Impact on business models

Driving forces of a business

What will business models look like?

Before digging into that question we need to look at what motivates people to set up a business in the first place. We can identify 2 non mutually exclusive driving forces: making money and following a passion. The first is simple and covers the range from making a decent living to wanting to become filthy rich. We could dive into the deeper psychological motifs that drive people to want to make lots of money but that’s beyond the scope of this article. The second driving force comes from within. It often clashes with the hard reality of our current system in which making money is an obligation for success. Unless you are rich already and have money to burn, which is usually not the case.

The new business game

If money is created through a basic income, setting up a business based on passion gets more leeway. People who want to work from this inner drive would then have more freedom to do so because they can tap into a guaranteed, never ending monetary stream which does not exist in our current system. Therefore businesses would not necessarily have to be profitable. They just need to be affordable for the people running them.

Those who want to make a profit will have to start playing a whole new game. Capital gain through profit is capped due to the demurrage fee, as the following simulation shows:

After a while the profit, calculated as revenue – expenses. balances out the demurrage fee paid on the reserve capital. This reserve capital fluctuates with the profit. If profit rises, so will reserve capital. If profit falls, so will reserve capital … even if the expenses remain the same.

Working with this kind of financial dynamic requires a whole new way of thinking about business models. Maybe some will claim it’s impossible to do business that way. Nothing is less true however. But people will behave differently when this model is released on them.

New possibilities

The first consequence of a demurrage fee is the fact that people will be more than happy to lend money interest free. Instead of losing money to a demurrage fee you can protect it from that fee by lending it out to someone else and create a new monthly income stream from it. Once people get used to working with monetary streams instead of capital even the habit of lending large sums might dissipate. That’s because passing around a large sum of money becomes comparable to passing around a hot potato. No one wants to hold on to it for long.

Now let’s look at possible changes in consumer habits and business models.

Saving for a rainy day

The amount of money we save for a rainy day changes in nature. Instead of a static pool which only changes when we either add extra money, earn some form of interest on it or retrieve money from when it’s needed, it now becomes a buffer which behaves like a dynamic equilibrium between our income and our expenses.

At first this might seem to be quite scary when we are stuck in the mindset of saving for when times get rough and our expenses supercede our income. We now create buffers for when we face big expenses or when our income drops from under our feet. But big expenses, which are the equivalent of big incomes for those on the receiving end are not really desirable for the ones receiving them unless they arrive at predictable intervals. Otherwise it is way more interesting to have the payment spread out over time in order to better manage monetary flows.

Also take into account that interest free loans have now become a possibility. Paying back these loans can always be backed by the guaranteed basic income, making access to new money easier. This basic income also functions as a replacement, at least at a psychological level, of our savings account. It would even provide more security than a savings account because a savings account can get depleted while a basic income just keeps coming.

There is a good chance that people will turn to physical assets as a way to ‘save’ for later. At least in the beginning. This has psychological reasons, namely that we are so used to needing some reserve that it could be hard to let go of that habit. This would increase the demand for these assets as an investment vehicle and could drive prices up. The downside of that would be that selling these assets would land the investor with a large sum of money which would have to be moved as fast as possible again. Where that would lead to exactly remains to be seen.

One thing is for sure though. As said before, since money keeps moving around the chances of it coming back to you are increased and those tough times might just be less tough to deal with.

It sure would take some getting used to but humanity excels at adapting to new situations and after a while people would probably wonder why it has ever been different.

Experiencing vs owning

Buying goods fits well with our current concept of capitalism. It’s an acquirement of something which is then held in possession. It’s static, just like the concept of capital. But as Thomas Rau points out in his presentation on the performance economy, we’re often not really interested in the product but in the services and experiences we get from it.

A car gives us a driving experience, a TV gives us a movie experience, a bed gives us a sleeping experience, … Right now we spend a large sum of money to then own something that gives us the experience we want. But in this new economy of flows, that one off large sum of money is not so desirable. Smaller sums of money that keep flowing into your business on a regular basis become way more interesting. We could all lease the experience we want without owning the product. As explained, this creates a business model that encourages producers to create long lasting, energy efficient products which are preferably repairable and recyclable. These producers in turn could pay for production experiences from their suppliers of tools and machinery. Thereby creating a sustainable production chain. In this model the products themselves remain in the possession of the manufacturers. Maintenance and operation costs in terms of energy and resource use also remain the responsibility of the manufacturer. The income streams are the monthly fees paid for the experience. The result of this is more predictability. Right now, when you market your product, your client has a one off transaction with your business when they buy it. You have no clue if or when they will do business with you again. They might keep the product for years if it lasts. Or they might buy a new one due to fashion changes or technological upgrades as soon as they come to market. RIght now a lot of business models run on planned obsolescence and then it’s hoping and praying that it works. A circular monetary system favors long term customer relationships which adds predictability to the financial situation of a company.

Consumers will manage their budget in a different way. Say I purchased a top notch movie watching experience costing me $150 a month. But then I change my lifestyle and become an active member of a sports club. I notice that I’m actually not using that movie watching experience that much anymore and I decide to downgrade it to a $25 experience for those occasions I still use it. Thereby freeing up some money for other experiences. The TV equipment is picked up by the provider of the service and replaced by something that matches my new fee. This set can now be installed somewhere else or recycled to be used in the production of a new generation of equipment. Reuse would get a huge boost and the cost in resources for the manufacturer would be minimal.

Another upside of these kinds of business models is that it might boost happiness of people. There is a possibility that consumers start thinking in terms of the experiences they want instead of stuff, which would alter their perception and shift their focus towards experiences. And research has shown that buying an experience makes people happier than buying stuff. That’s a win for both the business and the consumer.

A business model that runs on monetary streams and sells experiences would make planned obsolescence a thing of the past. Repairability, reuse, recyclability and upgradability would become the core values of a successful business. Imagine the impact this would have on our planet. That’s a triple win!

Down to the building blocks

Now take this line of thinking towards the manufacturers of raw resources: mines, farms, wood cutting companies, … The same kind of logic can not always be applied here. You can not remain the owner of a tomato you sold for example. Mining companies would probably have a hard time tracking their minerals and ores when they are handed off to manufacturers. What possibilities and challenges emerge for these type of businesses?

Food production

The upside of being a food producer is that people will always need food so they’ll probably have recurring clients and therefore fairly predictable income streams. Food is also an infinite renewable resource if the fields and waters which produce it are managed correctly. Their manufacturing equipment can be leased as a production experience, making the initial investment for a new company significantly smaller. They only need to pay for a production service that fits their scale. This kind of logic applies to every branch of production and gives small scale producers a better chance for survival. As said before, due to the basic income a startup doesn’t need to be profitable, only affordable.

The local, small scale initiatives we already see rising everywhere could get a huge boost from this too, thereby shortening the supply chain, decreasing pollution and making communities more self reliant.

Wood industry

Wood, just as food is an infinitely renewable resource if the forests are managed properly. It’s also a perishable resource, even though some wood types can last for years or even centuries. The more perishable wood types, which usually grow the fastest, would become the basis to build a recurrent client base with.

Clearcutting a forest for quick capital gain obviously wouldn’t be the smartest move when working within a flow economy. Sustainable stewardship of those forests on the other hand can create a regular income that is in sync with the growth rate of the trees.

Solely selling newly produced wood could become a hard thing to do when reuse, repair and recycling get a boost though. But as Gunter Pauli pointed out in his Blue Economy model, stepping away from the ‘one core business’ principle can easily bring in extra money here. Wood recycling can generate an extra income stream, as would tourist activities in those parts of the forest which are not actively being cut.

Mining and fossil fuels

Mining, the oil industry, the gas industry, … they are all inherently unsustainable businesses. It’s all about one time extraction resources and when the reserves are depleted that’s the end of the game. These companies would probably be facing tough times, especially when repairability, reuse and recycling become core values of a successful business model.

If they are future oriented they could get into a very profitable business however: recycling. It would be cost saving for manufacturers to be able to outsource their recycling to specialized sites. Mines, oil fields, gas fields, … these organisations have the space to build these facilities. They could also invest in buying up car graveyards for a boost in their output, thereby freeing up that space for something else. Maybe digging up waste might become one of the most profitable enterprises in an economy of flow.

Science and humanitarian projects, a matter of progress

Right now scientific research has a hard time finding funds unless the science can be turned into something profitable. Humanitarian projects have even a harder time finding funding because you just can’t turn something like eradicating poverty into a multi billion dollar business model. When money is leaking away through a demurrage fee however, people and organisations just might be incentivised to donate their extra money to these causes instead of just having it destroyed by the system. It would mean progress for all of us. Scientific research would flourish and humanitarian organisations would be able to access more and better resources and actually pay their volunteers, creating an extra incentive to work for them.