Sharing Economy Principles to Boost Your Small Business
Many businesses and entrepreneurs are thriving within the sharing ecosystem, and the millions of customers using sharing platforms are also reaping the benefits through flexibility, convenience, and affordability.
While not every small business can transition to a share-based model, there are certainly lessons to be gleaned from the rise of the sharing economy.
Use Consistency and Quality Assurance to Build Trust
The share-based ecosystem would collapse without trust. For a business in the sharing economy, breaking the trust of a consumer or provider could lead to a lost user for your platform, your industry, and the entire sharing economy.
Trust in the sharing economy is particularly difficult because most brands carry no inventory and simply use vendors and supply chain partners to deliver the value proposition. Therefore, brands operating within the sharing economy must build trust by consistently delivering a reliable product or service.
Uber is one of the leading brands in the ride-sharing industry. For customers to feel comfortable riding with a stranger, Uber must deliver on their promise to its riders—i.e., an affordable, convenient, and safe ride. They work to meet this promise by recruiting more drivers, vetting all their applicants, providing a reliable app, and using a rating system for quality assurance.
Small businesses must recognize the importance of building and maintaining trust with their customers. With the rise of global retailers and an increasingly saturated local market, the switching cost between a business and its competitors is marginal.
As a result, businesses need to implement quality assurance checkpoints throughout their production workflow and monitor the consumer experience via surveys, online reviews, and other feedback channels.
Pass-Through Value With Improved Efficiencies
Airbnb is one of the most disruptive brands in the hospitality industry. Airbnb started from one simple idea; you can use your living space more efficiently by renting it out to people who are visiting your city. This notion of passing on value through increased efficiencies is a driving force of the sharing economy.
Airbnb can distribute value to all parties involved in the transaction—the renters have an affordable place to stay on their trip, the hosts earn extra income on a fixed asset, and Airbnb earns a small percentage for facilitating the transaction.
Airbnb and other share-based businesses can sustain their business model by increasing efficiencies. Airbnb avoids overhead and inventory costs by using hosts as vendors, they developed a mobile application to streamline the rental management process, and they spend their resources improving the interface and features.
For instance, Airbnb allows hosts to input the amount of money they want to earn in a given month, and the software creates a rental strategy to help that host reach their income goals. All of these factors help explain why Airbnb is able to survive on a roughly 3.5 percent profit margin (it helps that their revenue is just below $3 billion).
Increased efficiencies help share-based businesses pass value to its customers and supply chain partners. The same principle can apply to traditional businesses, too.
There are many ways for small businesses to improve efficiencies in day-to-day operations. For instance, some small business owners manually manage invoices and accounts receivables when they could use accounting software to automate the process and improve their cash flow.
Think about the areas of your small business that require the most manual labor, take the longest time, or are redundant tasks. Then, consider solutions to help mitigate the resources spent on those processes. In time, you can create a more efficient business that will allow you to pass value through to your customers, suppliers, distributors, and employees.
Increase Employee Satisfaction With Autonomy and Flexibility
Many entrepreneurs choose the sharing economy for their side-hustle—a part-time way to earn supplemental income. The flexible hours, autonomy, and low barrier to entry make it a great fit for most people.
Drivers of ride-sharing apps can turn their availability on or off at any time. Vacation rental hosts can pick the days they want to rent out their home. Talent-sharing platforms even allow freelancers to work remotely around the world. This autonomy and flexibility make the sharing economy an enticing employment option.
The University of Birmingham examined 20,000 employees over two years and found that employees see increased benefits when they have more control over their work tasks and schedule.
Outside of a product or service, human resources are some of the most important assets of a small business. Employee turnover can be expensive and lost production from disinterested employees can affect your bottom line. To help improve company morale, productivity, and employee satisfaction, try offering benefits like flexible scheduling, more autonomy, and increased responsibilities.
You may also want to consider investing in your employees. A study from HR Magazine found that a $1,500 or more investment in employee training resulted in a 24 percent increase in profit margins over companies that did not invest in employee training.
Develop an Engaged and Active Community
Community is another driving force of the sharing economy. Most share-based businesses rely on a marketplace to manage the value exchange between supplier and customer. Therefore, community growth and retention are critical.
Kickstarter, for example, is one of the leading peer-to-peer financing platforms in the sharing economy. It enables start-ups to raise capital for their venture and, in return, the users who pledge money are rewarded with a finished product, recognition, goodwill, or some other value exchange.
Without an active community, businesses would not use Kickstarter to finance their start-up—and without growth strategies and dedicated support, users would not join the Kickstarter community.
Small businesses should strive to develop an engaged and active community. By focusing on marketing, customer relationship management, and strategic partnerships, small businesses can build a sustainable community.
Social media is one of the most powerful tools for community growth and retention initiatives. Platforms like Facebook and Instagram help small businesses communicate directly with targeted audiences.
Small Business Takeaways From the Sharing Economy
Great business owners can glean insight from their own mistakes, from competitors and substitutes, and from businesses in other sectors. After analyzing the rise of the sharing economy, it’s easy to see that it hinges on four main principles: trust, efficiency, flexibility, and community.
Small businesses can see incredible returns if they incorporate these four principles into their business operations.