrupted by the influence of pooled capital.

The sickness is a moral one. And its healing elixir is too.

We can put a stop to greedy behavior by learning from our ancestors. Recognize the parasites for what they are, spread the word to our friends, and establish policies that sanction against the extraction of wealth from the benefits created through cooperation and partnership.

We can do better by working together. This includes creating purposeful businesses and using market principles in service of larger goals. Confusion of the pursuit of profit with the creation of value is rampant today. Let us correct this misconception and reconfigure our societies around shared goals — like making governments responsive and participatory; restoring balance with the environments we depend upon for our survival; and sharing the wealth in an inclusive economy that is designed to promote social well-being and planetary thriving.

The harms of parasitic extraction have gone on too long. Let’s fix this.

Onward, fellow humans.

Cross-posted from the Medium.

The post The Parasitic Logic of Profit-Making appeared first on P2P Foundation.

Consequently, it was a surprise to her to receive an infringement notice for using one of her own photographs. Getty Images, a corporate stock photo cite, hosts a collection of public domain images on its site, apparently without indicating they are public domain.

Getty’s enforcement arm, Licensing Compliance Services, apparently didn’t put a parameter in they monitoring algorithm to disregard public domain images.  So they ended up threatening public access activist for using her own work.

Highsmith is not the only person disenchanted with Getty.

Extracted from: http://www.digitalartsonline.co.uk/news/creative-business/founder-of-istockphoto-reveals-real-reason-he-left-why-hes-started-new-stock-photo-company/

In 2006, Bruce sold iStockphoto to Getty Images for around £30 million, and later left the company, but has now decided to start a new stock image venture. We caught up with him to find out why.

AA: Why did you sell iStockphoto to Getty Images?

BL: “There were several reasons. I had partners I couldn’t get along with. They were focused on revenue and profits. I was focused on the community. I couldn’t afford to buy them out. I felt like I had accomplished everything I had set out to do.

“I love to build things, trying to maximise revenue and margins is not as exciting to me. The community at iStock was surprisingly strong. Even today, with nobody at the helm of iStockphoto, there are still people hanging on the ship as it is sinking into the depths of apathy.”

Extracted from: http://www.fastcompany.com/3007439/tech-forecast/istockphoto-creator-bruce-livingstone-takes-second-stab-stock-photos

“It’s hard for me to criticize their corporation,” Livingstone says. “They’re responsible to their shareholders. They have to keep making profits and keep having growth. I totally get it. I don’t fault them for that.” But within his photographer network, it seemed like what started as a friendly business had grown up to become a monster. “One of the most depressing ones for me,” Livingstone says, “[were] people who I had helped change their lives—real estate agents or veterans or policemen who had quit their jobs and had focused on making stock photography and were earning a living—suddenly saying, I’m going to have to go back to my old job.”

Extracted from: http://collectivehub.com/2016/05/how-to-be-successful-for-the-second-time/

Their start-up story was the stuff of fairytales. But in 2012, three years after selling iStockphoto to Getty Images for US$50 million, Bruce Livingstone and Brianna Wettlaufer decided to start all over again. The pair, along with a small team of iStockphoto veterans, founded Stocksy – a rapidly growing photographer’s co-operative where the photographers own equity in the company, with a finely curated collection of stock photos and a distinctive aesthetic driven by a relentless ambition to make stock photography better than it has been before. Where this industry often pays photographers around 20 percent of profits from each license, Stocksy passes on 50 per cent on all photos, as well as paying dividends.

Extracted from: https://www.stocksy.com/service/about/

Stocksy is home to a highly curated collection of royalty-free stock photography that is beautiful, distinctive, and highly usable.

We’re also a cooperative! (Think more artist respect and support, less patchouli.) We believe in creative integrity, fair profit sharing, and co-ownership, with every voice being heard.

OUR CO-OP APPROACH

We are a photographer-owned cooperative founded on the principles of equality, respect, and fair distribution of profits. Our contributing photographers receive 50% of a Standard License Purchase and 75% of an Extended License Purchase – and every single Stocksy contributor receives a share of the company.

Extracted from: http://www.vicnews.com/news/258039681.html

The model has competition elsewhere, but its co-op structure means each of Stocksy’s 600 contributing photographers directly benefits from year-end profits.

“After a year of operating, we’re getting close to that magic number of $200,000 in royalty payments per month,” Livingstone says. “We hit profitability after eight months, started spending again and now we’re in profitability again. It’s evidence that we’re there. After a year, for any business, it’s kind of unheard of, especially for an online start-up.”

“The co-op model helps set up a new paradigm, but it doesn’t help the other 95,000 photographers out there struggling,” Livingstone says. “But we wanted to create something sustainable first and then worry about big numbers after that.”

The post Project Of The Day: Stocksy appeared first on P2P Foundation.

The first article is titled Debugging the Profit Motive: Part One — Bad Behavior
http://falkvinge.net/2011/07/04/debugging-the-profit-motive-part-one-bad-behavior/

The point he makes here is that it is difficult to control bad behavior which is promoted by the desire to make a profit at any cost. The problem, he says, is in the “shiny gold coins”.

In the second article, titled Debugging the Profit Motive: Part Two — Shiny Gold Coins
http://falkvinge.net/2011/07/07/debugging-the-profit-motive-part-two-shiny-gold-coins/

Green points out that wealth is not the same as worth but that, in the world of economy, a person’s worth is often measured by their wealth. He comes to the conclusion that even if the money be not shiny gold coins but of debt, there is always the danger of debt becoming a debilitating influence due pressure that can be brought to bear on the person owing the money.

In the third article titled Debugging the Profit Motive: Part Three — Pressure
http://falkvinge.net/2011/07/11/debugging-the-profit-motive-part-three-pressure/

we are told that profit is power, it is a measure of one’s ability to get other people to do things. While the author acknowledges that [profit] is a perfectly reasonable thing to desire, and a perfectly natural thing by which to be motivated, he points out that it can be a problem in that it allows us to make people do what they really don’t want to do.

One solution Zacqary Adam Green points to is a gift economy, and he says that in order to make this work, it has to be incentivated by keeping track of reputation. But there are problems with a pure reputation system, so another proposal is made: let’s create a hybrid system that consists of credit and also keeps track of reputation. The system does get a bit complicated and it doesn’t answer all questions. As a matter of fact, in the ending the author acknowledges that he’s pointing out a problem and is asking his readers to comment on his solution or better yet, to come up with a better one. He concludes with the following:

“We’ll likely never have a perfect system. We may never be able to make individual profit completely synonymous with the common good. But I’ll be damned if we can’t try, and we can get as close to perfect as possible. The profit that individuals seek is measured today in shiny gold coins, and slouching towards shiny gold math coins — that’s hardly the best we can do.

Free market theory posits that individuals will act in their rational self-interest. As human beings, our rational self-interest is a better world for everyone. Every time a person lives impoverished, uneducated, malnourished, and powerless, that is one less unique viewpoint and one less voice in our global conversation. Every time we allow a small minority to accumulate wealth at the expense of others, that is one more threat of a chaotic revolution to throw a wrench into society. Every time a human being’s potential is wasted and squandered by forcing them to fight for survival instead of utilizing their unique talents, we all miss out on what they could have done. All this because our definition of “profit” is broken and misplaced.

This bug is marked as critical. I’m assigning it to everyone.”

It so happens that a simple system to take care of the problems Zacqary points to, was proposed almost a century ago by an economic genius why – you guessed it – was not given the recognition he deserved. I am talking of Silvio Gesell, whose magnum opus “The Natural Economic Order” is available on the net. (Silvio Gesell – The Natural Economic Order – PDF) Also available on wikilivres (The Natural Economic Order).

Based on Gesell’s writings, which make eminent sense to me, I have tried to outline in a few words how the profit motive could be put at the service of the common good by turning those shiny gold math coins into something less shiny – rusty balls.

If you’re interested, my comment is posted at the end of the third article

– Sepp.

The post Debugging the profit motive appeared first on P2P Foundation.