Nathan Schneider is an assistant professor of media studies at the University of Colorado Boulder, where he leads the Media Enterprise Design Lab. His most recent book is Everything for Everyone: The Radical Tradition that Is Shaping the Next Economy. Danny Spitzberg is a user researcher for a cooperative economy.

Nathan and Danny join me today to discuss their Exit to Community report that they have been recently working on. They share with us recent examples of other exit to community companies that we would be familiar with. They also talk about another effort, Start Co-op. We also discuss if innovation is tied to risk taking and they share their advice with us.

“The cool thing that this startup culture is good at is, is being nimble and being a pivot and enabling really creative exploration to figure out where the market fit is where the who the true community really is, and sometimes it takes some time to figure that out.” - Nathan Schneider

Today on Startups for Good we cover:

• Policy changes that are needed when to support  exit to community
• Thinking about the exit during the start up phase
• Blockchain compared to co-op models
• Sharing equity with users and the SEC take on it
• How tech enabled co-ops can access capital
• If co-ops can scale quickly
• 
  

Learn more at the  exit to community website

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Miles

Welcome to startups for good. Nathan, Danny, thanks for coming on.

Unknown Speaker

Thank you Miles.

Miles

Yeah, really excited to talk about some topics that I think may be new to a lot of our audience. And you can teach us, but why don't we start with each of you introducing yourselves? Danny wanted to go ahead.

Danny

Yeah, thanks. And Glad to be here. I'm Danny and I do user research, which is probably something that a lot of folks will know as that sort of oddball ball source of direction. And I also have been committed for a long time to shared ownership and worker control in the tech industry at large. And I'm based in California.

Nathan

All right, I am Nathan Schneider. And I teach at the University of Colorado Boulder, where I got a little group called the media enterprise Design Lab. And I have been worked as a journalist in the past and and through that really got interested in how to build more democratic ownership and governance and online economy. And so that's where, where my work has really revolved around for a good number of years is trying to figure out pathways just to make it easier for us to to have more accountable and, and equitable technologies.

Miles

Great. I think the first thing we should start with is a recent project you guys collaborated on? Which was the exit to community report. How did that come about?

Nathan

Miles

Are there recent salient examples of exit community that people wouldn't No?

Danny

Nathan

Miles

So what are those policy changes that are needed?

Nathan

Miles

So you're talking about not just the way the business gets sold to the community after being funded some other way, you're now transitioning to talk about how the business gets started in the first place?

Nathan

Well, the acquisition, you know, the sale is often leveraged to you know, so finance just runs throughout the whole, the whole, the whole story, and, you know, so much of what we can and can't do is, you know, inscribed into little obscure rules somewhere. And, you know, what those rules amount to in our world today is, is a, you know, is a total ecosystem in which, you know, a very small number of people can play and in groups of people, you know, should they should be protected. Often these rules are designed to protect, you know, retail investors, but, you know, when groups of people come together to do very reasonable things, you know, we we need a framework that enables them to access capital, just like, you know, laws were changed to enable venture capital to happen. But yeah, I think that, you know, the, you know, the finance landscape is crucial to because in the case, like, like, Meetup is so critical, you know, you have a founder who wants this to happen. You have a clear business model for how the community owned, you know, it just makes so much sense. The stopping the, you know, the bottleneck was the investors just, there wasn't a framework for how to, for how to facilitate that transaction. And that's what, that's a big part of what we need to change. It's very chicken and egg, you know, you know, we have a lot of people who want this system, this process to be possible. You know, but, but in order to get the the policy change, and, and, and the ecosystems, the infrastructure, you know, we need some good examples. And we've got partial examples out there. But we're, you know, this is really where Danny's been then leading in trying to help some of these startups that are real would really love this option to help help them become pioneer and create pathways that others can folow in.

Miles

Can you be more specific about this Meetup example? I'm really curious. Was it hung up? Because of accredited investor roles? Or what particular hang up was there? There wasn't financing to borrow before you could raise the money from users or exactly what were the mechanics? I'd love you to peel back the onion, if you don't mind.

Nathan

Yeah, sure. It's really the latter I mean, investors, you know, in the current market, know how to buy things that they can then treat as a speculative asset. Or, you know, they know how to buy companies and then turn them around and then sell them to more investors, what they don't necessarily know how to do just because they, they just gotten the practice is selling them, you know, to buy to, to leverage a deal that ended up turning the thing over to, you know, its close participants in that employee ownership world that I was talking about the Aesop. You know, that happens all the time, where where, you know, large commercial banks will, will lend through this kind of tax advantage process to enable work, they become workers without putting in a dime of their own money, which is really important for people who don't have wealth and savings, they earn it back through the future success of the company. So it's a, you know, it's something is doable, it's something with employee ownership, where you leverage that transition, but there just aren't enough models to, you know, to or examples to point to, there isn't a, you know, a product and right now that you could turn to to say, Okay, here's the financial product, we want you to, you know, to to understand, here's how it works, that that's the kind of thing we need to develop and that some of the people are, are working to do, recognizing that this is a real missed opportunity.

Miles

Is some of this happening in the blockchain?

Nathan

Definitely. And, you know, in some ways, actually the, some of the earliest uptake from on the exit to community idea came from the blockchain community, for instance. Like booter, and the founder of Ethereum has been using this language to talk about you know, his desire to kind of see the community take fuller ownership over the over the protocol he's developed, and also being tools coming out, like fairman and another called role, they're using kind of blockchain technology in finance to enable these kinds of things to happen both of those companies rolling fairman have explicitly identified with exit to community yet. And and they use kind of different strategies to make it easier for people to become kind of CO owners in a company or a brand that they that they identify with. You know, there are some issues there around regulatory stuff around, you know, usability that always comes up with blockchain. But I think one of the exciting opportunities is to kind of meld together the new technologies with like the old legal structures of cooperatives and trusts to bring those those new technologies of ground and to make it work to make them less like it transactional and more about about, you know, building a responsible democratic committee. So there's, you know, there's something really to be learned between these old traditions and and these new technologies.

Danny

I think what what blockchain also does for provoke provoking us for better and for worse is it has a very developed imagination that a lot of folks, even in tech, find a bit illegible And that's, you know, not a judgment, it's just to say that there's a lot of deep work and a lot of thought and vision there, specifically around governance. And the irony is that we've been talking a lot about ownership, which is important and often is a sort of higher order function, you know, who owns the thing can do a lot. And what is so I suppose, a bit of a, there's a bit of a, some some work to make up on, I suppose, in the, in the blockchain world, there's a lot of the governing structures are pretty primitive from what I've seen, like voting, you know, up and down voting, or, you know, small ways to comment on proposals and tweak parameters, for example, with different protocols. But in cooperatives in real life, and you know, for many years before the internet, even, there's so many very nuanced and sophisticated, but elegant ways of governing that include people's voice. So what Nathan's mentioning about the, beyond the transactional piece, I think what you see with Airbnb, for example, offering a little equity is a small way of taking their extreme brand value, people love, or did really identify with Airbnb as the best thing that they could have, as part of their, you know, income subsidy, if you will, depending, and now offering a bit of a transactional or MIPS, some sort of token way of solidifying that. And I would, I would caution us to go the other way, and say, Well, if we can just offer lots of users a little bit of equity, then we'll just be able to say the same will make the same claims rather, as all these other excellent examples from history. And I would say that's missing the the other piece, right ownership and governance is a sort of, I don't like to say one two punch, but you know, it's a it's a dynamic duo, right. And there are so many ways that have I've seen, again, groups that don't even know what a cooperative is, or have no concept of shared ownership or shared power, or doing really excellent work to reciprocate and do more than build, you know, transactional ways of interacting with their users, but build relationships with them. And then develop proposals and then shift the balance of power have working groups, having committees, having all sorts of special funds, or, you know, allocating money for groups to actually go and do stuff themselves, which is what we're talking about at the end of the day here is that the community gets to do what it wants to do for itself after it's had a little bit of self awareness, some introspection and maybe some encouragement. So blockchain, like I said, can kind of provoke us to balance our view here with some of the governing mechanisms that are really critical requests, but maybe don't have the vocabulary or the legibility that we would need for. For for really utilizing them.

Miles

Can you share a little bit more about Airbnbs desire to share equity with hosts? I know, the one of the ride sharing companies also was interested in sharing equity with their drivers. Wherever those proposals gone, where do they get hung up? And has SEC encouraged this recently?

Nathan

Miles

So you're making the case there, why it's positive for the community to share in governance and ownership, can you make the case for the founder, or the existing owners to want to exit to community?

Nathan

Yeah, so we hear this from, you know, from founders who are attracted to this idea, I also hear it from founders who, you know, who've sold who've had traditional exit, and feel really frustrated by what happened, you know, I want to example that I've published about is the founder of Ancestry.com, you know, which is, is such an important resource that many families, including mine use to figure out their, you know, where they came from, and, and the, you know, the founder, built it as a company went to make money on but also something he really believed and felt like the biggest, you know, private equity funds that have passed it around, I've really done some injustice to the people who really rely on the platform. And, and so, you know, founders like that, you know, they want to create awesome in the world, and they feel like the existing exit options really restrict their ability to, to their platform, to the fullest possibilities. And, and force them to prioritize things like, you know, extracting value from their users that they think are either they're uncomfortable with, personally, but also that just don't make good business sense in the long term. And then finally, we're seeing, you know, a few things that come up, Airbnb, Uber cases, which one is loyalty, you know, these are platforms that people can drop and move to another platform, you know, whenever a better option becomes available, and, and so, so, so retaining these users, you know, equity could go a long way and help people want to stick around with a particular platform, even if a shiny or option shows up. And then second, is kind of outsourcing the site a little bit you see this with Facebook, where, you know, everything that happens on Facebook is suddenly Mark Zuckerberg responsibility. And his answer to that was to create this oversight board that now is like, exploring the question of whether they should have kicked off Donald Trump. And it's, you know, it's a it's a signal of how these founders have kind of taken on more than they they feel like they should be responsible for and they want to, you know, pass back some of that responsibility to their communities, which I think you know, is good in the long run for the communities too. So it you know, it helps them kind of distribute the responsibility and the accountability in a way that can help them focus on what they do best and and you know, and you know, get get out of some of the questions that are in some sense kind of unintuitive to anybody and that no one person should have you know, ultimate authority on you know, anyway so it's I think that Facebook sideboard is a yet another signal that that is large, super powerful companies see see value in some targeted opportunities for for distributing power. I think we need to push them to really expand that become less cautious about what that what that accountability can look like.

Miles

Now we've been talking mainly about exit to community, I'd like to hear some about your other projects Start.Coop,

Danny

You know, I was going to bring up the Start.coop program, which is a an accelerator for scalable shared on enterprise shared ownership enterprises. When we were talking a little bit earlier about some of the ways to think about whether or not ownership and some of this skepticism because I think that skepticism is the sort of next reaction or impulse some folks have after they get turned on to an idea is Okay, wait, this is exciting. But you know, I, I'm a risk minded person, whether I'm risk averse, or risk tolerant, and I just want to make sure I'm not missing some things. And so, as you know, I've been I've been an advisor with start.coop for a couple of years, and Nathan, as well. And there's a lovely group of folks constantly trying to get on with this group to help it become more accountable to the groups that need it most. And so what that has included, along the way is a way it let's call it some simplifying the language, or maybe making it more universal and less eclectic or esoteric. So when you hear the word cooperative, that does a thing to you, you say, Oh, that's exciting. But can cooperatives scale, or I but that sounds good for a small number of workers or in a certain sector where there's no market, but we're talking about come on here, we're talking about ride hail, or we're talking about whatever other massively, you know, accessible market there is. And I think what's important to highlight is for the promise in the vision of Start.coop, which is just to give a little bit of detail. First, it's been a couple of years with two cohorts of a half dozen or so teams that have graduated. And these teams are starting up some tech enabled, shared and shared ownership enterprise that has a potential to scale and can be transformative in its industry. So staffing or healthcare, or in actually, if you can believe it, even like accessory dwelling units for using an assess part of your property for another unit. And to the skepticism that comes up often just to kind of hit this head on, I think I reasoned this out the other day with with Greg, who's the founder of this this program, that the question of scalable is so important to tie back to the financing that we talked about earlier. Because it's not as though a cooperative can or cannot scale or something was shared ownership. And with distributed leadership and accountability structures that may be even tied to the communities, like the literal neighborhoods, for example that a company serves, it's can they compete? Can these enterprises compete enough in the markets that they choose to try and enter fast enough to get to where they would like to be to have a competitive advantage, you know, that they can protect? Or they can defend? And that changes the conversation quite a lot? Because Can you compete? Well, it's Can you hire enough folks fast enough? Can you hire good enough folks? Can you hire and get partnerships with some key folks who would enable you to enter into markets? Or can you get a lobbying arm like we've seen a lot of these companies, I did an interview last week with one of the earliest cooperative platform examples that everyone was super excited about, which was for freelancers. And for seven years, the person trying to get this thing started, did incredible acrobatics, to try and find partnerships with a community college system throughout the state of California, all the way back to earlier days, trying to find specific small niche markets, like dog walkers or whatever other you know, let's call them in perpetuity freelancers, and it was actually constantly a struggle to find the money to compete. It wasn't whether or not he could scale wasn't even if he could find a niche, who's that you really are looking to get and you're up against folks who have their their logos on bus stops all over a city within a week right after they launch. So I know it may sound simplistic to just put it back on the money. But I think that is a way of reasoning out how this program start.coop can help think through how we might scale up some of these shared ownership projects that are both Well, you know, shared, owned and governed. And so that's a long way of introducing the program. But I think it's it's important to introduce it as Nathan said, there's a whole ecosystem and a whole cultural sea we swim in that we don't acknowledge or we haven't really, you know, picked apart to make sense of critically and to think about these alternatives. This person There's a bit of a wedge that we can drive through to expose some of that and make progress.

Miles

Can you explain your vision for how these kinds of tech enabled co ops can or should raise capital?

Danny

Raising capital is not my forte, but I will say that in part of the value proposition for a company to go up and try to engage with investors, wherever they may be, whether they're small, medium, or large, no individual unaccredited accredited or institutional? or, or, you know, very well endowed angel or what have you. I think that my favorite building block that I'll add in is my own work. Right now I'm I'm leading research with a group called Turning Basin Labs. And we've found ways to basically train up the users to conduct their own user research. So in a way that's jumping, or leaping ahead to figuring out what would this company what would this enterprise do for the people that is serving and have the efficiency gain, if you will, of those folks saying it, implementing it, you know, working on production line, as part of a pitch, that's one of 101 components or building blocks and not to use that word too much, that I think helps maybe, on the one hand, seem interesting and novel, and on the other hand, show a repeatable, reliable mechanism for generating value. So again, on the other side of the table, that's not where I've been really spending much of my time. But I think maybe perhaps there's a way of codifying, and making a simple topology of what it looks like to make a reasonable pitch and to have the terms for a deal secured. One example that I do want to highlight here that was I think it's a rare one, and it deserves some some quick attention is Savvy, which is a similar to what I just mentioned, in a way it's, it's a cooperative of patients, or folks who have certain health and medical conditions that they're very familiar with, contributing that wisdom as part of studies. And I'm not exactly sure where the where the Savvy is at in terms of its offering, but they basically partner with research groups of different kinds, to run these studies with these folks who know their stuff well, and can speak on it and can also add a whole nother layer of input to how the study should be run and so on. They did a deal with Indie.VC, or IndieVC. About a year ago, now, maybe eight months, I don't know time is, time is hard right now. And the short version or the sort of highlight of that deal, to my understanding, and there was a webinar that Nathan and I and Astrid Schultz from Zebras United hosted with, with Jen and Jason Weiner. The highlight was this. Bryce from Indie VC, who's the sort of, you know, person out in front, trusted Jen Hornjeff, from Savvy from a number of years of conversations from seeing the operations of savvy come up, such that he did not require a board seat, because again, he trusted the operations, he knew that it was consistent. And it was going to be what he expected, over the long term or the medium term, such that again, that was for the cooperative on Jen side of the table tenable. Right, that they could have outside investors without threatening the internal democracy of the coop. And like Nathan said, with all the little minutiae of all the rules, they were all taken care of, and they were all respected. So it's a rare example, and a really important highlight that you can trust someone. And it can be also, you know, to a degree contractually structured to make that kind of investment deal. And I think Savvy is doing quite well in the in the pack of other folks who have graduated upstart.

Miles

I think the question for me, would be whether coops are compatible with scaling quickly. So fast growth, that is indicative of the tech enabled, tech startup that you're used to. And Can that be changed? Or is that a benefit? In other words, are you proposing people consider coops so that they grow in a slower what you might argue more healthy manner and take less risk? Or are you saying they can grow quickly as a coop? And there's a way to do it?

Nathan

Yeah, they absolutely can and it but it does require a different approach. You know, your capital model, which doesn't really work for coops, because coops retain value in their communities. You know, involves throwing a huge amounts of money at a bunch of bets and seeing what works and basically reaping all the rewards from the from the few that succeed in cooperatives, you know, just doesn't it doesn't work this kind of model and that's okay. There are other ways to scale and and innovation. For instance, you know, a case here in in Colorado, and we're gonna study on right now actually uses a worker CoOp called Namaste solar that tried to grow nationally, but then decided this was not really didn't make sense, they have stuck being a reason regional business. But what they did to grow to scale was they built a cooperative called Emeka solar, that is joint purchasing among small businesses across the country, this kind of model that leverages existing photos in (unitelligible) is one that cooperatives have been able to scale very, very quickly. And so we see purchasing cooperatives that, you know, in businesses like Best Western hotels, the purchasing cooperative, Ace Hardware, you know, my grandfather ran for a little while, a multi billion dollar hardware purchasing Coop, these kinds of things that, that leverage and redirect existing flows have grown very, very quickly and in in the past, and I think we can, you know, modernize that model, adapt it and be directed, I mean, Visa credit card network was really building that model, it was agglomeration of banks. And, and so it just requires thinking differently, you know, the different like Apple differently, just it's grammatically correct. And you you instead, rather than trying to disrupt industries, you attempt to leverage existing flows with them and transform industries by by through co ownership, redirecting those stoat so rather than thinking about replacing all of the small newspapers in the country, instead try to hurdle small newspapers, you know, it's even a way of kind of what we see with Shopify as opposed to Amazon, you know, creating a model that is about empowering small businesses, smaller exists entities out there, rather than wiping them off the off the map, and so requires us to think about what could technology enable us to do that's different from what the venture capital financing model has, has compelled and encouraged technologists to do, it's not the technology that that forces the destruction of whole sector, the economy, it the it's the business model, and, and that cooperatives prevent, present an alternative way for us to think about how, how we grow our technology, and requires some, you know, appropriate finance, but this can be an at scale, you know, down the road. For me, there's $130 million Cooperative Bank called Cobank, you know, really powerful financial institution that's is itself a co op is designed to finance cooperatives, it operates in agriculture, which is a strongly cooperative sector. But you know, we should have a Cobank for tech. We don't have that right now. But that's, that's what a bunch of us are, you know, are trying to build the build the support structure to create to make it so that this stuff is not, you know, it's not crazy. It's just, you know, it's just, it's just a normal option out there to become community owned.

Miles

One of the things I'm wondering is the extent to which innovation is necessarily tied with taking risk, and are co ops positioned to take risk, the examples you use of purchasing CoOp, even a Visa, which was innovative, are about sort of taking less risk, and as you said, going with existing flows in the economy. So I don't know if you have an answer, but it's something I certainly ponder and will continue to ponder.

Nathan

Yeah, it's one of the reasons why this exit to community idea is really important is is that you know, co ops do have risk problems times if you if you're starting a business at the very beginning, that is operative, you know, you've got a bunch of people who are members who, you know, might, you know, might be anxious at taking risks. And I think we want to hit you know, the best of both worlds. The cool thing that this this startup culture is good at is, is you know, being nimble and being a pivot and enabling really creative exploration to figure out what the, you know, where the market fit is where the who the true community really is, and sometimes it takes some time to figure that out. But then that's a company does, you know what, you know, Facebook can't move to break things anymore. It's gotta, it's got to move slowly, reliable infrastructure or whatever. And and I think we need the ability to to pivot from one to the other to pivot from startup mode to when something becomes a community asset that communities are relying on enable us to transition it over to community ownership.

Danny

One of the most amazing and, again, very provocative things I've seen in the last about 10 years is I've noticed a lot of tech companies of all kinds, but especially the larger ones include a (unintelligible) a few, let's say, even 10, or fewer employees are hiring community and labor organizers are folks who have that background. Partly, and this is something I'm looking at, you know, like, these are people I talked to directly. This isn't like reading in the news. It's like, I've seen some of these folks say, you know what, I just need to make some more money, I want to get a home for my family. But I think the trend there within the talent acquisition will, that's really to be taken seriously is these are folks who have training as community and labor organizers in acknowledging big threats and serious risks, thinking about how folks will get comfortable with their risk tolerance, and get articulate about it, be able to speak on it openly with each other vulnerably with some courage, and then take that risk collectively. Which is interesting to see that tech companies are hiring for these folks, because most of it is you know, having someone on staff who can organize, you know, literally I'm not kidding, like pizza parties with neighbors to help them get comfortable with the idea of scooters. Right that maybe now flooding their sidewalks. So that's smart on a tactical level. But I think to your question miles about where risk factors into this, this calculus, collective risk and who or whom, I never know which one is taking that risk together is the important way I would suggest to frame the question, which is, again, why exit community and community ownership is, at least on first blush, a really obvious solution to the problem of getting folks involved and to have some skin in the game. Now, you know, it gets much more complicated. As soon as you start asking, Well, how do you pay back some of the folks who've earned or who ought to earn a lot of sweat equity from groups that from starting something that was not venture backed, so it was all just there, you know, social capital and their blood, sweat, and tears? And conversely, how do you pay off or buy out investors who are expecting just, you know, just like any other deal, a substantial or a reasonable amount of return for their investment? And so how can you organize folks, collectively, you see a lot of activity, like I said, in groups, hiring community labor organizers, I think that is a huge shortcoming amongst these shared ownership enterprises where there's not enough of an organizing component. You know, there's not enough of a earnest humble approach saying, who are all the folks here who have a stake at this? Can we, you know, sure, like you were saying, Can we speed it up a bit to engage with them fast enough? And then to have the conversation be about not just are they going to use our tool or app or service or what have you, but are they also willing to follow through on that and do more with it, and then share some of the risk, whether it's, you know, the benefits or the, you know, the losses, which I think is an important thing, too, a lot of cooperatives in the financial crash of 08 actually made it through pretty well. There's a robotics cooperative, where I was at grad school in Wisconsin, that did even better than all of its peers there, sort of a manufacturing engineering group, making robots that make robots and they came out pretty well, because they all took the risks together, and they all took a pay cut together, that resilience is, is nothing to, you know, just mentioned lightly or go and not something to romanticize either. But risk, has a sort of shape and has some contours that really helps grapple with it a lot easier when you lay it out like that.

Miles

Thank you for that. Do you have any advice for aspiring entrepreneurs?

Nathan

I think it's so important to find each other. Right now this stuff we are we're figuring it out as we go along. And we've been working particularly through the Bridge Unite network, which is an awesome women led network founders are, you know, interested in different ways of challenging some existing norm startup ecosystem, that's a great way to start. Getting involved we on the Zebras Unite online network, we have a, you know, a special kind of exit to community space. But when we're not other you know, you can also reach us and can help you connect with some relevant other founders who are exploring these ideas and we just be learning from each other and, and helping helping to create pathways that others can follow in the future.

Miles

And where can people follow up online?

Danny

Well, one good place to see a lot of this small but I hope representative community effort is E2C, Exittocommunity.how, where that's the program, Nathan and myself, Melissa Pettah. And some other folks from (unintellibible) my group ran this program last fall was, you know, group of participants, group of mentors and facilitators. And hopefully enough folks around the wings who can bring some more resources. So that's a good place to go and visit and to check some BIOS out. Get some inspiration there.

Miles

Wonderful. Thank you both for being on.

Nathan

Thanks so much for for us for having us and for being interested in these these questions.

Danny

Thanks a lot miles. Glad to be here with you.