The Sharing Economy – Driven by Peer Review and Trust

A couple of weeks ago, while most of us were distracted, PWC posted ‘The Sharing Economy’ report. The main point taken from the sharing economy piece would be ‘never settle for stable’. The sharing economy explains that businesses cannot be taken for granted in a fast-changing world, todays changes can be changed again by tomorrow and so businesses cannot stand still. To maximise, companies must embrace change and continuously develop in order to maximise consumer benefit and competitive advantage.

The key points I’d take from the Sharing Economy piece:

–          Peer review is far and away the main driver of trust, 92% said they valued peer review above all other forms of marketing and advertising.

–          Without trust services aren’t used much, 89% said that ‘trust’ was a major factor.

–          A mind shift has begun in business from offering a product, an item, and hoping it will sell to building relationships and providing service and thereby creating a greater perceived value.

–          Embrace change/disruption in industry. We should always be looking for new ways, never standing still. Always be thinking about your competitors and how they may be changing.

sharing economy

The suggestion of the report is that only companies willing to rise to the challenges and expand are ‘poised to survive – and the potential ahead will be constrained only by the imagination of decision makers’. As companies utilise the sharing economy and create partnerships and collaboration they will find more ways to profit and aid their businesses – while helping the community and its industry sector to grow and sustain success.

Of course there’s nothing new in suggesting that only those who adapt will survive, Charles Darwin being the master of this theory – “It is not the strongest or the most intelligent who will survive but those who can best manage change.”

The crowdlending sector was born from an inability of the banks (and other providers of finance, banks becoming the collective noun for a failing sector) to adapt to changed circumstances, their failure was dramatic, public and adversely affected all of us. The lesson is clear we must keep adapting not to go the way of the banks that may yet follow the dodo.

Are the economic benefits of “Brexit” worth the potential disintegration of political and financial order?

With a decision on the timing of the “Brexit” vote looming, David Cameron is starting to ramp up the pro-EU rhetoric to convince the public to ignore the Eurosceptics and vote to maintain the status quo. The decision has very much been Cameron’s Sword of Damocles moment, hovering over his current tenure and threatening to create an unwanted Prime Ministerial legacy akin to Eden’s Suez Canal Crisis.

Yet there is an overwhelming feeling that whatever Cameron says will pale into insignificance should a “defining incident” take place that pushes those sitting on the fence to unite against staying in the EU. Marine Le Pen’s initial success in the regional elections in the aftermath of the Paris attacks shows just how quickly people can make a potentially rash decision on the basis of fear and loathing. Le Front National might have mellowed since Le Pen ousted her right-wing firebrand father, but any electoral gains for the party would have represented an alarming move towards the ugly end of right-wing conservatism. Fortunately a wave of sentiment against the Front National and some tactical voting saw the party end up without control of a region, despite support from at least 6.6 million voters.

There is still a feeling that leaving the EU is a proposition that is just too scary for the general public to plump for- the “British” thing to do would be to knuckle down and get on with it in order to avoid such a huge political and social catharsis. Yet a Daily Telegraph poll on Friday last week saw over 80% of the 22,000 voters said Britain should leave the EU. Despite the obvious bias of Telegraph readers, this is still an alarmingly high figure for Cameron to stomach. After all, these are the people that, more likely than not, are the staunchest supporters of his party.

From a financial point of view, the UK’s global financial clout wouldn’t be affected too much by a decision to leave the EU. It is unlikely there would be a banker exodus and freedom from stifling and constantly changing EU regulation will be welcomed by financial institutions. Yet the UK economy would undoubtedly take a beating: world-leading economists unanimously agree on that- have a look at this FT article for more proof: http://on.ft.com/1Q8XeSw.

Cameron needs to emphasize the enormous practical issues that hinder the UK from leaving the EU. The significant upheaval of the EU regulatory framework would be a minefield that would make or break businesses in industries such as the food and drinks sector. As it stands, companies have to abide by EU food regulations if they want to export to the EU but have no say over those regulations. Something as innocuous as a change in the wording of a law can mean the difference between a product being allowed to make a health claim or it failing to meet the requirements. It is worth considering just how crucial altering such stringently inflexible regulation is to UK SME’s who are most the perilously placed.

Moreover, Britain would need to renegotiate its trade rules with the EU in order to preserve its favourable status. Under World Trade Organisation rules, the UK would have no more access to the single market than would China. Any negotiation would come at huge financial and political loss: just look at the amount of financial support Norway gives to the EU each year to curry favour. Britain would then need to renegotiate its trading relationships with the rest of the world; EU partakes in 35% of all world trade so “Brexit” would deny the UK to an extraordinary range of privileges afforded to EU competitors.

The cost of leaving, combined with the converse cost of “staying in”, would be felt for years to come. Yet it looks unlikely to get to that point; the Lisbon Treaty only allows for two years of negotiations for a country to leave the EU, unless all 27 nations unanimously vote to extend the period. Negotiation is done with whole EU rather than country by country, presenting major obstacles. It seems hard to fathom that Britain wouldn’t have the option to cordially extend the negotiations, yet all of the individual nations will certainly seek to negotiate the best deal for themselves, particularly concerning immigration, given the tensions regarding economic migrants and asylum seekers from the Middle East. The rancorous callers for tighter immigration need to recognise how difficult it is for Britain to tighten its control on non-Brits arriving to live in` the country, when the negotiations could force Britain to accept an even greater migratory burden. The British public should also take into account the effect it will have on Britons currently living abroad (c. 2 million) in other EU countries who would lose their EU citizenship. The same notion extends to those with businesses or business interests abroad. It hardly seems aspirational to any business owners to reject the ease at which the EU allows business expansion across borders. Likewise, it is no wonder that Cameron wants to extend the vote to 16 year olds, for whom the Schengen Area presents a chance to escape the clutches of their parents if anything else.

Yet despite the dense complexities of Britain leaving the EU the decision makers will have to take into account, we are still faced with a referendum that will only ask us “‘should the United Kingdom remain a member of the European Union or leave the European Union?”. In age where, for better or worse, the public needs politics to be made more understandable and politicians more approachable, this is a vote that should not be put to the public in such stark wording that belies the delicate, yet far-reaching, intricacies of the result.

Crowdfunding the Gaming Industry

An article in the Financial Times today highlighted the difficulty that the UK’s creative industry has had in securing funding from banks since the government started to advocate investment into the tech start-ups. The article specifically makes reference to the government-backed British Business Banks’s investment in a private equity fund worth £40 million that focuses on nascent media and gaming companies. Britain certainly can boast a range of success stories; King Entertainment, manufacturer of the omnipresent (and entirely vacuous, in my view) Candy Crush, was sold for $5.9 billion.

British Business Bank

The majority of gaming companies however, fall into the SME bracket, and won’t suitable for the PE funds: the aforementioned fund run by Edge Investments will only back between 12 and 15 companies. Moreover, they have fallen victim to the bank’s decision to withdraw funding to small businesses; software companies are particularly vulnerable to “computer-says-no”-ism of the banks. Some of the biggest success stories of the past are subsidiaries of much bigger companies but continue to operate under their own brand name. For instance, Sports Interactive Ltd, the creative studio behind the Football Manager games, were able to benefit from the support of Japanese giant Sega. The company was initially loss making, however the profits have steadily increased to over £3 million last year.

Sports Interactive_0

Yet most games manufacturers are run by enthusiasts who aren’t happy to just sign over all of the equity in their business to a big corporate. Reward-based crowdfunding has been a fantastic way to exploit the willingness of fans to take a small portion of equity in a games manufacturer along with “tangible assets” such as a copy of the game, and the less tangible reward of increased standing within the game itself. The business is able to hold onto most of its own equity but can still receive funding. See my article on the success of Star Citizen for an example of the potency of gaming fans to drive a company’s growth projections through the roof. The article can be found here:  https://www.archover.com/demystifying-crowdfunding-part-1-donation-and-reward-based-crowdfunding/.

Yet there is every chance that a novel concept without an entrenched fan base could go unfunded. However, there is still the option of debt-based P2P lending if directors and major shareholders are unwilling to dilute their share in the company. Enthusiasts could invest in the business without the risk of just an equity stake, and established SMEs could continue to grow the business organically without the need to handover their brainchild to a corporate. Established companies with a debtor book to match, often funded by sponsors hoping to flog their product into the subconscious mind of the avid gamer, have consistent revenue streams from blue-chip sources. Sports Interactive, after all, had over £20 million worth of debtors in 2014, up from £16 million in 2013. These debtors were made up of retailers and sponsors keen to have their brand represented in the game. P2P lending could be the answer to the next generation of gaming companies looking to follow in their footsteps.

 

 

 

Green Energy for SMEs

An article in the Telegraph last week highlighted the good news that that economic growth and carbon emissions had “uncoupled”, as the world economy grew 3.3% whilst carbon emissions practically stalled. The UK economy will be further boosted by the growing investment in low-carbon technology, and UK SMEs should aim to grab some of the windfall by implementing alternative sources of power into their businesses where possible. The distribution of UK renewable energy projects is broken down below.

Green Energy 1

The fast-growing market, which has seen prices drop continually since 2006, has been helped by the improvement in the technology of “green” energy options on offer to customers and businesses in the UK. For instance, even solar energy is proving to be surprisingly successful in the UK, proving to naysayers that had written off the technology as ill-suited to flaky British weather. According to research published in The Guardian, the number of solar installations in the UK almost doubled in 2014.

Green Energy 2

However, the increase in supply doesn’t always make it cheaper for businesses looking to “go green”. Solar again is the best example:  the price of solar photovoltaics (PV) has plunged which has meant the price per watt of electricity is cheaper. However, the government had previously helped install the technology for users of solar powered electricity as well as giving feed-in tariffs, beneficial tax breaks and a handy buy-back of unused power to boot. As these remunerations have been redacted slowly over time, the cost is rising again and SMEs who should be being urged into using green energy are unable to commit financially.

The traditional thinking has been that the affordability of green technology needs to be matched by efficiency that rivals the traditional power sources. However, as efficiency and profitability is enhanced, there is still a need to subsidise the cost and give tax breaks to companies (particularly SMEs) who are using carbon-neutral energy. Avoiding the need to force businesses into over-zealously categorised regulation whilst simultaneously encouraging green energy is something that Amber Rudd and her successors have to prioritise in a bid to ensure that economic growth and carbon emissions stay “uncoupled”. The Telegraph article ends with a stark warning from Bank of England governor Mark Carney that “in the fullness of time, climate change will threaten financial resilience and longer-term prosperity”. The long-term apocalypse that Carney warns us of, namely the inexorable rise of the Earth’s temperatures, can be prevented by near-term solutions that benefit small businesses in the UK.