Could Exit to Community redefine our idea of startup ‘success’?

Stock imagery doesn’t have a good reputation. Rather it’s usually only memorable for its awfulness. Exhibit A: the infamous distracted boyfriend meme. But the image below is from Stocksy, a premium stock photo site that attracts high calibre photographers and rejects many of the photos submitted by its members. The platform’s secret weapon? Its rates are nearly double those of traditional agencies, thanks to its unique cooperative status. The platform is owned — and managed — by its artists.

The platform was launched in 2013 by Bruce Livingstone and Brianna Wettlaufer, after they sold their iStockPhoto business to Getty Images. Instead of retiring, they created an almost subversive challenger to their old parent. While Stocksy is relatively small, at least compared to Getty, it has grown steadily to revenues of over $10 million per year, with nearly half of that paid out to contributors. Hayden Williams, a member says, “the co-op model is just so refreshingly transparent. Contributors are constantly updated on current and future plans, and we actually discuss and vote on where we want the business to head.” One well-debated move was increasing the membership cap beyond 1,000 photographers, in order to be able to offer a greater volume of imagery. While this was approved, the members retain the right to vote to freeze membership in order to protect their earnings, if it appears that supplier expansion is driving down returns, as happens on many platforms — witness Uber driver earnings.

Stocksy is just one example of a much broader trend for cooperative and community-based corporate ownership that is both glacially unthreatening and deeply radical at the same time. On one hand, cooperatives and mutual societies have been around for hundreds of years. The world’s 300 largest cooperatives have a turnover of US$2 trillion, and include France’s Credit Agricole Finance, Germany’s REWE, Japan’s Nippon Life, and State Farm and REI, both based in the United States. In total, cooperatives employ 280 million people, or 10% of the world’s employed population.

But you don’t see many cooperatives among the fastest-growing, most disruptive startups of the digital economy. Which is surprising, given the nature of many new startup business models: highly networked, community or peer-powered, and purpose-driven.

There are experiments. Equity crowdfunding has seen thousands of businesses raise money on platforms such as StartEngine and Seedrs over the past decade. Both Uber and Airbnb petitioned the SEC to be able to offer equity to their drivers and hosts (who are not employees, remember?). The emergence of blockchain spurred a number of technological approaches, most notably the concept of Decentralized Autonomous Organizations (DAOs), although to date these remain more theoretical than practical. Both Twitter and Facebook, via their respective Bluesky and Diem (formerly Libra) proposals, have explored new technological-driven alternative operating structures, although with limited early success.

However venture capital still dominates the startup sector. And this means that the startup world follows the venture capital dynamic: companies raise money and then are on the growth-at-all-costs train, chasing the 10x if not 100x blockbuster return that will make the fund a success, with little concern as to whether that growth is truly sustainable.

Exit to the Community

What if there was another way? That is the question that Nathan Schneider has been asking himself since he was a reporter covering the Occupy movement after the Great Financial Crisis. Author of the cooperative-focused Everything for Everyone: The Radical Tradition that is Shaping the Next Economy, his new project focuses on the concept of ‘Exit to Community’ (E2C). More of a manifesto than a discrete organization, in its own words E2C “is a strategy in the making”, published jointly by the Media Enterprise Lab at the University of Colorado, Boulder (where Schneider is assistant professor of media studies) and Zebras Unite, a movement of founders who reject the venture model (the term zebras is used in contrast to ‘unicorns’, the term for privately held companies valued at over $1 billion).

The central idea behind Exit to Community is that businesses that create value for, with and from a community should be able to be owned by that community. Broader and less complex than blockchain-based technological solutions, and more inclusive than equity crowdfunding, Exit to Community: A Community Primer argues that new legal and governance models are needed for those businesses for whom a ‘traditional’ exit — an IPO or trade sale — is not available or appropriate. The E2C primer lays out many routes to an E2C outcome, such as cooperatives, trusts, golden shares, B Corps and more, as well as calling for a mix of policy, regulation, culture and storytelling to advance more equitable and inclusive corporate structures.

The E2C primer was written to help avoid the frequent gap between founders’ lofty initial aspirations (“we’re going to change the world!”) and the mundane reality that results if, against the odds, founders actually are successful in building their business and a corporate or public exit is achieved.

Despite his long-standing support for the cooperative movement, with E2C Schneider acknowledges that for many businesses, community involvement is not appropriate at every stage. It might be impossible to successfully manage a community during the riskiest stage of a startup, when agility and fast decision-making are needed. Instead, he argues that E2C should become a practical option for those businesses that have reached a level of stability and maturity and whose owners want to build long-term accountability towards their communities into their governance and ownership structures.

The primer concludes with a call-to-arms. Excuse the long quote, but Schneider is so aligned with model of trends that we have previously laid out in both Trend-Driven Innovation and Non-Obvious Trends, so it’s worth repeating!

“We write here with the hope of a new normal — a set of decent expectations, so widespread and available that most of the time there’s no need to question them. The normal we want is one in which people can build toward, and with, community ownership. This shouldn’t have to be a special thing, a radical demand, an “alternative economy.” It should be simply the normal way that people build the organizations they want to see in the world.

Getting to that normal requires some not-normal work. Many of the experiments we have showcased here came about only because of superstar dedication and courage from the people who have built them. These are often the kinds of people who aren’t in love with normal, who crave a challenge and are willing to be looked at with suspicion. These experiments are funded by courageous, curious funders and supporters, willing to climb without ropes so that those who follow don’t have to. Normal is not enough for them. When experiments like that keep happening, though, the normal changes. Things that once took unusual gusto, once they are out there and working, can suddenly seem like they were there all along. Soon, the kinds of people who crave predictability and the status quo above all are doing what was once the purview of the strange. Time is running out, and there is no choice but to accelerate the pace of progress.”

Amen. 🙌 But even if you’re not an aspiring community-focused startup founder, there’s a lot to think about here.

What if…?

🏰 You could make your community a competitive moat? Could shared ownership be a way to increase engagement, retention and advocacy among your most loyal customers or users?

🎟 You could run an effective democracy? Modern collaboration platforms make it possible to successfully manage a community: avoiding free riders and empowering members to contribute to strategy and operations?

👩🏽‍⚖️ You could be a different kind of corporate citizen? Recent years have seen Benefit Corporations and Community Interest Companies enshrined in law. Would you consider a new, more community-driven structure if it was available?

🏃🏽‍♂️ You could be a fast follower? Could you partner or work with organizations that are already experimenting with these models? How could you learn from their experiences?

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Future Normal? Or Future Niche?

This newsletter (and upcoming book) is our attempt to explore what the world might look like as we leave 2020 behind.

We’d love your feedback, tips and insights. Will E2C help trigger new regulations that change the dynamics of the startup world, or will the sheer weight of VC money drown out other voices? Will it take a bold founder success story to inspire others? Who might that be? Even if E2C becomes better established, will it remain a niche pursuit, or could you imagine a world where some of the largest platforms and players are community-owned?

Let us know your thoughts in the comments below!

Thanks for reading,

Henry & Rohit.