A New Growth Model for the Sharing Economy

June 22, 2020 5 min read

Opinions expressed by Entrepreneur contributors are their own.

As the sharing economy has increased in recent years, there’s a new growth model for many companies to jump on the bandwagon and adopt, especially as the world continues to shift and change in the post-COVID era. With the overwhelming shift to virtual work because of continued social-distancing guidelines, there’s an opportunity for companies to become even more decentralized. And heightening accessibility to products and decentralizing operations can lead to incredible, Uber or Airbnb-like growth. Should your company consider this model, too?

Why Reinvent the Wheel?

The companies that began the wave of the shared economy are the ridesharing platforms Uber and Lyft and housing giant Airbnb. Since then, the sector has continued to grow thanks to the boom of coworking spaces and even clothing and furniture rentals. It comes down to this: Companies do less by decentralizing the work, and customers get more at a lower price as a result. Growth ensues.

This is also seen with subscriptions. Not only do companies like Rent the Runway and WeWork offer a monthly price for services customers can offer, but Patreon, as another example, puts the power in the creator’s hands by letting them create their own subscription model. Through the platform, customers can pay a monthly fee to access what the creator makes on a monthly basis. 

Related: Why You Should Use a Subscription Business Model

Another technology that’s mastering a new growth model in the era of the sharing economy is Kava, a Decentralized Finance (DeFi) and lending platform for cryptocurrency. Described as the ‘Uber of Bitcoin,” Kava is a digital-lending platform enabling loan generation to users of major cryptocurrencies. They have adopted the growth-by-decentralization model by automating the process for users anywhere in the world to instantly generate loans and seamlessly connect them to global demand (marketplaces to exchange their loans for USD, EURO, CNY or any currency). 

Brian Kerr, CEO of Kava Labs, notes that decentralization requires that both the supply and demand side of a business are fulfilled, which for them, came down to building a robust network. “Decentralized systems need an influx in capital to get off the ground,” he explains. “It’s not enough to build a decentralized business model alone, you have to inject a sizable amount of cash into the system to kick-off the snowball P2P effect.”

To fully understand both sides of the supply-and-demand equation for this growth model, consider an example like stationary company Punkpost. Customers can order custom-made cards, choose a handwriting style and add notes about what they want to be illustrated. These notes are then sent to artists, who do the work for them. When companies are adopting this model, there’s a dilemma of choosing what pool of customers to focus on first — the supply side or the demand side — to effectively grow their user base.

Phases of Growth for a Decentralized Startup

The question, then, becomes how to build both sides at the same time. It seems like a massive undertaking, so we can look to the giants who did it first. According to a recent Harvard Business Review case study on the growth models behind Uber, Etsy and Airbnb, these companies focused on the “two-tiered growth phase.” For Uber, the first step was getting its initial 1,000 users, which, in their case, was on the service side (the drivers themselves). 

After all, they couldn’t market to customers (riders) unless the infrastructures of the drivers were in place and they had validated that drivers would want to sign up for the platform. It’s akin to a chicken-and-egg scenario. How can you make sure that you have everything in place to be ready for the customers on the user side? 

You may have to get creative: Airbnb founders Brian Chesky and Joe Gebbia created a great incentive program for hosts to get them onto the platform. These incentives can extend into finding customers and creating demand, too. After Uber got its first 1,000 drivers, it focused on giving away cash to riders who got their friends to download and use the app, with a $20 coupon for a free ride that the users could give to their friends.

Related: How Airbnb and Dropbox Achieved Tremendous Growth With Referral Marketing

How to Build Traction

Large capital rounds aren’t always needed to provide dvantages such as incentives or heavy discounts. Sometimes, just knowing how to solve a customer’s problem is enough. Focus first on the supply side so that you’re ready for customers, and then market to them.

Ultimately, what this new growth model must prove is that a problem is solved for both the service and demand sides, offering demand to service providers and providing something for the customers that will make them want to join your network. The network itself can’t be overlooked, either. Companies that do this well know how to secure customers and get in front of who they need to on both sides. But so long as the basics have been established, there’s no real reason any business can’t adopt this model, especially as the economy shifts more and more toward sharing.