The purpose of any market is to find and create new resources to satisfy consumer needs. Innovation increases over the years allow companies to achieve better results using fewer resources. Industrialization pushed this process to new heights, and today’s information age promises another leap in this process of economic resource creation.
Recently, this process has given rise to the sharing economy, with startups exemplified by Uber and Airbnb muddling the distinction between production and consumption. Detractors dismiss this model as primarily consumptive and argue against its staying power, but the sharing economy is much more than that.
In truth, the sharing model is the creation of economic resources through releasing and making available private assets that used to sit idle. Uber accomplishes this by making private cars available to the public for transportation. Airbnb makes private dwellings available for short-term houses. The result is greater resource utilization and expanded earning potential for anyone willing to share his idle resources.
In my research into the role of entrepreneurship in economic growth, I’ve seen how the sharing economy is poised to transform — and, in many ways, is already transforming — how we look at business creation. The growth of the sharing economy fundamentally changes the landscape for entrepreneurs in three primary areas:
1. Distribution of production.
While handling all aspects of a business in-house increases control, it does so at the expense of efficiency. Breaking up production processes into narrow tasks and outsourcing them to resource owners provides a simple, effective method of production while reducing in-house costs.
Uber and Airbnb base their entire business models on other people’s resources. One project even utilizes idle home computers, using distributed data processing in the search for a cure for HIV. In the sharing economy, the role of the entrepreneur is not to produce but to coordinate production.
Related: The Sharing Economy Is Taking Off: Get On the Rocket or Risk Being Left Behind
2. Lower barriers to entry.
Increased access to previously private resources lowers the overhead for young companies trying to enter the market. Finding investors and funding is one of the biggest challenges facing entrepreneurs, especially in the early stages of business growth, so a sharing economy that dramatically reduces the need for starting capital means more opportunities for the best ideas to succeed.
Take for example Lyft, a direct competitor of Uber in the newly minted ride-sharing industry. Founder Logan Green saw opportunity in the catastrophic transportation situation in LA but knew that producing a taxi service with his own cars would not only be prohibitively expensive, but would also contribute more to the problem. Hence, the ride-sharing app was born.
As more people find opportunities to enter the market, competition increases while the power shifts from big corporations to innovative businesses. As a result, what matters most will not be who owns resources but who makes the most out of them. Many companies will rise and fall as a result, but the risers won’t just be the ones with the most startup money.
Related: What's Next for the Sharing Economy?
3. Less ownership, more maintenance.
The sharing economy replaces passive ownership with active maintenance service. The owner of the idle resource, rarely the business itself, bears the brunt of the upfront cost. In a true sharing economy, owners compete for users. Holding idle resources becomes akin to luxury consumption since the owner foregoes income. This model is clearly bearing fruit, as the sharing economy is projected to rise in worth from $15 billion in 2014 to $335 billion in 2025.
In the new world of expanded resource availability, the most successful entrepreneurs will be the ones who understand how to scale their businesses up and down quickly. Wherever the supply of goods and services doesn’t immediately meet demand, businesses will suffer losses. This volatility will lead to fleeting profits for the unprepared who overextend themselves with too much “doing” and too little coordinating.
As the sharing economy grows, a new type of entrepreneur must rise to take advantage of its opportunities. Increased competition is inevitable, but in a new market where the better idea beats more money, the best entrepreneurs will be up to the challenge.
Related: The Sharing Economy Isn't a Niche. It's the Future of Market Capitalism.
For reprints and licensing questions, click here.