Why invest in the collaborative consumption business model? by Dom Moorhouse

Good question and one – as the founding investor in Storenextdoor.com – I should hope to have a reasonable answer to!

As this is a relatively new area altogether, let me – firstly – tackle the question of ‘what actually is the collaborative consumption business model?’.

unused lawnmowers

Could you make ‘mow’ money with your idling resources?

The term is used to describe an economic model based on sharing, swapping, trading or renting access to goods (as opposed to the conventional model of outright purchase/ownership). You will often hear the sister buzz term ‘peer-to-peer’ uttered in the same breath. This refers to such a trade taking place in peer communities (that is amongst private individuals) and this often as a significant disruptor to a traditional, incumbent model of corporate provision. I first came across the term at the Wired 2011 Conference when one of the evangelists for ‘collaborative consumption’, Rachel Botsman, took to the platform to talk about the incredible rise of airbnb.com (a ‘poster child’ for the model). She described the emerging model in terms of a socio-economic revolution. ‘Socio’ because it hinges on new, emerging community networks and an interesting hypothesis that the ‘centre of gravity’ for commercial trust is shifting away from blind subordination to the big brands (think banking crisis and corporate mistrust) and back to local (or interest-community based) people-to-people transactions. ‘Economic’ because – with technological enablement – this model has enabled many (demand and supply side) to derive value from ‘systems’ where there has, hitherto, been massive spare, unused capacity.

Let me use a trivial example to illustrate. Lawn mowers. How much ‘spare capacity’ is there in the average owned grass-cutting machine? Well, I guess most lawnmower owners use them for c. 2 hours every fortnight during the seasons when they are relevant. Let’s assume (go gentle on me … this is just an illustration!) that for the ‘relevant’ six months a year, discounting night hours, this equates to a utilisation of 2/168 hours = 1.2% utilisation. That equates to a spare capacity of 98.8%! Put another way, even if a collaborative model enabled a target utilisation of 50% (incidentally, most businesses get far more from their typical asset utilisation) this means 42 people could use the same machine. That is, the owner of this asset could derive value (via direct income or a bartered swap) with 41 other people selling just half of this ‘unused capacity’ and these co-users would then incur a fraction of the cost of whole machine ownership (even with a fee for the owner’s troubles, this is likely to be close to a 95% saving!). Unless there is a significant inconvenience impediment to such a model in your instance (e.g. you live miles from the owner with no transport etc.) or you have an intangible pride in mower ownership, or a delusional belief that you will gain in capital growth from your machine, you would be an unthinking automaton not to consider it. And, this is before you factor in the environmental benefits of shared usage and, the social benefit that many early adopters are talking about, of actually meeting more people in their communities.

There are now various sectors where the model is being harnessed, with new enabling-platforms emerging constantly; for example, Zopa for peer-to-peer lending, Whipcar for car sharing, Liquid (formally Spinlister) for bike sharing, TaskRabbit for general jobs … and, of course, Storenextdoor.com for self-storage!

So, back to the question … why invest in the collaborative consumption business model?

Well, first and foremost, because the model – well executed – has been shown to work commercially for its members and the organising party. At its core, all the self-interested agents in the system genuinely benefit … on the supply side there is an opportunity to get value back from assets languishing in homes (a secondary income stream or a ‘benefit in kind’), on the users’ side, there are material savings to be had over actual ownership (or against the cost of getting the same good/service from a corporate provider) and for the organiser, plenty of scope to take a fair, profit-bearing intermediary fee. This latter point is key as wholly philanthropic ventures often run out of goodwill (along with cash); a profitable model that happens to provide a worthwhile service is a completely different investment proposition.

Whilst the community and environmental factors are further important considerations, it is the fact it appeals to all involved parties at a ‘self-interested’ level that really gives it fuel. And, with Mr Osborne extending austerity to 2018, the basic economic incentive for participation is not going to go away in a hurry.

Of course, there are investment risks. The investment in such companies requires a real ‘hold your nerve’ belief as, inevitably, there is a significant up front stake required to develop the technology/brand and to pay for the ‘always more expensive than you imagine’ marketing campaigns. An investor should also acknowledge that the model is in its infancy and for many the ‘take up’ barrier is still one of non-awareness or behavioural inertia. Even with reduced trust in the ‘Big Firms’, of course for some, there is a residual ‘better the devil you know’ aspect to the equation regardless of the obvious upside. That all said, as such platforms proliferate and communities grow, there will be a growing evidence base that the collaborative consumption model works in practice. Even the hardened sceptics are likely to ponder this alternative model when the dinner party conversation returns – yet again – to the ‘do you know I’ve just joined shareyourmower.com and don’t know why I didn’t do this ages ago’ line.

In short, I agree with the Time Magazine when they recently named ‘collaborative consumption’ as one of the top ten ideas that will change the world. Or, at the very least, I agree with the viewpoint that says we are at the start of a growing generational shift that will see the old models disrupted for these innovative, collaborative alternatives – and – I know which side of the equation is going to be more-exciting, more-opportune in the coming decade.

At a personal level, there is another reason for investing in such a business. I err towards the more active end of the investment spectrum and, in this instance, I wanted to throw myself wholeheartedly into the venture from a professional development perspective also. Investment and entrepreneurship, for me, is as much about scratching an intellectual curiosity as it is about brute ROI. This new chapter is just beginning and I want to really understand what makes the difference between platforms/websites that offer their members manifest value and foster growing communities cf. those that miss the mark (even if just marginally). There is no better way to learn this than to work with talented colleagues, building such a company from the ground up, in this enthralling area.

In summary, I am investing in an evidenced belief that for those that help build the best shareyourmower.coms of the future … the grass on the other side of this consumption shift really will be greener.

Dom Moorhouse is CEO of Storenextdoor.com  , an author and Angel Investor. Find out more at his website.



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