@gehan just a one-liner to let you know I read this with great interest. I will write a proper comment when I get back from my trip.
What a pleasure it was to catch up with @gehan again in Glasgow. Just a word of warning about Open Capital It’s useful historically and for context but there’s an immense body of work out there since then…one day I might try and pull it all together!
I look forward to working with Edgeryders on the agreements and instruments necessary to mobilise resources to achieve mutual/common goals.
Welcome @chrisjcook! As I said, I want to write a thoughtful response to this. Meanwhile, glad you are here. As I read the post, I could not help thinking about @patrick_andrews: you collect business models, he collects governance models (he calls his area of interest “human organising”). It would be fun to hear the two of you hash it all out. 
Thanks @alberto
It’s a small world. I’ve known @patrick_andrews a good long while and we did a little bit of work together maybe a decade ago on a very interesting enterprise - Riversimple - which has been (and still is) beavering away on building the world’s first open source car.
Patrick and I clearly have some unfinished business on the subject of the right business model for Mobility-as-a-Service as part of the development of legal IP/funding platforms with general application.
Thank you @gehan for sharing this…
SInce, @chrisjcook, you are online here (a pleasure to e-meet you), I would like to ask you to expand a bit about the example of the tally sticks.
Double entry book-keeping is a more formalized way of dealing with credit/debit, and the sticks do not allow anything, to my knowledge, that is impossible be the former… While I appreciate the importance of contract incompleteness and emphasis on trust and sharing stakes, I get a bit confused by the reference to the tally sticks.
Thank you in advance
…and if I may add one question: although the definition is of business models’ collectivist, the blog entry seems to emphasize a list of governance legal frameworks… could you share with us something about business models, and specifically some examples you suggest we should study in OpenCare?
Thanks @markomanka for your queries.
Double-entry book-keeping entries records value transactions and rights of ownership & use as between market counter-parties. Each party keeps his own records independently using debit and credit entries. However, double entry book-keeping records transactions which take place within a market paradigm of legal relationships (agreements - such as mortgages, limited liability corporations) and claims over value (instruments - such as equity ownership, debt and derivatives). This paradigm has evolved and become more and more sophisticated over time and has led to an unsustainable concentration of wealth.
To use a sporting analogy, agreements are analogous to the rules of the game while instruments are analogous to the implements of a game such as bat and ball.
The problem with double entry book-keeping is that its associated paradigm of absolute rights of ownership and use and ‘for profit’ commodity transactions makes risk and production sharing difficult if not impossible. We hear a lot about the sharing economy, but simply put, shareholders (in a Joint Stock Company) are fundamentally incapable of sharing.
The split tally stick provided a record not only of conventional debt instruments but also of the simplest instrument of them all, the credit instrument or promise. This undated promise/credit instrument actually pre-dates all other instruments, and promises required a trust framework of implicit or explicit risk and production sharing agreements.
I believe that through using the correct combination of credit instruments/promises and risk, revenue and production sharing agreements it is completely possible to create a new and resilient economy bottom up and moreover to do so without requiring any permission from any third party.
For risk sharing I advocate a ‘guarantee society’ agreement of which the best example is the Protection and Indemnity (P&I) Club in the shipping industry. Here we have seen for 140 years ship owners clubbing together (and employing a manager) to mutually assure risks that Lloyds of London (‘for profit’ risk intermediaries) will not take.
This article illustrates how local credit risk might be assured using the same risk sharing approach.
For production and revenue sharing we may use simple partnership agreements as referred to in my discussion with @gehan, and for long term funding of productive assets we may issue, and accept in exchange in payment for use, the credit instruments referred to.
So in relation to Open Care I believe that it is possible to create new ‘Care for Land Use’ swaps whereby in exchange for caring for People, Place or both, then carers may receive credits which are returnable in payment for residential or other use of land, or in payment for food production derived from land use.
I envisage networks of carers - possibly using an 21st C quasi-guild approach - who share costs of a care platform (eg transport, scheduling, equipment, training and so on). In exchange for providing care, then carers may receive credits which they can use against essentials such as housing and energy use.
If (as it appears) you are interested in the application of financial technology (Fintech) you might find my article on Fintech 2.0 of interest
Hi @chrisjcook, nice to read you. I’ve gone through your posts and links and your reply to @markomanka clears up some of the confusion he brought up. Yet I want to summarize to see if I understand correctly since I’m no expert at all. It became a bit of a long post.
I understand a business model as the mechanism by which someone generates value and is compensated when they exchange it with someone. In my mind there’s several elements to this mechanism (tell me if it doesn’t make sense):
- The value (food, education, housing, …)
- The way of generating value (for the food example: allowing people to grow and pick their own vegetables, growing vegetables for people, …)
- Who you are providing the value to (a company, a citizen, children, refugees, …)
- The compensation (money, in kind, credit, equity, intangible benefits such as more equality, …)
- The way of compensation (buying, pay-per-use, renting, STR, …)
What I gather from what you wrote is are changes in the last two elements in bold, let’s call them instruments and agreements (correct me if I’m wrong). And that these would enable new ways of doing the elements in italic, let’s call them the value proposition (according to @markomanka , if I’m correct in the use here). Like the example you gave of artists: they would be able to create cultural value (execute their value proposition), because they are individuals in a Guarantee Society (new agreement & instrument). This enables either an established value proposition as a starting point, or would enable the artist to experiment with a new value proposition (with risk sharing through the default pool).
As somewhat of a pragmatist in trying to sustain a shared community space, I have to look from the side of new value propositions. Can we come up with new value, ways of generating value and find new target audiences? Within the standard instruments & agreements: using money and selling or renting.
Example: we develop and provide free education for underprivileged children through workshops (free). The educational content we developed is adapted to the formal education system through another series of workshops (material costs covered). Then we train teachers to use the material in the classroom (paid gig + profits to reinvest). Ultimately we sell our services as consultants and trainers in science communication (paid + profits to reinvest). We’re aiming for a balance between all of them and are banking on the collective know how we build up.
Figuring this out and implementing it is hard work: market research, mastering a skill and trade, finding partners, team collaboration, admin, … And that for each of the steps described. Moreover, they have a clear time element: there is no shortcut for the learning curve of the people involved and there’s simply only 24 hours in a day to do all the work.
Although the implementation of new agreements and instruments is easier in a new project (no legacy of habits and outdated worldviews of key people), they usually don’t have the time or resources to do that (let alone having enough time for their value proposition). And from experience, actions must have an advantage that increases chances of survival in the short term. The costs and risks are too high otherwise. You are often screwing yourself if you do not use the readily available agreements and instruments.
Those who do have the means to try to implement new agreements and instruments, usually keep looking at the short term anyway, or they don’t have it specifically on their mind, or it is a watered down version that comes back to short term benefits. Like big financial institutions trying to adopt blockchain these days.
Therefore I think focussing the business model narrative on agreements and instruments is not representative of reality. Value proposition plays a bigger role in my view. I’m taking the perspective of a new or struggling project, as these are the majority of the projects I’m in touch with. They are usually also those taking the longest shots at change.
The cool thing about the design you describe is that a collective of established business/organisations/individuals would be able to carry the risks involved for new or struggling projects adopting new agreements and instruments. Moreover they have incentive to provide know how, network and help in implementing it. Benefits also go both ways, in terms of diversity and room for experimentation.
The advantages are many. It’s being attempted with various mechanisms and varying success, see eg. Enspiral and Transforma Bxl or Civic Innovation Network.
Varying success, because it is not an easy thing to implement: bringing together parties, setting rules, navigating obstacles, … It also has to come as an initiative of a party willing to invest time and resources for the unavoidable coordination costs, at a considerable risk of failure. Those who are aware, willing and capable are rare. Thus the fertile ground (or market opportunity) for third party services facilitating such a network, is not really there yet I think.
In conclusion, I think there is an order to things. To me, it makes sense to start with the value proposition and then evolve towards adopting new agreements & instruments when the capacity is there, after bridging a risky startup period.
My two cents, as someone that has been involved in failed attempts at setting up such a network from the perspective of a new project. Curious to read more thoughts!
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@markomanka I realise my use of ‘value proposition’ here is not detailed enough to transmit what you meant by it in our conversation last week. Maybe you can expand on that.
Ok, I think I get it.
You seem to be comparing two different pairs of concepts:
- Corporations based on pooling capital and aimed at remunerating that capital vs. corporations based on pooling resources, or promises of resources, and aimed at whatever goal people set for themselves (I guess @winnieponcelet would call the latter “having novel value propositions”).
- Tally sticks vs. double-entry.
You can build zero-interest, pooling resource corporations within most modern legal frameworks. You can even take a for-profit corporate form (in our case, an Estonian Limited Private Company), and then use your articles of association to establish whatever you want: “we are never going to take on debt”; we are not allowed to distribute profit until we have renovated the local school".
Similarly, there is nothing stopping you using double entry accounting in the service of a promise-based corporation. It’s a bit more complex than tally sticks, but much better at catching errors.
Am I in the right ballpark?
if I remember well the conversation we had, here you are referring to the jatus between the value proposition (what an organisation declares to be delivering to the stakeholders, or a target subgroup of them most commonly), and the value chain, which should capture the entirety of needs that are satisfied, at the different scales of the organisation and its activity, to deliver that promised value.
…so, here, you would rather refer to the value chain, if I am right?
I hope this helps.
Marco
@alberto There are two problems with any ‘Joint Stock’ corporation where ownership is distinct from other stakeholders (eg suppliers, customers, staff, management, financiers).
Firstly, the sheer complexity of the protocols necessary to rectify the conflict between owners and stakeholder groups bilaterally, and secondly the conflict between the interests of the different stakeholder groups.
Secondly, there is the intractable ‘principal/agency’ problem of the conflict of interest between owners and managers which invariably leads to hierarchy and managerialism - the ‘Iron Law of Oligarchy’.
Both of these may be addressed firstly through the use of ‘open’ corporate entities and multi-stakeholder risk, revenue and production sharing agreements and secondly through what I call ‘open capital’ - that is to say promises or credits returnable in payment for value (money’s worth) in all of its forms, most of which are certainly not valued now.
The question then arises as to what metric should be used for value exchanges…
Double entry book-keeping does not accommodate promises/prepay credits adequately (as we saw with Enron - which defrauded creditors and investors by using tripartite prepay arrangements) and that is why we need a transparent shared transaction/title repository which essentially constitutes a third ‘triple’ entry.
The agreements and instruments I work with are generic and agnostic as to the nature of the types of value being generated by human interaction with each other and with our environment.
But the key point is that they enable direct ‘Peer to Peer’ and ‘Peer to Here’ connections and risk/production & revenue sharing without the intermediation/dominance of those who extract ‘something for nothing’.
The ‘value proposition’ will of course vary as between the infinite types of value creation and exchange possible, but the fundamental value proposition which I am proposing is simply stated.
“Would you rather have 100% of nothing or a smaller %age of something valuable to you?”
Of course there are psychopaths and sociopaths whose motivation is dominance over others and who would prefer simply that others get nothing. But the vast majority of people take a different view. As H G Wells said the only thing stronger than the will to power is the will to freedom (from domination by others).
I created a neologism for the multi-stakeholder agreements I advocate -
Nondominium. The key governance element of a Nondominium agreement is that every stakeholder who consents to the agreement has certain veto rights of governance in relation to matters that concern them.
That helps, thanks!
@chrisjcook I think I was mainly trying to give my perspective. I agree with all you wrote. But then I ask myself: now what?
What I wonder comes down to “change what exists” vs. “build better from the ground up”. Changing what exists seems to be a (very) slow process. I’m involved in building the new and although our vision of the future is similar to the one you present, it seems nigh impossible to implement. What would be your advice for us?
I guess slow and process are the key words in changes like these.
My approach is via the ‘adjacent possible’. I have learnt the hard way not to try to change what exists.
Nothing I advocate competes with or attempts to alter existing structures and instruments. Risk and revenue/production sharing agreements and instruments pre-date modern finance capital by millennia and are therefore complementary to it. In many parts of the world they remain routinely in use, even if not necessarily documented.
It is quite clear that implementation of these methods ‘out-compete’ existing finance capital, which will simply wither on the vine. The fundamental reason for this is that being a middleman (whether public or private) is very intensive in finance capital whether embedded in productive assets or necessary to cover market and credit risk.
So ‘smart’ service provision essentially replaces finance capital with ‘intellectual capital’. A good example of such a ‘smart trade’ is the example of James Watt in 1778 who allowed tin-mine owners to have the use of his new steam engine (IP) powered water pump in exchange for a third of the coal they saved. ie Pumping as a Service displacing Pumps as a Commodity.
My action-based research is all about prototyping and proof of concept, because the only way to change a paradigm is to demonstrate the new paradigm in practice. That is how I hope to work with @gehan in months to come and I think that edgeryders rich international resource of skills, innovation, insight and experience could well be instrumental in successful practical implementation of new (actually, ancient) models.
I think you are saying that joint stock corporations and double entry accounting can be hacked. This is true. But, in fairness, so can most things. We have infamous and recent examples for social cooperatives and blockchain implementations.
I am curious about the revenue sharing (as opposed to profit sharing) idea. How are costs covered? How is revenue allocated?
Ideally, there are no ‘costs’ as all of these are converted to revenue/production sharing partners.
I have long used the incredibly simple UK Limited Liability Partnership (LLP) as a framework for risk/ revenue sharing (as was recounted by @gehan in her narrative) for the purpose of co-creation of new productive assets.
Note that membership of a UK LLP is not restricted to UK persons, and that it is a ‘tax transparent’ or ‘pass through’ vehicle whereby each member must make his peace with the tax-man in his own jurisdiction on income or gains generated through membership.
It is possible to use US LLCs for the same purpose, and also to use simple unincorporated partnership agreements as complementary/additional development frameworks, on any scale.
Irreducible Costs and Revenues are shared and allocated on the basis of what is fair and equitable between the stakeholders. This requires a transparent ‘open book’ approach and I have found ta trusted third party facilitator/mediator ‘honest broker’ to be a crucial service provider in respect of this crucial function of (subjective) relative valuation.
It is also essential to have a governance arrangement whereby these allocations may be varied dynamically with the evolution of the project.
Doesn’t an LLP usually have a Managing Partner?
@johncoate Hi John, There is some confusion because what one or two countries call a Limited Liability Partnership is what we in the UK call a Limited Partnership, where there is a General (Managing) Partner with unlimited liability (albeit they may be limited companies etc) and Limited Partners whose liability is limited to their investment but have virtually no management say.
The UK LLP does not even require a written agreement since simple default provisions apply in the absence of agreement to the contrary (eg equal %age shares; all members must agree to a new member). LLPs are very useful for people businesses and are widely used as development vehicles for new assets.
The closest US equivalent to the UK LLP is the Limited Liability Company (LLC) just to confuse things even more.
In tax terms the UK LLP is ‘tax transparent’ (or what the US calls ‘pass through’) which means the taxman treats it as a partnership and taxes you on income or gains received through it as though you are a partner, as distinct from a member of a collective.
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