sharing economy

Sharing Economy, Open Source and Open Innovation future for a start-up?

Posted on Posted in Funding

How about sharing economy, open source or open innovation to hire people with spending as little capital as possible and having an innovative idea really wanted by the customer? Is there a better way for a start-up to achieve success?

Three things required to create a successful start-up are as following:-

  • Good People
  • Product/service consumer actually want
  • Spend as little as possible

One way all these three things are done in Start-ups is equity/stock option. It is a cost-effective way to reward and encourage key staff. In this model the person who has the idea can find co-founders or hire staff by offering stock options or equity to help him bring his idea to reality by getting tasks done that he is unable to do.  The benefits include the monetary incentive to staff, who receives stock at a great discount. Although holding stock makes sense for the founders, they can expect a serious commitment from employees to make the company successful as the relationship is mutually beneficial.

Exercising an option only leads to money on paper for an employee. To be able to get some money, an employee has to sell the shares.  In Ireland, within 30 days of exercising a share option, employees are liable to pay income tax, USC and PRSI. 33% rate of capital gains tax has to be paid to the gains made between the exercise price and market value of shares at the date of exercise.

However, the outcome desired by both, the start-up founder and staff is very different. Founder hopes that the value of the stock given away is recouped by getting the best effort from the staff for a long time. Employee hopes that the start-up becomes the next big organisation such as Facebook or go public so that he can get paid for their effort and sacrifices in the formative years. Hence, if the share value grows, the employee stands to make the profit .Else all their hard work leads to no financial incentive.

For founders, sharing economy promises lowest amount of money spent for a best possible result.

Also, the administrative time spent on the staff hired is minimal as they let the founders get on with running their business .Founders can keep all the equity and compensate in real time based on the contribution and not on the time spent in the company.  Staff working in sharing economy has the advantage of flexible working hours and from anywhere. Sharing economy’s trend can be verified by census conducted in Ireland in early 2014 which shows self-employment (without employees) is at 230,000(back at boom level) while self-employment with employees is down from 125,000 in 2007 to 87,000.

Open source provides start-ups with a way to get the most by spending capital solely on requirement basis. There are no licence fees or long term contracts. The money spent can be on support, maintenance and security .Software generally runs on cheaper hardware.

Open innovation in its current form provides an excellent way to share risk and profit a company .It can reward the community with innovative products and services. It fulfils a gap between academia, business, public through creativity and profitability. Also, a business model can play an important part in deciding what a company wants to innovate or not.

Therefore, both open source and open innovation can empower founder with bootstrapping capital and boundless originality through freelancers using sharing economy to produce a product/service suitable for the market.

Does it mean that Equity/stock options model can be replaced by sharing economy? How about using sharing economy by the founder and the staff to be beneficial to each other’s motives? Can open innovation , crowdfunding and open source provide the quickest route to market?

It will be interesting to hear the views and comments.

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