I’ve been experimenting with peer-producing the first for-profit property coming out of the social venture commons. So far I’m finding once again that there is no better way to learn than to try doing it.
So what’s different about bringing ‘peer-producion’ into the mix? Well so far the difference I’ve most experienced is the degree to which I’m compelled to share what I’m working on at this early stage. It’s not what I’m used to but it is getting more people involved and having a definite impact on how the idea forms and how quickly it becomes reality.
It also brings up the question of how to share equity in the early stages which in my experience is best saved for those who 1) make a meaningful impact on core concept and 2) are going to be part of the team that will get it through the founding phase and into the growth phase.
The conversations around this from one side are around how do we distribute equity fairly using some form of measure as a baseline (e.g. hours in) and on the other side… non-existent (e.g. “can’t talk… building”). For me it’s my inclination to let it ride until we get a crystallization event – which will be in Q1 of 2009 and then take stock of where we are at and work it out in conversation. Logically I’d like a formulaic approach but nothing’s ‘felt’ like it would work yet.
So what seems to be tested by bringing in ‘peer-production‘ into a for-profit startup are:
- blurring the edges of organization (permeability)
- allocating parcipation rights to future wealth (distribution)
I think this might get easier as the venture gains momentum, size, and value because the value of each individual contribution will be smaller than the value of whole. I’m not willing to bet on that yet though – as that may simply be the lure of convention and I’m sure there will be host of other challenges.
It’s an interesting journey and would love to hear other thoughts/examples/discussion. Fire away in the comments or feel free to ping me directly.
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There just aren't any simple equations to apply to loose org structures like this; I find the equity / compensation allocation process part of the test of the model.
Perhaps the way forward is to go even farther in transparency of value creation and wealth allocation, let the “peer-producers” create the allocation of the wealth while we create the value itself? The participants will always be fluid, always changing: I think it will get harder, not easier. But that's where the “peer-producers” come in: I think we'll figure it out if given the chance to defy convention.
Taylor… I like it. Glad to have your contributions to this!
Giving thought to this issue of value, and it seems to me that there might be a fair and formulaic way to allocate value about peer producers of new social venture startups, though some new tools might need to be constructed.
Time seems easiest to track and quantify,perhaps awarding those with higher skill, experience, connections etc. a higher factor. ie a superconnector with right industry contacts might get 5:1 for his time, compared to others. Thinking there might already be some tools that could be modified to quantify this. Of course, one would need a time tracking tool and a large measure of trust in any case.
Another way to go might be a task/action driven model that awarded equity based on a do-to list, with tasks put out to the crowd like a tender. ie 00.5% of equity to first person/group to accomplish XYZ, but tasks need to be large enough to incur corporate admin costs of share issuance, or banked until large enough to do so, or till the venture has some cash in hand.
Without a formula, we're left with power of negotiation with whoever is around the table at the time. Some may put in substantially more effort and bring much more value, without due reward and vice versa. Performance clauses to claw back or revoke shares after the fact can be difficult to enforce, as collaborators may not be willing to vote against other members of the group, for many reasons.
Royalty arrangements instead of equity are interesting possibilities, but can easily hamper future cashflow and growth. there would always be an inclination to overvalue the present task, and undervalue the future flow. These could also kill future funding rounds, or buy outs. I think Cambrian House incorporate royalties in their crowd sourced model. Now that they are being reorganized under Vencorps, I think that all of those royalty deals will need to be renegotiated by the parties- how many will fall between the cracks?
Keep up the exploration. Interested to find out if you are able to come up with anything outside the box.
Michael, thanks for bring SiG along on this journey, interested to see where it goes. Like what has come up so far and wonder if any lessons can be learned from the “collective” movements that tried, some with more success than others, to share power which could be a precursor to sharing wealth.
Thanks for the thoughtful comments. I've tended to try for formulas in that
past but find that the value of a contribution is so influenced by context
that it's impossible to pre-rate the future value of a contribution by the
skills, experience, connections of the contributor. What matters is the
contribution and the contribution's role in building the value of the
venture – something that is best judged after the fact. The other challenge
of course is that equity also brings an ownership aspect which is different
than we're trying to solve here – and the royalty is an issue too as you
described in your comment.
So maybe – back to some sort of phantom measure that can be used to track
relative value of contributions and which can be used to make
'distributions' to those who have accrued them at some point when the
venture is able to make a distribution. This has some potential tax and
valuation implications.
As for trust, the idea of having the contributors determine their relative
value somehow might be an interesting approach (someone else had flagged
that previously but can't remember who right now). Then if the venture set
formula for what would trigger distributions and how much would be
distributed in total there would be a clearer framework to work with.
Anyone have any comparable models for peer-determined valuation of
contributions that's practical?
Allyson, thanks for jumping in! I'm sure there are lessons we can learn –
particularly from ones that had some form of value determination or
distribution involved. I'm realizing that for this issue, the
decision-making/governance piece is separate. It's the wealth distrbution
piece that's the tricky nut we're hitting right now in development of these
for-profit extensions. But that's just at this moment, collective movements
will hold countless lessons for us — wonder if there are any good summary
pieces out there to start with? If anyone has anything please pass it along!
Michael,
A very good model I have seen to track contributions at the early stage, which can then be formalized into shares when there is a significant first corporate event is what FairSoftware is doing (http://www.fairsoftware.net/home). This is not cut and paste for you, but the idea of accruing points at the beginning is great, and they have a platform that allows to do this.
I believe that something similar would be required for a peer produced startup, as a way to keep the process very open and transparent…
Marc – thanks for that link. Very interesting for being able to manage rev
share distributions. Still leaves the question of how to determine relative
allocations – but looks great as a platform to manage distributions with
some tweaks.
On the allocation of points, there is no real solution, no formula I believe. More like allocations made by the “benevolant dictator” in charge of the project, with transparency so that all can be aware of what is going on. And then as more of these ventures form we can try to fine tune the model, if there is something better that emerge from experience. At least having the platform to enable such process is a great start…
The platform is a great start and do think there has to be room for
'benevolent dictator' discretion – particulary for being able to recognize
intangible contributions – such as to the culture/dna of an organization.
Testing some form of inclusion of community determination of relative value
of peer contributions would be worth it. Where I'm at now is that I see 3
areas to come at this from: 1) set-aside: how much of the venture should be
set aside for what 2) allocation: how is that set-aside allocated, and 3)
distribution: when/how is the value distributed. I'll work through some more
of this this week and update the post.
Thanks again for the comments.
I agree, I think it's unlikely that we will be able to create a single winning formula.
Pricing value before it's created is very hard; creating pricing systems is the best we can do, yet any system will inevitably (rationally) be gamed. My bet is that there is a medium between an algorithm (pricing formula) and people (benevolent dictator) approach, combining portions of both. Perhaps the idea is to leave portions of the value allocation to people and the platform. A formula + community vote + dictator vote, combined over a variety of pricing stages, would be an interesting approach to determine relative and absolute allocation.
It's fun creating value on the edge…
Taylor – great! That's exactly where I'm at. Playing with some things today. Will post as soon as I have something.
Excellent approach and I have been working a peer production model on my new blog SiliconAngle.com – very innovative and productive. The quality of the content and the community is amazing. I expect to see this concept gain ground very fast. Lets keep in touch and would love to collaborate with your work that comes out of your venture commons.
Thanks John and great to hear. I'll check it out. I'm working right now on a way to embed parallel leadership. Seems to me to be an essential aspect to make this scalable in situations with complex ambiguity… highly emergent projects in unstable contexts. Would be great to connect. I'm at michael at igniter dot com.
Excellent approach and I have been working a peer production model on my new blog SiliconAngle.com – very innovative and productive. The quality of the content and the community is amazing. I expect to see this concept gain ground very fast. Lets keep in touch and would love to collaborate with your work that comes out of your venture commons.
Thanks John and great to hear. I'll check it out. I'm working right now on a way to embed parallel leadership. Seems to me to be an essential aspect to make this scalable in situations with complex ambiguity… highly emergent projects in unstable contexts. Would be great to connect. I'm at michael at igniter dot com.