The entrepreneurial paradigm shift that just might save humanity
For years I was deeply frustrated with businesses whose economic decisions negatively impacted people.
I attributed those decisions to greed fueled by a desire to win, no matter the cost to people or the planet and decided that most humans respond to systems that incentivize their individual benefit over strategies that benefit all of their stakeholders. I now realize that the small percentage of intrinsically altruistic entrepreneurs (“Conscious Capitalists”) who believe in creating products, services, and cultures directed toward advancing humanity cannot, on their own, drive broader impact fast enough.
We know that thriving ecosystems of diverse & collaborative small businesses create stability, growth, and equitable wealth distribution in communities globally. I believe that if we shift the paradigm of how we incentivize the systems that fund and support entrepreneurs, we can collectively advance humanity.
It’s time to shift the paradigm.
An economic shift: Driving Untraditional Capitalism
Entrepreneurs, the visionary risk takers of society, are the foundation of economies worldwide. Helping these entrepreneurs reduce their individual financial risk—which often is the deciding factor between success and failure—through reimagining how we incentivize entrepreneurial ecosystems is a bold idea that I believe can strengthen local economies and, in turn, communities. I call this type of mutual incentivization a #Positive Exchange Economy.
Stable economies create stable communities
Stable communities provide steady work opportunities, help lower crime rates, and focus energy and attention on a community’s educational, innovation, social, and cultural needs. (1)
Stable economies thrive because of well-connected networks (ecosystems) of small and medium-sized enterprises (SMEs) often run by driven entrepreneurs. These SMEs have a significant national and global impact, creating an average 60% of all jobs and 40-60% of GDP globally. (2)
So why has the number of successful entrepreneurs in the United States been steadily dropping for the past 20 years? And why, according to a recent Gallup Poll, do nearly 25% of Americans who want to start a business fail to do so? Two words: Fear & Risk.
In the United States, the economic systems that support entrepreneurs typically incentivize prioritizing individual growth over community benefit. Not only does this neglect the community, but it also only benefits a small percentage of well-connected startups.
This isn’t a small problem. Entrepreneurship is the backbone of our economy & our communities. The future of humanity depends on how we decide to show up for our entrepreneurial risk-takers.
Determining Success: Why Do So Many Entrepreneurs Fail?
The failure rate of entrepreneurs is staggering (over 50% fail in Year 1, and 90% by Year 5*), as many struggle to access required capital and face massive risk to their personal security by leaving steady employment (and quite often, health insurance). It takes two to three years for a business to start turning a profit, and many new businesses close well before that milestone.
Access to capital isn’t the only factor contributing to this failure rate. While it’s true that not everyone is well prepared to start their own business, those who are capable often lack access to expensive coaching and the support required to be successful.
Shifting the paradigm
Historically, investors have concentrated their resources into a small number of tech startups and ignored the opportunity to invest in a larger, diversified network of businesses that collectively could build wealth and create jobs. Investing in individual startups is risky, which is why the current banking and Venture Capitalist model only supports investing in opportunities promising at least a 10x return. But that’s simply not feasible for the average small business. Additionally, when “traditional” small businesses in non-technical fields fail to receive support and funding, the loss of potential jobs and stability often affect lower-income communities.
And while there certainly is a place for VC investment in high-growth startups, we also need systems that allow potential investors to diversify their risk by investing in alternative models.
I believe that, given the opportunity, the average small investor would like to invest in startups, especially in their own communities. And today, more investors than ever care about how the companies they invest in align with a shared purpose. Businesses that identify with aligning to purpose are not only inspiring, they’re also a sound investment, consistently outperforming the S&P 500 by a 9 to 1 margin (3).
I believe a better model for entrepreneurship moving forward is one rooted in ecosystems that reduce individual risk (to the entrepreneur and the small investor), reduce likelihood of failure, and increase collective gain.
Let’s stop incentivizing competition and instead incentivize connection by shifting from a capitalistic model of entrepreneurship to one that I call “PosEx,” or Positive Exchange Economy.
A PosEx model puts ownership in the hands of individuals rather than wealthy investors and centralized financial institutions. It naturally creates a benefit for both the individual and the community when the individual creates value and shares resources.
Here’s how it works:
The system decentralizes concentration of funding and resources by providing its own collective access to capital.
Members collectively own and benefit directly from growth of the system (vs. grants, traditional lending, Accelerators/Incubators, VC’s etc).
Motivation to grow the network of entrepreneurs in the system is high because its value rises as more members join and become successful (an economy of scale).
An individual's growth is not diminished by benefiting the whole.
Individuals are invested directly in the Network and the collective success of all businesses in it.
Individual risk is lower due to access to early capital from the system and a strong network of partnerships (diversified revenue streams).
Higher collective gain creates economic stability and better serves the community through increased jobs, products, and services.
The appeal of monopolies diminishes along with the need to “own” the means of production.
Building connections through cross-pollination of ideas and tearing down silos creates more opportunities for innovation.
These connections in turn create more stable local economies and communities that more efficiently use resources and existing infrastructure.
In short, what’s good for the individual is good for the network is good for the system. In return, what’s good for the network and system both benefit the individual.
The Big Question: How to create decentralized funding systems to support a PosEx economy? I have a few ideas.
Incentivize the Individual: Inherent incentives do exist for entrepreneurs, but the fear of risk is great. We can reduce that risk by providing affordable access to holistic coaching and tangible support from industry experts in the community. Provide systems to create mutually beneficial business networks and to diversify revenue models. Provide ready access to incremental capital from their own network & system. Allow members to invest in and benefit via dividends from the success of the system.
Incentivize the Network: The network is the collective of small businesses connected by the system. Individuals are invested in the success of the network. When the network succeeds, the individual succeeds. Network members are incentivized to support each other and create partnerships instead of hoarding resources. One example is an ETF (Exchange Traded Fund) of vetted startups within the network or some collective investment pool in which all members invest alongside outside investors.
Incentivize the System: The system is the structure of incentives, resources, and support. The more robust and diversified the system, the more the network and the individual benefit. The network is motivated to grow the system as it becomes more valuable to the individual with more available resources and potential opportunities (an economy of scale). One way to do this is for members to become resources (teach, mentor) in the system and become more visible (and valuable) in the network. Another system incentive is for all members to be affiliates of the system and earn revenue when they bring on new members to the system.
Incentivize Investors: Investors are naturally incentivized by ROI. VCs & “Angels'' invest in individual investments only when an investment offers a high ROI (exit strategy position) in the next 10 years. The average investor, however, can now invest in individual startups via the JOBS Act and Equity CrowdFunding, but the risk is too high with earlier stage businesses and non-technical startups. With the ability to invest in a system or a diversified EFT, we can start building real local wealth for small investors and start to give larger investors access to returns on a much larger platform of businesses.
It starts with building an ecosystem of next-level entrepreneurs, leaders, innovators, visionaries, and changemakers.
Consider this my invitation to anyone who agrees that supporting all entrepreneurs is not only important, but imperative. Who believes that such support requires courage and collaboration. Advice and action. Who sees the long-term benefits of challenging long held assumptions about existing entrepreneurship models and is ready to pivot toward a #PosEx paradigm.
For more information and to collaborate, please contact me at the email below. #PosEx #shareconomy #showupforentrepreneurship
Melissa Davis
Founder, humanity inc.
melissa@humanityinc.world
(1) https://www.aeaweb.org/articles?id=10.1257/aer.90.2.140
(2) https://www.wto.org/english/res_e/publications_e/wtr16_e.htm
(3) Raj Sisodia, David B. Wolfe, and Jag Sheth, Firms of Endearment: How World-Class Companies Profit from Passion and Purpose (Upper Saddle River, NJ: Wharton School Publishing, 2007; 2nd Ed. Upper Saddle River, NJ: Pearson 2014
https://read.oecd-ilibrary.org/industry-and-services/small-medium-strong-trends-in-sme-performance-and-business-conditions_9789264275683-en#page10