The Writing May Be on the Wall for Old Business Models

Today’s business models are being shaped and enabled by digital technology. Soon the industrial model could belong in a museum, says Sreela Banerjee.

The new collaborative business model is more sharing, more responsible, less regulated (and therefore cheaper to run) and more vulnerable to abuse, perhaps. But you will already have noticed a trend which is unmistakable.  Our old business models are unravelling before our very eyes.

Deutches museum Munich
Deutches museum Munich – valves section
Photo: Charles A R Gillams

New technology has changed the behaviour of individuals younger than 35. Although we would like to say they are isolated and clicking away at their mobile phones in a seemingly detached way, the ‘big data’ facilities we now have seem to show that collectively they behave more and more like a powerful ‘community’. Almost a collective company, they co-exist with – but often largely ignore – the corporates of the last century.

We noticed that the sharing of ideas online was disrupting the news machines that feed us the orthodox view (blogs have proliferated beyond measure). Now the trend is bigger and more pervasive. The developed Western economy is increasingly sharing goods, services, time, space and money.

Here are some examples: today, an individual can put up a spare room for rent, complete with photographs, on Airbnb. The old model of advertising your bed and breakfast in a brochure, and starred by the AA, looks outdated.

The LETS communities are doing away with cash transactions, and the newest of platforms in Berlin allows neighbours to borrow machinery from each other, by way of a few clicks.

Freecycle has existed happily in all UK communities for some time. While its members give away everything from children’s toys to a few pieces of the right-sized plywood, Freecycle is sitting alongside, and ignoring, the consumer society of yesteryear and defying the taxation system.

A friend came back from Washington and talked about a wonderful meal she had enjoyed with new friends. I hadn’t heard of Feastly. Have you? Cooks advertise spare meals and those who wish to eat turn up at private homes and fall upon it – and stay till late to chew the cud. My friend met a man who had just come back from Peru and acquired some new views on alpaca sweaters! Please could someone start this in a small town closer to home? Washington DC is too far away.

And what about digital companies here in the UK? – Read all about it here. (They are calling themselves Nemode – New Economic Models in the Digital Economy.)

New models of banking

You might ask, isn’t there a collective effort to ignore the traditional banking sector? Yes, of course. For small personal loans (the most profitable of banking products) you can go straight to Zopa, the online loans platform where a lender (ordinary Joe Public) will lend you some of his savings. On this platform, as a lender you will earn more money than if it were sitting in a bank’s deposit account, and as a borrower you will find a loan cheaper than those offered by banks. Some £470 million has been lent out on this platform – peanuts, really, in comparative terms, but it is growing very fast. I should point out, being associated with an FCA authorised company, that there is no reserve held by these lenders. Do take advice before you get into this.

From April this year such firms will be a bit safer because they will start to be regulated by the FCA. I wonder if many of them will survive the costs of regulation?

The US government has woken up to this new wave of social awareness and engagement, which is increasingly making the central authorities look irrelevant. In 2012 federal legislation came into effect to allow small startups to ask for direct investments in shares publicly (such as through social media or ‘crowdfunding’ sites) without having to register the shares for public trading (which is costly). Business owners will now be able to raise any amount, though only, at this point, from accredited investors — those deemed wealthy and sophisticated enough to understand the risks.

In the UK, this kind of micro-equity investment had already been pioneered by platforms like Crowdcube and Seedrs, which are FCA regulated. Initial regulation required less lobbying and as a result there has been less noise about it, although FCA are currently in the process of tightening up the rules. Those changes in the UK go alongside the introduction of extremely generous tax breaks for startup investment.

The growth of peer to peer

In the US, the legislation which introduced this innovative new funding model is part of the 2012 Jumpstart Our Business Startups Act or JOBS Act, meant to encourage the growth of new businesses. Entrepreneurs there said it would address a central problem they faced: that raising significant capital often depends on having personal connections with investors. Today, we know that Twitter, which never made any money, recently took advantage of this, raising some $8 billion from investors. (About half a billion of this went on fees to Wall Street – so how the money is used is worth watching too.)

Looking at the intent, what is this legislation doing? It is saying to a larger part of the population: ‘Go ahead and help your fellow Americans to start new businesses if you have enough savings to afford to lose a little of it – and can manage the rest of your savings to ensure that a loss does not affect your lifestyle.’

There are many such Americans (over 8.6 million millionaires in 2011) and this is welcomed by many people whose business ideas are far from half baked. The ‘crowdfunding’ business has boomed – not every business is Twitter, some of them offer tangible goods and services and make a quick return. (Being cautious, I would have to add that many people have lost money funding companies which did not pay them back their original investment, let alone a return, but those statistics are harder to find so always take advice before you plunge your toe into this market.)

This is a huge departure from the business model of the financial services sector of yesteryear, which made me wonder, more generally, so what has happened to business models that my MBA covered, in pre-internet days?

Business models then and now

Here is what has happened:

Infographic by Sreela Banarjee
Infographic by Sreela Banarjee


Bigger companies, of course, have noticed this trend. They are increasingly building resilience into their own business models by partnering with the smaller and more focussed new startups with a more engaged customer base. They also have a more visible ‘purpose and meaning’ element in their corporate branding. Will this make the large behemoths more nimble in practice? Watch this space with me.

It is exciting to see assumptions change about who we are and what we can do as a group of connected individuals. Will the younger generation win? Well, they have longer on the planet, don’t they?

Every action has a reaction

It is nice to see that Newton’s insights still hold good: every action does still have an equal and opposite reaction – each of these actions under ‘NOW’ is a reaction to what we used to have. It is almost as if we are collectively saying ‘No, we don’t fit into the industrial model of ‘one size fits all’ – we are individuals, listen to us. And if you don’t think our voices are relevant, we will simply talk to people who do, people like ourselves who have been ignored, other than as readers of your publications (we now have our own blogs, thanks) and consumers of your undifferentiated ‘product’. We will share our knowledge for free and ignore your self-serving system altogether.’

Is it time the big companies listened? Some of them think so. These are the companies whose strategists know that the very question they ask internally is different from the question smaller companies ask. Big companies typically ask “Can I optimise existing infrastructure and get these 3 to 5 per cent gains?” By contrast, those who are starting up and don’t like that infrastructure in the first place seem to ask “Can I change the rules, totally”?

Here are the useful questions: will these new business models make more money than the old industrial models produced for the large multinationals? Will the larger organisations really build resilience into their own business model by partnering with the new consumers? To what extent are they capable of change? Will they buy new companies to kill them, as they used to, or has that been rendered impossible now with the advent of a culture of sharing and open source information?

What this means for small businesses

Is all of this changed behaviour going to mean that our business performance will be measured in the same way? Will we be retraining accountants very soon?

In our own consultancy company we learn from our clients as much as we advise them – here is what I know now, that I didn’t know this time last year. There exists in the UK a platform for all new authors (worldwide) to take charge of their content, be this an article, a book or a screenplay. If the big publishers sign up (as they are beginning to), they can help their authors trade all the rights pertaining to their work through a digital platform.  Curious? If you would like more information, let us know.

So what has been our response? We set up The Pyr Project.  We think there needs to be a strong vein of life skills education in schools (where ‘one size fits all’ is no longer working, as Ken Robinson so eloquently says – here is a link to his talk at the RSA, with beautiful drawings). The education we offer needs to take into account these changes in the world of work.

We invite you to join us in our endeavours – your children and mine will benefit from it, hopefully, and fit a bit better into the new economy.

Joined-up thinking

How did it all start? Let me, in the modern collaborative spirit, share something with you: in my family and circle of close friends we are having a set of conversations with our children as they get closer and closer to voting age. The most interesting response from the young people has been to the title of the page ‘joinedupthinking’ – they love it. They also like the ‘writing on the wall’ format – you click to create a box, to put your opinion on it.

To be really inclusive in how we approach our preparation for meeting the needs of tomorrow, we need academic performance, good vocational education and life skills. That needs a set of joined-up thoughts and this list is a beginning.

Photo: Charles A R Gillams
Photo: Charles A R Gillams

The padlet device helps you work on the same document with other people without creating multiple versions. It enable you to put together a series of connected thoughts, videos and pictures and to see them side by side to grasp the whole picture. It presents you with a wall (and a variety of wallpapers) and you can upload whatever you like or just write a comment,  easily. I love it – perhaps because I grew up with so much writing on so many walls in Calcutta.

The big companies are already taking note – the writing, they realise, could literally be on the virtual wall for some aspects of their current business.

We all need to join hands and contribute to creating the people who will take the Western world forward; we need urgently to engage with the education of our young people, particularly in life skills, so that they can engage with the new world of work, seamlessly. The structure of education is changing, we hope, for the better.

Don’t we live in exciting times? I would love to hear your views.

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