By Ed McLaughlin and Wyn Lydecker
The Internet has changed the world in so many ways that we can’t fully know or appreciate all of them. We are still living in the time of transition – my status as a digital immigrant and my children’s as digital natives are testament to that. (If you ever want to feel old, ask a teenager to help you with your new smartphone).
The Internet has even changed the way we conceptualize business and its models. While for many years, a successful business was one that could build a better mousetrap, the wave of the future – of the present, in fact – seems to be connecting mousetrap builders with the specialty cheese mongers of their choice. Perhaps this metaphor has become victim to the law of diminishing returns. What I mean is that many new successful startups are those based around connecting people to services in ways that only became possible with the advent of recent technology. A whole “sharing economy” has arisen, made possible by real-time communication networks. Max Nisen at Quartz covers the topic nicely in his March 5th article, The New Hot Startup Model is Being an Exceptional Middleman, articulating the winning strategies of middleman companies.
This trend may not be any longer-lived than the 8-track. It may be put to rest by companies integrating networks of their own, rendering these middlemen moot. It may be that only a few networks will dominate a handful of genres – real estate, specialty foods, etc. Perhaps most likely based on current evidence, the trend to be a middleman may shoot itself in the foot by being too far ahead of its time. Our old paradigms of regulation can’t address it constructively.
AirBnB and Lyft, for example, are middleman companies connecting consumers to short-term rental properties and rides, respectively. They are both, along with others in their sector, engaged in regulatory battles. Cab companies don’t much care for Lyft, it turns out, and they are willing to go to court to act on what they perceive as a threat to their livelihoods. Vacation rental agencies are leery of the threat that AirBnB presents to their interests. Both conventional types of business have had years to learn and meet regulatory requirements. The peer-to-peer network businesses are, in many ways, too new. Regulators are not sure how to apply old laws to these new models. The New York Times covered it in greater detail in the article Trusting the ‘Sharing Economy’ to Regulate Itself (March 3, 2014).
Historians may feel a niggling sense of déjà vu.. This is a familiar story. Every time a new technology has come on the scene with transformative potential, regulations and acceptance have been behind the eight ball. When railroads first transformed transportation (“disrupted,” to use current jargon), the interests of toll-collecting highways were threatened, and they brought suit. Eventually, the new tech won out, and the Interstate Commerce Act was passed in 1887, greatly to the advantage of interstate railroad companies. What is interesting about the current incarnation of this phenomenon is that there are no monoliths. There is no such thing as a peer-to-peer baron.
The appeal of this new approach, as Arun Sundararajan writes in Trusting the ‘Sharing Economy,’ is in the ability of the entrepreneur to be an entrepreneur without assuming all the risk more traditional ventures carry. That may mean they don’t bear the personal risk of ruin if their enterprises are stonewalled, which is encouraging for those potential entrepreneurs who are more risk-averse. The threshold for becoming an entrepreneur is lower, but so is the threshold for abandoning ship if things should go pear-shaped. A tremendous part of the entrepreneur narrative is based on the “bet big, win big” mentality. What does this sea change mean for the new face of entrepreneurship?
Is it encouraging to you because new technology provides a safer way to move from wantrepreneur to entrepreneur? Are you concerned that the low thresholds will yield reduced sticking power to good ideas and new modalities? Share your ideas and thoughts. I want to know what you think.
Ed McLaughlin is currently co-writing the book “The Purpose Is Profit: Secrets of a Successful Entrepreneur from Startup to Exit” with Wyn Lydecker and Paul McLaughlin.
Copyright © 2014 by Ed McLaughlin All rights reserved.