The Power of Community Ownership for Startups

The Power of Community Ownership for Startups

Startups are often faced with two options when it comes to their future: selling the company to a larger company or going public through an IPO. However, there is a new option emerging that could benefit both investors and the community surrounding the startup. This option is known as "Exit to Community" (E2C).

E2C involves transitioning the ownership of a startup from investors to the people who rely on it the most - the community. This could be a game-changer for startups that find themselves in the "zombie" territory, somewhere between failure and being ready for an exit. Instead of letting these investments lie dormant, they could be bought by the community with cash on hand.

Not only would this provide a new way for investor owners to liquidate their investments, but it would also give the community a sense of ownership and control over the company. This is especially important in today's world, where accountability crises are plaguing many successful venture-backed startups. By giving key stakeholders a say in how the company is run, these crises could potentially be prevented.

However, it's important to note that community ownership may not be suitable for all startups, especially in the early stages. Ambitious startups often need to make dramatic pivots early on, and having a large community of co-owners could make these decisions more difficult. Instead, a small, high-trust group of founders may be better equipped to navigate these challenges.

The success of mobile video apps like TikTok and the failure of Quibi can be attributed to the concept of the Entertainment Value Curve. Successful mobile video apps are not just viewing experiences, but social experiences as well. The Entertainment Value Curve is a formula that combines production value and social value to generate an efficient frontier of product/market fit.

On one end of the curve, we have platforms like Snapchat, where the production value is low but the social value is high. Snapchat's AR lenses allow anyone to create fun content, fostering a strong social connection with the viewer. Instagram, on the other hand, has increased its entertainment value by lowering the production bar for content. The introduction of IG Stories and now Reels has made lower production value content readily accessible, increasing the consumption rate.

TikTok takes this concept a step further by prioritizing topical content first and socially connected content second. The platform's looping feature allows for easy sharing and passing around of content, making it a popular choice among Gen Z. The algorithm also gives new creators a chance at virality, leveling the playing field and encouraging authentic sharing.

Netflix, on the opposite end of the curve, focuses heavily on production value. The quality of their shows is extremely high, but the social value is primarily derived from the connection between the viewer and the creator.

So, what can startups learn from the Entertainment Value Curve? First, it's important to find a balance between production value and social value. High production value may be impressive, but if there is no social connection with the audience, the content may fall flat. On the other hand, low production value can be compensated for by fostering a strong social connection.

To apply this concept to a startup, it's crucial to understand the target audience and how they enjoy consuming content. Are they more likely to engage with content that has a personal connection? Or are they more interested in high-quality production? By aligning the production and social value with the preferences of the target audience, startups can increase their chances of success.

In conclusion, the concept of Exit to Community offers a new option for startups to transition from investor ownership to ownership by the community. This could provide benefits for both investors and the community and help prevent accountability crises. Additionally, understanding the Entertainment Value Curve can help startups optimize their content for maximum engagement. By finding the right balance between production value and social value, startups can create content that resonates with their target audience.

Actionable Advice:

1. Understand your audience: Take the time to research and understand the preferences of your target audience. Are they more interested in personal connection or high-quality production? Tailor your content to their preferences to increase engagement.

2. Foster a strong social connection: Don't just focus on production value, but also prioritize building a social connection with your audience. Encourage conversation and feedback, and make it easy for people to share and discuss your content.

3. Consider the option of Exit to Community: If you find yourself in the "zombie" territory, explore the possibility of transitioning ownership to the community. This could provide a new way to liquidate investments and give the community a sense of ownership and control over the company.