First, we need to go back in time more than a hundred years.

History of steward-ownership

Steward-ownership is relatively new as a term, but the underlying concept is almost as old as limited liability corporations, the structure adopted by most modern companies. The original steward-ownership model was invented by Ernst Abbe, co-owner of the successful German optics manufacturing company ZEISS, founded in 1846. Abbe had worked as a professor at the university of the city of Jena, where he invented the technology behind ZEISS’s success. This likely led him to the insight that the value and the profits created by ZEISS did not belong just to him, but to everyone working at the company and society at large.

After the company’s founder Carl Zeiss died in 1888, Abbe created the Carl Zeiss foundation, which has owned ZEISS ever since. The foundation ensures that the company cannot be sold and profits are either reinvested or donated to the common good. Abbe then introduced several important rights for the workers, amongst them a health and pension insurance for the workers and an 8-hour workday. He also instituted a principle that the highest salary of any ZEISS employee cannot be higher than 12 times the lowest salary a worker gets after being at the company for two years.

Today, more than hundred years later, ZEISS is thriving. Its business consists of manufacturing optical systems, industrial measurements, and medical devices. Its annual revenue exceeds 5 billion euros and annual profits 600 million euros. Charitable donations from ZEISS are an important source of funding for the university of Jena, where its technology was originally created.

Since then, several other major companies have adopted similar structures. The most well-known ones include German engineering and electronics company Bosch (revenue 78 billion euros and profit 5.3 billion euros in 2017) and British department store chain John Lewis (revenue 2015 11 billion pounds and profits more than 400 million pounds).

Professor Steen Thomsen, the chairman of the Center for Corporate Governance at Copenhagen Business School (CBS), has studied companies with comparable ownership structures extensively. His research shows that such companies:

1. Are more profitable than other companies in the medium term
2. Live longer — survival probability is 600% higher after 40 years
3. Are trusted more by their customers
4. Offer their employees better pay
5. Have better employee retention

In addition to all this, these companies typically generate many kinds of societal benefits that extend beyond their owners and customers. Charitable donations by ZEISS are a great example of this. Bosch, meanwhile, has been a pioneer in investing in environmentally friendly technology.

The term “steward-ownership” was coined by Purpose Network, a German organization that is researching this model, developing it further, and helping organizations transform into it. The team behind the organization also operates an impact fund called Purpose Ventures, which invests exclusively in steward-owned companies. Purpose Network works for a paradigm shift in the economy, with the goal of transforming it from profit maximization to purpose maximisation.

Based on the research Purpose Network has conducted, the following two key principles apply to all steward-owned companies.

Principle 1: Profits are a means to an end

Traditionally, a for-profit company exists to maximize returns for its shareholders. In many national legislations, it is stated that unless changed in the bylaws of the company, shareholder profit should be the north star guiding the decisions of its management.

For steward-owned companies, profits are a means to an end, not an end in themselves. In most legislations, it’s possible to make this official by changing the company’s purpose in its official articles of association. After this change, if the company’s management sees a way to increase its profits that is in conflict with the purpose of the company, it is no longer bound to choose profits over purpose.

Sharetribe’s new articles of association (which you can download from the “Documents” section of our equity crowdfunding campaign page) state the following: “The purpose of the company is to democratize the sharing economy. The company aims to foster an economy where resources are utilized efficiently, created value is distributed fairly, and people have control over the conditions of their work.”

What practical implications does this change have? Let’s take a concrete example. Based on a thorough analysis of the market situation of online marketplace technology, Sharetribe’s management might come to the conclusion that if the company focuses its efforts solely on building steeply priced proprietary marketplace technology that helps big organizations create marketplaces where retailers can sell their products to consumers more efficiently, it could increase its profits significantly. This approach would be in conflict with the company’s purpose in several ways. First of all, if our technology is accessible only to wealthy people or big organizations, we’re not moving towards our purpose of democratizing the sharing economy. Second, the company would be contributing to the increased consumption of new goods instead of decreasing it, which would be in conflict with the goal of more efficient utilization of resources. Thus, in such a situation, management would be incentivized to choose a business focus more aligned with the company’s purpose and ethics.

It should be noted that a company’s purpose is something that should be able to evolve. For instance, ten years from now, the term “sharing economy” might no longer be used. Because of this, steward-ownership allows the company to make changes to its official purpose statement. At Sharetribe, such a change can be made if people holding two-thirds of the company’s shares agree with it.

This raises the question whether a steward-owned company could initially be purpose-driven but later change its ways by redefining its purpose to profit maximization. And even if its purpose is not officially changed, these types of definitions are relatively fuzzy — they alone are not enough to guarantee that the company doesn’t end up creating an incentive structure that focuses on profits if free profit distribution to shareholders is allowed. To remedy these issues, steward-owned companies often cap the returns they offer to shareholders. We’ll return to this aspect a bit later. First, let’s examine the second principle of steward-ownership.

Principle 2: Ownership equals entrepreneurship

The second principle of steward-ownership states that the company should be in control of people who hold active roles in it. Sometimes steward-ownership is also referred to as “self-ownership”: steward-owned companies are ultimately governed by the people working in them. This guarantees that the decisions conducted by the management of the company will be in the best interest of its employees and all other stakeholders.

Typically, this principle is achieved by restricting the ownership of shares with voting rights so that these can only be held by people who have an active role in the organization. As an example, at Sharetribe, we have several different share classes. Only A-shares and B-shares have voting rights, while only C-shares and D-shares have profit sharing rights. Our articles of association contain the following statements:

“Any acquisition of the company’s A, B or D Shares shall require a prior consent of the board except in a situation where D Shares are acquired by an existing holder of D Shares. As to A Shares, the consent can be given only to a person who is either in employment or in a service relationship with the company or one of its affiliates.”

In practice, this statement prevents the company from being sold to an outside buyer since such a buyer cannot achieve decision-making power in the company. It also means a steward-owned company cannot be taken public in a traditional way. If a person holding voting shares decides to quit active participation in the company, they need to give up their voting shares for a nominal cost (in our case, it’s one cent per share as Finnish legislation doesn’t allow share redemption without payment).

Steward-ownership doesn’t prescribe how the voting shares should be distributed among the team members. Currently, all of the members of our team hold some voting shares or options for them, but me and my co-founder Antti still hold the majority. The topic of how a steward-owned company should be governed is an interesting one. It’s beyond the scope of this post, but we hope to return to it later.

Reliable returns to investors: Redeemable shares

Like a traditionally structured company, a steward-owned company might also encounter a situation where its business would benefit from an outside investment. This means that it needs to be able to offer attractive return prospects to its investors.

In the world of technology startups, the most common source of funding is venture capital. VC firms typically expect their returns to come via a company sale or an IPO. They make high-risk investments and typically expect that one out of every ten companies they invest in will be able to generate enough returns to justify all the other nine investments (which end up returning nothing). In his excellent article, venture capitalist Homan Yuen explains why a venture firm investing $1M in a startup valued $10 million needs to believe the company has the potential to produce an exit with a valuation of $1B-$2B within the lifetime of the fund (typically 10 years) to justify its investment. This explains why venture capitalists are so obsessed with “unicorns” (startups that exceed $1B in valuation).

While steward-owned companies can’t generate such returns to their investors (as they won’t sell or go public), this doesn’t mean they can’t be attractive investment targets if the investment instruments are structured in a different way. After all, as Yuen notes, venture capital funds’ target returns to their investors (“limited partners”) that are typically between 2x and 4x in ten years, which translates to 6–15% per annum. The only reason VC funds have such high return expectations per company is the high failure rate of VC-funded companies.

As experienced impact investor Aner Ben-Ami of Candide Group points out, venture capital should have never become the default way of funding companies. It definitely has its place in building truly disruptive, capital-intensive businesses — if you’re building rockets or electric cars, for instance — but for many businesses, striving to become a unicorn can be detrimental: the increased burn rate causes the company to rapidly run out of cash before finding a sustainable business model.

What’s more, Ben-Ami notes that the traditional VC model is not even that great for the venture capitalists themselves:

“In general, only the elite ‘top quartile’ venture funds have generated what is often referred to as “venture returns” for their investors. Unicorn hunting is a tough business!”

Perhaps companies, investors, and society at large would be better off if, instead of focusing so much of their energy on the small group of potential unicorns, more investors would fund a large amount of profitable, medium-sized businesses that can become profitable early on. This is the investment thesis of Indie.vc, a US-based venture fund started by experienced venture capitalist Bryce Roberts. On their homepage, they state:

“At Indie.vc, we believe that companies with a focus on making a product customers love and selling it at a profit from the very beginning have a distinct long-term advantage over those who don’t. We’ll trade slower, thoughtful, compounding growth over scaling fast and failing fast every time.”

Such a focus also requires a new kind of funding instrument. Indie.vc, Candide Group, Purpose Ventures, and other pioneering investors have started investing with instruments based on profit-sharing instead of focusing on an exit.

Imagine a fund that still invests in ten companies and expects a return of 3x over a period of ten years. Instead of asking these companies to exit, it could require them to buy back its shares at a 5x price over that same period. This requires a much larger portion of these companies to succeed in generating the desired return (six out of ten), but on the other hand, they can do so without selling the company and their growth doesn’t need to be enormous. Ben-Ami presents a concrete scenario where the company has annual revenue of $1M and is not yet profitable at the time of the investment. After seven years, the company is generating $10M in revenue with an EBITDA of $1.5M. That sounds like a reasonable estimate. Ben-Ami’s calculations show that such growth — which would never attract a traditional venture capitalist — would be enough to provide investors with returns comparable to those of venture capital funds.

For Sharetribe, a profit-sharing model is a natural fit. In our current funding round, we offer investors redeemable shares for the price of 20 euros per piece. In the shareholder agreement, it is stated that our company uses 40% of its annual profits to redeem back these shares for 100 euros apiece until they have been fully redeemed. Our model has been inspired by a debt vehicle called Demand Dividends, which was designed to create reliable returns in impact investing, but our model uses redeemable shares instead of debt royalties.

In our projections, we expect faster growth than in Ben-Ami’s scenario — while the target we agreed upon with our investors is ten years, we hope to be able to redeem all the investors’ shares within six to seven years. If these projections fail, Ben-Ami’s calculations show how even a relatively modest annual growth would be enough to provide a sufficient return in the target timeline.

If we don’t meet the 10-year target, we would need to either redeem back the remaining shares immediately from our free cash flow, figure out a refinancing option, or continue using 100% of our EBITDA in the following years for redemptions until all investor shares are bought back. This condition ensures that it is also in the best interest of the company to redeem all the shares on time.

In our specific model, there’s an aspect that gives the management of the company a personal financial incentive to ensure the investors will get their shares redeemed: there will be a “delayed compensation” waiting for them once the investor shares have been redeemed in full.

Rewarding founders and early employees: Delayed compensation

Starting a technology company is a risky business. It often involves at least some level of personal financial risk from the founders and early employees. Our situation is not an exception. Sharetribe was founded in October 2011, and during the early years of the company, we worked for a relatively low salary (during some periods even without any salary) to get the fledgling business going. Similarly, the first team members to join typically accepted a salary lower than their market rate. To compensate for this, they received stock options that would entitle them to a financial reward in case of a liquidity event in the form of a company sale or an IPO.

Our transition to steward-ownership removes the possibility of such a liquidity event. Thus, we needed to come up with an alternative way to reward the team for their early financial risk. Such incentive structures are important if we want more people to start steward-owned companies and join them. The steward-ownership model didn’t have a standardized way of structuring delayed compensation, so we decided to design our own.

We opted to create one more class of redeemable shares. In our transition, the earlier shares held by founders and early team members were split in two: each old share became one A-share and nine D-shares. A-shares have voting rights but no rights to profit-sharing. D-shares don’t have voting rights, but they have a similar right to a redemption as investor shares. The redemption schedule of D-shares is designed in a way that most of their redemptions will happen only once the C-shares (the shares of the investors) have been redeemed in full.

What, then, is a fair compensation for the early risk? We calculated this by assuming a situation where, instead of founding the company, we would have taken day jobs with the average market rate salary for people with our specific degree. We then calculated how much extra income we would have earned this way compared to our earnings during our time at the company, and used this calculation to give our original investment a monetary value. To this sum, we then applied the same average annual interest rate as what our investors would get in a scenario where all their shares are redeemed. We arrived at roughly 1.9 million euros (before taxes) per founder. A similar calculation was then applied to each team member, but in a way that the compensation each team member would get would be in proportion to the number of shares or options they were holding. We then had conversations with the entire team to calibrate these calculations and figure out a fair level of delayed compensation for everyone.

Beyond the share redemptions, the only other financial compensation team members (including founders) can receive is a salary, which cannot exceed market rates. Sharetribe will never pay dividends as our articles of association prevent that for A and B shares (and holders of C and D shares get their returns via share redemptions). This guarantees that once all the C and D shares have been redeemed, 100% of the company’s profits will be used either to develop the company further or other activities aligned with its purpose, like charitable donations or investments in other steward-owned companies.

After this final piece of the puzzle, all the components of Sharetribe’s steward-ownership structure were in place. There was just one more thing: how can we prevent the management of the company from changing the structure later on?

Safeguarding the structure: Foundation and veto shares

When a company transitions into a steward-ownership structure, it’s important that the transition is permanent. This way, it can give a binding promise to all its stakeholders — employees, customers, investors, and society at large — that it won’t change its ways later on and revert back to profit-maximization, even if there’s a change in the company’s management.

Since ZEISS, steward-owned companies have used foundations to safeguard their structures. The great thing about a foundation is that it can be assigned rules that its board must obey, no matter what their personal preferences.

Creating a new foundation is, of course, expensive and requires quite a lot of work; it wouldn’t make sense for every startup to create their own. Luckily, there’s no need for that: Purpose Network has created a foundation that any steward-owned company can use. The Purpose Foundation is dedicated to helping companies stay independent and mission driven for the long-term through steward-ownership.

In our case, we created one more share class (B-shares) and issued exactly one of these shares, which was then given to the Purpose Foundation. This veto share can only be used to veto any change in the company’s articles of association that would attempt to dismantle the steward-ownership structure. The foundation is bound by its rules to veto any such change, and whoever is on the board of the foundation must respect these unchangeable rules.

In a nutshell: from now on, Sharetribe will always remain a steward-owned company.

Summary: The best of capitalism

Steward-ownership is not only reserved for “impact companies” trying to cure diseases, build technology for renewable energy, or tackling poverty. The model can be applied to any company that is building useful products, like the examples of Bosch, John Lewis and ZEISS show. The purpose of the structure is simply to make sure that our companies are in service of society, not the other way around. If the management of a steward-owned company comes to the conclusion that the company’s net impact is no longer positive due to its negative externalities, the management is incentivized to change the company’s ways.

To me, steward-ownership is a way for our society to get all the benefits of capitalism and free markets while remedying their negative effects. A decentralized market economy is an extremely efficient solution to allocating scarce resources when compared to alternative solutions like central planning. Entrepreneurship is a great way to increase the standard of living of everyone, and capitalism offers good incentives for both entrepreneurs and investors. This system has brought us enormous wealth and prosperity and lifted large amounts of people out of poverty. However, it has also brought enormous inequality and a myriad of environmental problems with it. Steward-ownership is a great example of how, with a few simple changes in how companies are structured and governed, we can get the benefits of capitalism without its downsides. To use Silicon Valley terminology, steward-ownership is capitalism 2.0.

For Sharetribe, there’s another reason why the steward-ownership model is a perfect fit. The goal of our company is to do to the sharing economy what steward-ownership does to capitalism: restructure it in order to get its benefits without the downsides. In the next post, I’m going to discuss how exactly that will happen.

***

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 steward-ownership 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: 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.

The post Steward-ownership is capitalism 2.0 appeared first on P2P Foundation.

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.