Community Style Business – Investment

Standard

One of the key staples for community style business is the notion of rewards that are equivalent to value created. A problem which quickly forms is that most companies need some form of up front capital either to get started or grow to their potential. This capital is given in exchange for a long term share of the profits. So with this disparity, how can investors invest in a system which turns around with profits and gives them to the employees? This post will go over some potential mechanisms which can be put in place to accomplish this without going outside the bounds of a CSB. A quick note, this post builds upon the point system initially laid out in Community Style Business – An Introduction

Capital creates value

The first type of investment I will go over is a capital investment to be used for purchases, whether it is equipment, marketing materials, or even a booth at a state fair. In this type of investment, the capital essentially creates value by itself. The points are therefore given based on the expected impact provided by the investment. In the case of marketing materials, this could last for longer than just the immediate time the money was spent. By doing this, the investor has a direct return on their investment, based on tangible forecasts. With this form of investment there is assumed a set duration and point amount.

Loans

Just like in any other business, sometimes it’s more preferable to take out a loan, rather giving away points. These are the cases where the community has a track record which can allow them to treat the loan as a community expense before revenue sharing. Since the loan doesn’t consume points, it doesn’t come with influence on the community, or other long term impacts.

Investing in individuals

Another form of capital investment is in people. This form of investment is very common in small businesses and startups, where revenues are not expected for a significant duration but people are needed full time for an initial effort. With this scenario it’s important to note that the realization of points is often a future event. The investor should be given the points in full with an iteration cap. These points can then be used at the time when revenue is being realized. The cap is a way to protect the team and system from having an iteration where an investor can devalue a a contributor’s points to where they become irrelevant. It is expected that the investors can become part of the community to help guide, but they hold no special status other than their ability to influence others.

Buying and selling points

A third form of investment is short term individual based investment. This is where a single individual requires a working wage to get off the ground and become self sufficient in a CSB. In the above scenario, the investment is for a specific individual, for a specific iteration or iterations. Due to the nature the points sold are for the specific iterations as well. When selling iteration points it is best to sell a specific number per iteration, based off of the teams baseline. This allows the point sale to be able to be forecast for the investor’s profit margins. It also allows the individual to exceed expectations and still be able to receive compensation proportional to the value they create.

The point commodity

Just like any shares system, points can ultimately be perceived as a commodity, with investors being able to buy, trade and realize them. Although similar to stocks, the point system has a more definitive value, as ultimately they are meant to be realized by profits in an iteration.

The selling of a CSB

While selling a CSB might sound a bit odd, given the nature, it’s actually expected for some to get purchased just like any other business.  This usually occurs when a business reaches a threshold where competition with other business require more than partnerships, or a larger corporation wants to add better integration into its own services without creating new costs.

The difference when it comes to a CSB is that since there are no real share holders, a new mechanism is required when divvying up the purchase revenue. First I want to point out a founding principle in business development. Businesses don’t start from scratch ready to be bought. It is the people who invest and contribute who make a business sell-able. With this in mind, the recommended approach for realizing sales revenue is to leverage the point system, but rather than just use a single iteration, the total points for the life of the business is used. This will allow all of the CSB members to benefit, including the investors.

Conclusion

Community Style Businesses doesn’t have to place all the financial burden on the contributors, and investment has a place. While there are various ways to invest and realize those investments, the form it takes differs greatly from the typical corporation. Even so, realizing profits and revenue off of business acquisition stays relevant to the investor.

 

photo credit: <a href=”https://www.flickr.com/photos/42931449@N07/5299199423/”>photosteve101</a&gt; via <a href=”http://photopin.com”>photopin</a&gt; <a href=”http://creativecommons.org/licenses/by/2.0/”>cc</a&gt;

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