In search of an appropriate business model for the Controlley platform
After a lot of thought on what might be the most appropriate business model for our platform we came to believe that the “cooperative model of social enterprise” will serve the social purpose of our platform in the best possible way.
The “social enterprise” can be seen as a modification of the traditional business model in a way that specific social and environmental goals and outcomes become part of its primary purpose and legal expectation, while at the same time profit making is significantly reduced to a minimum (e.g. not higher than 30% of the total profits).
Other than that, a social enterprise is typically a private business owned and controlled by its shareholders, which are normally a small number of people that may include founders, private investors or even employees.
In other words, this model attempts to balance social purpose with profit making, which is considered necessary in order to provide enough incentives for those who take substantial risks in creating the business.
The “cooperative” model addresses the issue of ownership and control by preventing a small number of people to have the power to take all the important decisions by themselves and also share all the profits. In a cooperative, ownership is shared by a larger number of entities, its so-called members, which are directly implicated in its business activities (e.g. employees, customers, investors, public institutions, etc). While each member may own a different number of shares, depending on different factors such as the amount of money invested, the voting power is shared equally among its members (money can’t buy power in other words) to allow for a more democratic decision making.
With this in mind, here are some more specific thoughts about how this model could work for our own platform.
At the moment, the platform is owned by a traditional type of company, TCT Controlley Ltd, with two founder shareholders. The transition to a cooperative social enterprise will need to take place gradually after solving a number of legal and other types of challenges.
A legal framework for social enterprises is currently not existent in the country of Cyprus but is expected to be passed into law in the near future. This, however, does not prevent us from setting a clear social purpose or limiting profiting to a certain percentage.
Platform cooperativism: the use of the traditional cooperative legal framework for online platforms poses a number of challenges that need to be addressed with the necessary legal adjustments. What’s encouraging is that this model has already been used with success by a number of ventures around the world, while a lot of discussion in collaboration with governments is currently being make to help promote through the necessary incentives and regulatory adjustments.
Member types (classes): the nature of the platform activities are such that a variety of different types (or classes, as they are often referred to) of members will exist: employees, donation beneficiaries (NGOs, CSOs, public schools, municipalities), companies, individual people and possibly other types as well. Each member group will be given a fair amount of representation in the board of directors and share a specified percentage of the profits.
Membership criteria: not anyone who registers for an account on the platform can automatically become a member. A number of minimum criteria will need to be specified to make sure members are actively participating in the online community: members may be required to pay a small one-time membership fee (e.g. 25 euro) after which their relative shares will be determined by the degree of involvement and contribution to the online community both yearly and in total: e.g. the amount of money donated (for donors) or raised (for beneficiaries), the number of volunteering hours offered to local common-benefit projects, the number of projects posted/organized, the number donation coupons sent, etc.
Sharing risks and benefits: Instead of a single or small number of investors (including founders) taking all the risk in making the business work, the cooperative model will allow for an effective risk-sharing mechanism. As in the crowd-investment approach, large number of people (in this case, the cooperative’s members) will more easily be able to afford to invest in the business and contribute towards the growth of the business especially during its early most fragile years.
Small risk taking of this sort will of course be accompanied with the corresponding rewards (compensation) depending on the type of investment agreement made. For example, if the investment involves the buying of member shares, this can be translated into profit sharing in the form of dividends. Alternatively, a separate investment option can be offered, such as through the so called revenue-based investing process, where the company agrees to pay investors back a percentage of the gross profits at the end of each quarter until an agreed target (e.g. 3 times the invested amount) is reached. As a general rule, the earlier one has invested in the cooperative (or at times of higher risk), the greater the compensation one will enjoy.
Sharing profits: The way the profits will be shared will be such that no one will be allowed to get rich as in traditional companies. The sole purpose of sharing profits will be to provide both enough incentives to encourage participation, and compensation for risk taking (particularly that of capital investment). This contrasts to the non-profit model that runs the risk of chronic under-financing, preventing proper maintaining as well as scaling of its activities.
Given the different member types and degree of involvement in the business, it makes sense to allocate a different percentage of the total profits for each member group (e.g. 15% for employees, 25% for non-profits, 20% for individual people, etc). This percentage can be adjustable depending on the number of members in each group at a given period and in order to make sure the profits are more fairly distributed.
Sharing control: one of the unique aspects of cooperatives is that decision-making takes place more democratically among its members. This is important for creating a feeling of cooperation and belonging in the online community but, at the same time, it can pose a number of challenges since the decision-taking process can potentially become too slow and time consuming. What’s encouraging is that a number of recent online tools (such as Loomio) have made it easier to coordinate democratic decision making among large number of people. This does not mean however that everybody will have the authority or be expected to cast a vote on every decision; instead, different types of decisions will be taken by different people or through different processes. Representatives from different types of members, for example, will make up the board of directors, who will be responsible for higher-level type of decisions. Employed managers, on the other hand, will take the lead in other everyday types of business decisions, always by taking into account the opinions and concerns of platform members, customers or employees.
Exiting: A typical startup nowadays has made part of its future plan and goal to “exit” by finding some other bigger company or investor buy it out. We consider this approach problematic as it is driven primarily by self-interest and the desire to maximize profit, something that can negatively influence business decision-making. Instead, we believe that we should either prevent the possibility of selling the company altogether or at least do so by capping the amount of sale proceeds that can go to members and only with the approval of a high majority of its members.
Shared purpose: ultimately the success of the platform will highly depend on the ability of its members to align their interests under a shared purpose, something that is not a given, but requires constant effort and education in every stage and aspect of the business.
More details about how our endeavor of applying the above in actual practice will unfold over time will be shared along the way. In the meantime, we welcome anyone who wants to share any ideas or get get involved in different ways to contact us at firstname.lastname@example.org.
“The Conscious Trolley” is an online collaborative platform that turns conscious and socially responsible behavior into “shared value” for everyone involved.