Collaborative Finance at the Embassy: A Case Study
At the Embassy SF our goal is to manifest community as a platform, and to continually be pushing the boundary of new ways of sharing and transparency. Part of that means redirecting any surplus income back into the community.
Historically, that would have meant that a small group would make informed guesses as to what the broader community wants. There are certainly merits to this, but, a suite of new approaches, enabled by technology, are radically changing the landscape of how participation can be built into our organizations.
A suite of new approaches, enabled by technology, are radically changing the landscape of how participation can be built into our organizations.
Today, we are able to involve the members of our community directly in allocating net profit, through a process called collaborative budgeting. Each guest, member and resident of the Embassy is allocated a proportional share of this net profit, as a function of the number of days they spent in the house that month — even if they only stayed one night.
Collaborative budgeting was initially popularized in Porto Alegre, Brazil, and has since spread to cities around the world looking to engage their citizens more deeply. Those are primarily municipal-level convenings to facilitate citizens voting on spending priorities.
On a smaller scale, community groups like POC 21 and Ouishare, and small businesses like Enspiral Services, Loomio and Robin Hood Coop are experimenting with giving people direct control over certain dollars to spend for the organization.
How do we achieve this on an operational level? What processes and tools do we use, and how can we simplify and automate as much as possible so that it’s not taking up valuable, and limited, human resources to manage the process?
Between guests, residents, and other community members, we have several dozen unique people staying in our house each month (not to mention events, attendance at which we don’t track yet, but which total in the hundreds). Each of these people contributes to the house culture and projects, using the different spaces, observing and ideating together. In most cases, they have also made some financial contribution through the course of their participation, whether through rent, guest accommodation, or a membership fee.
If these financial contributions result in a net surplus, then that surplus goes back into our community. It’s like a fluid cooperative dividend, one that changes every month without requiring people to buy or sell a formal share. Technology lets us do this in more fluid, flexible ways.
It’s like a fluid cooperative dividend that flows with the people who were actually there.
(Note: the definition and calculation of things like “net profit,” “reserves,” etc. will be a function of your organization’s operating model and cash flow profile. Deciding on an approach to these questions is outside the scope of this article).
We are lucky to have an operating model that makes it easy to have a crude sense of time people spent in our house over the course of the month. Our website gives us occupancy data for our residents and guests, which we export as a CSV file. That file tallies the total days of occupancy by each individual, which can then be used to calculate a weighted allocation (see image).
For example, let’s assume we had 10 full time residents in February, and 1 guest who stayed 5 nights. Then the total “person nights” would be 10*29 for the residents (it was a leap year), plus 5 nights for the guest, or 295 “person nights” total. If we have $1000 to put towards cobudget, then the guest’s share will be (5/295)*$1000, or $16.95. Each resident would end up with a larger share, because they spent more nights. Each resident’s share would be (29/295)*$1000 = $98.30.
Once the totals are calculated, the CSV is uploaded to our Cobudget group, where it updates the allocations of each individual and invites any new users.
Managing the money behind the scenes
Internally, we transfer the amount we’ve allocated for cobudgeting from our main checking account, into a separate bank account. This keeps it separate from other spending and ensures that it’s not accidentally spent on operating expenses.
Since people are not required to spend their money right away, these funds might sit for some time in that cobudget bank account. That’s ok. As buckets get funded in cobudget, we create a placeholder invoice in our Xero account from the bucket sponsor for the bucket amount. The invoice sits in Xero until the bucket has actually been completed and invoiced, and the exact cost is updated. There may be a small difference between what was actually spent and the funded bucket amount. Any small difference goes back into (or comes from) reserves.
As a community, there were a few questions we had to answer from a “policy” standpoint.
Which of the many different potential ways, should surplus be allocated?
- We decided on a proportional weighting system, as described above, but this is just one approach. We could have decided to make it an even split, we could have expanded or contracted the people invited to participate. We’ve also talked about allocating in proportion to work we do for the house. These are all viable options.
What happens to unused allocations for each category of recipient?
- Residents and coworkers can leave money unallocated, until/if they are no longer residents, at which point it would be redistributed among other residents. Unallocated guest money, rolls back into resident allocations after 3 months.
Do we give an allocation to comped reservations?
- We decided we would choose this case-by-case.
What if people don’t want to participate?
- We don’t have a great solution for letting people opt out yet. We can create a do not contact list, but this will have to be managed manually for now. Ideally, we’d like a workflow where the recipient can click a button to either accept their funds, or, optionally, allow them to delegate their funds to someone else, liquid-democracy style.
How do we manage partially funded or ongoing buckets?
- Some buckets, like scholarship funds, may be ongoing. If we spend from these buckets before they’ve been fully funded, what is the best way to do the bookkeeping on these while keeping the bucket open?
So what kinds of projects are we funding?
As you can see, buckets can be anything. Most importantly, they needn’t be about the house itself. The money in cobudget can support day to day house needs, but what’s even more interesting is when it’s used to support people and projects out in the world.
For example, our good friends at Legal.io hosted a brunch at the house to help people use open templates to develop customized “last will and testaments.” Now we have a bucket to pay for their time writing a blog post, describing how to create open source marriage contracts.
Embassy is just getting started right now, but in communities such as Enspiral, we are allocating many thousands of dollars at any given time, and there are people who make significant portions of their monthly income through this direct allocation process. The Embassy SF has been extremely fortunate to learn from the years of experimentation and boundary pushing that Enspiral has done in this area.
There is an explicit decision we are making here — we want to open ourselves up to the unforeseen directions and diversity of ideas that collaborative funding enables. We are not optimizing for predictability or focus, but rather for generative acts of co-creation and direct acts of mutual support.
Many communities shy away from the money side of things, but collaborative finance is a pathway for us to get smart about how we spend more than our time. It’s a tool to up our game in the world around us, and take greater responsibility for supporting one another. Together, we can resource the world we want to see.