Sassy. Sexy. Sustainable.

That’s the future of fashion. And in this post we are going how Business Model Innovation (BMi) is the mechanism to bring it back there.

+ Time for BMi – Business Model Innovation

Not Sassy. Nor Sexy. And certainly not Sustainable.

That’s the fashion industry of today. Why?

Because it’s not sassy to buy a $10 halter top from a fast-fashion brand that’s made on the back of slave labour in Bangladesh.

Nor is it sexy to rock boots and bags mades from the skin of scarce species.

And it’s certainly not sustainable to buy clothes from the fashion houses that destroy the worlds most precious and sensitive ecosystems in order to stock their High-Street shops.

So we need a new vision for fashion, one that is sassy, sexy & sustainable, no compromise.

Unlike the Food industry, which we covered in our initial BMi post, there is no household brand that represents what #sustfash (sustainable fashion) is all about; there is no Whole Foods for #sustfash, at least not yet anyways.

+ BMi: FOOD

Rather, the fashion industry is being led through its metamorphosis by a collective of edgy upstarts & nueluxe brands who are starting from scratch; their designs, materials, business practices and processes are nothing like today’s High-Street fashion brands.

Recycled materials, upcycled designs, tribal patterns and sustainable sourcing characterize how these brands operate. We are moving past the point of burlap bags and hemp overalls, #sustfash is sexy and sassy, far more than its predecessor, the soon-to-be-dead industry of all-that-matters-is-your-image fashion. #SustFash has a soul, a pulse.

As an example, Ser Sustantavel com Estilo (be Sustainable with Style), a Brazilian blog that is on the beat of the #NewEraBiz of fashion, recently launched their runway series SP EcoEra 3.

Wholesome. Colorful. Real. Vibrant. That’s where the #sustfash movement is taking the future of fashion. Defined as – environmentally responsible, socially just, economically viable and culturally appropriate – sustainable fashion is starting to rock the runway.

Not to be completely outdone, a few big brands are starting to realize that you can only run a business with an ignorance-is-bliss / look-at-our-numbers attitude for so long. In the same way people want real, organic food, they want straight-up, sustainable clothes. The demand is building and the market potential is huge.

Will the new fashion industry meet somewhere in the middle, combining the scrappiness and brand purity of the upstarts with the scalability and experience of the icons?

Could be …

But in either case, the real breakthrough potential for fashion is related to Business Model Innovation (BMi). Because stocking a few sustainable brands in the department stores won’t move the dial. You need to create scalable entities and collective units capable of reshaping the world’s High Streets, replacing the icons of today’s fast-fashion / snakeskin-luxury world with spunky, scaleable & sustainable brands. Not just one or two, but hundreds and thousands.

What is Business Model Innovation?

A business model is defined as the rationale of how an organization creates, delivers and captures value.

+ The Key Components of a Business Model

Business model innovation is the process of reinventing the business model itself. Rather than being focused on end-product innovation, such as new materials or designs, BMi focuses on changes in the process of exchange across value chain, whether it be a new pricing mechanism, supply-chain partnership or distribution channel. In the end, it is the model itself that SHIFTS, rather than simply the product.

How do we bring BMi to the Fashion Industry?

As a first step, let’s talk about what we want to BMi towards. We need hundreds and thousands of brands that can deliver on the sustainability side without compromising the design side. Ethics and aesthetics, hand in hand.

The challenge with changing the fashion industry is that there are so many moving pieces, and the logistics/cost pressures required to make a fashion brand fly are immense. With all the factors, including materials, labour, supply chain, distribution, sourcing – it’s a lot of work.

But there are a few mid-size luxury brands, such as Brunello Cucinelli (Italy) and Osklen (Brazil), that are showing that it is possible to deliver on design without sacrificing everything else.

Given our meet-in-the-middle market thesis on the evolution of the future of fashion, it would be brilliant to have heaps of brands who can move into the mainstream market, making it both unfashionable and uncool to purchase a $5 sweatshop T-shirt or a $40 pair of plundered-ecosystem leather shoes.

How can we tweak the business model to make this happen?

Click here to view the bigger image. Download the full PDF here.

The fashion business model can be primarily broken into two main categories: mainstream retail and luxury. Mainstream retail’s business model (ie. Zara) is built off of scale, while luxury’s model is built off of margin.

The primary cost drivers are the materials, designers and labour.

The primary revenue streams are product sales, through both branded and wholesale channels. Distribution Channels is at the core of the fashion business model.

While retail’s business model is based around scale, and luxury’s model around margin, both operate on very high profit margins. From the remnants of the Bangladesh tragedy, a Mango invoice was found showing that the company produced a shirt for $4.45 and sold on High Street in London for $46. Luxury’s margins would likely be even higher because their scale is much smaller. Overall, the typical fashion brand is going to markup products with a gross margin of 75%.

Given all of the moving pieces and logistical components, fashion brands work in a lot of partnerships. Whether it is for materials, design, production, logistics, etc., fashion enterprises rely heavily on their partners to keep everything in motion. In most cases, this is why established brands argue that it is so difficult to become ‘sustainable.’

In the Market Beacons section of our #NewEraBiz research on Fashion, we analyzed a handful of companies that are making moves in an unconventional fashion. These are brands who are shaking up the model in some way, all but one (Fashion.me) in ways that revolve around sustainability:

  1. PUMA
  2. Fashion.me
  3. Eileen Fisher
  4. Catalytic Clothing

+ A New Era of Business: Fashion

  • PUMA is taking on the ultracompetitive sports apparel industry using sustainability as their core strategy. Unlike NIKE, who is focused on Material R&D (link to Sustainability …), PUMA is building their business model on transparency and developing collaborative strategies with sustainable partners (ie. PUMA Wilderness Collection);
  • Fashion.me, the Brazilian fashion social network launched in 200x by two former investment bankers, is selling ‘big data’ packages to brands based on user interaction with key products;
  • Eileen Fisher, the wildly popular New-York women’s clothing line, was built on casual style and a commitment to ethics; however, small ‘sustainable’ tweaks to the business model, such as the Eileen Fisher Repair Program (started in 2005), are what have really helped turn ;

On the macro level, there are three key areas of focus for sparking Fashion BMi:

Materials are one of the key cost drivers in the fashion business; similar to FOOD, the shift from GMO products (ie. cotton) requires a significant shift in agricultural practices and will take time to scale. There is also, however, a significant opportunity to make breakthrough technological advances to speed up the sustainability curve.

  • Cooperatives, where Fashion growers who are farming sustainable crops (ie. Organic Cotton) form cooperatives to help build their collective clout. Inversely, smaller fashion brands can create buying cooperatives to purchase sustainable materials from producers;
  • Nanotechnology, where with new nanotechnologies firms take an approach like Catalytic Clothing in order to bring cool new materials to the small-scale designers who can bring them to the market in imaginative and innovative ways;
  • Collaborative Partnerships, when two different entities find alignment in their motives, there are no limits to what can happen.

Ex. Brazil’s Osklen, a global sustainable-luxury leader, partnered not with another brand, but a country. Italy, a place known for its history of craftsmanship and design, and Osklen have come together to research six new ‘sustainable’ materials and study their potential in the market.

Given the logistical challenges and supply-chain complexity in the Fashion industry, technology can play a huge role in the evolution of the business model.

Beyond Enterprise systems to track inventory and manage suppliers, new brands can use technology to take transparency and brand experience to a whole new level.

  • Material Tracing, where enterprises use technology to trace their entire garment-creation process, from end to end, and show consumers

ex. Rapa Nui – award-winning ‘From Seed to Shop’ transparency

  • Fitting, where companies enable their customers to get a feel for the garment from the comfort of their home by embedding new technologies into their eCommerce store

ex. Embodee – Digital Garment Experience

  • Experience Apps, where companies show how their product(s) fits into their market’s lifestyle and uses technology to help expand their experiences

ex. PUMA Run Navi app

Given that distribution is at the core of the fashion business model, brands need to focus on building new channels via the Web. Especially new #sustfash enterprises, who can use the digital medium to build their market and grab their attention, then enable on-the-spot purchasing.

  • eCommerce, where established eCommerce enterprises scale their channels to help bring new sustainable brands to market, and new upstarts use ecommerce to disintermediate the channels and cutout costly middlemen.

Ex. eTailer Yoox has created the Yooxygen platform for its shoppers who crave chic #sustfash clothing. New startup Evocha is bringing high-quality garments to European shoppers at mainstream prices.

  • Networks, where startups like Fashion.me harness the power of the social web to create new networks of fashion-focused consumers;
  • Clickable Video, where companies take advantage of technologies to enable consumers to purchase garments while they watch a runway show on any one of the main digital media networks.

In the future, fashion brands will start to model their business model around nature. Models built around Closed Loop, Zero Waste and Biomimicry are closer to becoming a reality with each passing day.

Overall, fashion needs to come back to its couture roots while embracing the needs of contemporary culture. BMi is the key to enabling #sustfash to reach a point where it can scale and compete against today’s heavyweights. When this happens, fashion can come back to being sassy, sexy and sustainable, full stop!

Have you seen any great examples of FASHION BMi?


PLAN – the Business Model

If ‘interconnected’ is the word of the century, than how can we build ‘The Interconnected Strategy’?

+ DIGITAL: Inheriting a Complex World

The Digital World is reshaping the way that brands interact with their customers. The rise of social media has laid the groundwork for the world 2.0, creating an environment where consumers can engage with their favorite brands and stay ‘connected’ from the palm of their hand. Via smartphones and portable devices, the ‘consumer,’ as they have become known, is becoming a ‘prosumer’ and beginning to shape the brand in the manifestation of their own desires. And the key enabler is the digital medium.

The implication that this has for brands is immense. The question is, where should an enterprise focus their digital resources?

The initial evolution of Digital Business has focused on two areas: eCommerce and social media.

Corporate titans like Amazon and Facebook have pioneered these digital avenues. Amazon has built an empire through the development of an eCommerce channel, leveraging technology to create supply-chain efficiencies and cut costs. While Web 2.0-giant Facebook has risen to prominence by creating an advertising platforms based around social interactions.

The question is, does generating eCommerce sales and getting a few thousand Likes really shift the customer experience?

In some ways yes, but in many ways no. Because for many they are still focused around the monetization of customer interactions, and not the experience. At the core, brands are facilitators of experiences and act as a proxy between the customer and a specified outcome. The problem for many of today’s companies is that they view themselves as the owners of these experiences, and are thus constantly stuck in a mode of trying to sell.

What the digital medium is doing is transforming the dialogue from a one-way message to a two-way conversation. The conversation itself is becoming the centerpiece and reshaping the way brands are perceived. This is the beginning of something big.

Businesses need to wake up to the fact that customers want more. Deliver a great experience, make a positive impact in society, and provide the means to engage – this is the new baseline. In today’s world, customers are looking to build a connection rather than simply engage in a transaction.

That’s why the Interconnected Strategy is the new strategy for doing digital business.

Rather than trying to build online channels and networks to push products and scale promotions, the focus should be on connecting. While Likes on Facebook or Followers on Twitter can have some significance, that is not where the real focus should be.

What matters is the quality of engagement. The sharing, the participation, the conversation – in the long-term, those are the qualities that will define a brand.

So what does a company need to build the Interconnected Strategy?

Website

Given that it is 2013, pretty much every company at least understands now that a having website is essential. But what should the website have?

That, of course, depends on what type of message and image the company is trying to convey. But there are a few essential points to focus on:

  • the site should be responsive – adaptable to any device – so that visitors can comfortably read and engage with the content from mobiles phones, tablets and laptops;
  • the site should look active; rather than being a one-way ‘look-at-us’ website, there should be the feeling of some ongoing conversation – ideas include a blog, special content features, podcasts, or video features;
  • the site should focus on communicating and conveying the essence of the brand. There doesn’t need to be any digital ‘bells and whistles’ to show how avant garde the company is, the beauty is in the simplicity and execution of the essentials. Make the site design driven, rather than digitally driven.

Video Networks

A Like, a Follow, a PIN – these are great, but they are passive actions.

The real movement behind a brand happens through word of mouth, people need to be talking to a brand in order for it to build traction.

However, in a world where everybody has a connected device and network connectivity is becoming omnipresent, customers no longer need to be physically present to connect with a brand.

While Skype was the pioneer, new services such as Google Hangouts enable brands to take video chat to a whole new level. Via Google Hangouts, companies can chat with up to ten people simultaneously. And here’s the kicker, it’s free.

The power of real conversation has not diminished because of ‘social media,’ if anything it has increased. One expert estimates that only about 7% of word of mouth happens in these social-media channels.

eCommerce

A decade after the Dot-Com Bubble, eCommerce is finally starting to blow up. But it is an area that is very poorly understood by most companies. Why?

Because it is not like traditional retail and there is no instantaneity to it. It requires an investment of time and resources, along with a little experimentation.

But the eCommerce channel is essential to The Interconnected Strategy because a great eCommerce strategy will help hurdle over geographical boundaries and tap into new markets globally.

Earlier this year, we talked about a few companies who are doing this really well in our ‘Collaborative Commerce’ post.

+ DIGITAL: The Advent of Collaborative Commerce

The key is to build both the eCommerce framework, and the strategy to move customers there. Now that customers are engaging from mobile and tablet devices, the whole process needs to be thought through comprehensively.

It takes thorough research, planning and time, but eCommerce is the essential cornerstone to The Interconnected Strategy because it provides companies with a mechanism to SHIFT their business model and open new market boundaries.

Overall, the world of business is changing rapidly and the digital domain is the new frontier. While entering the fray with a traditional business mindset may bring in a few Likes and eCommerce sales, companies of the future realize that customers want more and that the real power lies in connections and conversations. That’s why ‘interconnected’ is the word of the century.


+ BMBreakdown: ETSY
+ Time For BMi


PLAN – the Business Model

The food industry is ripe for a revolution. And while many companies have helped jumpstart the #realfood revolution by bringing in organic, there are few examples of food companies using business model innovation to spark scalable change. That’s why in this blog we are going to look at how BMi can be used to go beyond organic and reinvent our entire food chain.

Business Model Innovation – it’s the theme du jour these days on the blog as we start exploring ways to use it to shakeup some big industries. In our last post, we talked about a few inspiring BMi examples and shared some basic BMi strategies; however, in this post, we are going to get down and dirty, and take a look at how to sow seeds using BMi to bear fruit in FOOD.

+ Time for BMi – Business Model Innovation

When we think of companies that have really shaken up the food industry for the better in the last few years, the first company that comes to mind is Whole Foods. In fact, over the course of the last decade, Whole Foods has become the beacon for what we call the #real-food revolution. Thanks to their leadership, organic has become less of a hippy-homestead symbol and more of a food-conscious-family staple. Step into any Whole Foods store at lunch hour in New York City, for example, and you will see a construction worker entering in one door and a yoga teacher the other.

+ The #NewEraBiz in NYC

And yet, for all their hard work and commitment to reinventing the food supply chain, their business model is anything but innovative. They, like all other major supermarkets, have three key revenue streams:

  • grocery product sales;
  • eat-in market;
  • branded line of products.

Their business model is based on high markup and low wages; recently they have started to compete more with the mainstream market on price, but this is the model which has made them a tremendously profitable and allowed them to reach their current scale.

And while Whole Foods has had a tremendous effect on transforming the supply chain, shedding light on genetically-modified foods, and bringing real food back to dinner tables, it pales in comparison to the potential enabled by BMi.

What is business model innovation?

A business model is defined as the rationale of how an organization creates, delivers and captures value.

+ The Key Components of Business Model

Business model innovation is a process of reinventing the business model itself, rather than focusing on end-product innovation, such as technological, material, etc. This could include simple changes, such as pricing mechanisms, distribution channels or forging new partnerships. In the end, it only the model that needs to change, not the product itself.

How do we bring BMi to the food industry?

First of all, we need to know what the objective is. From our perspective, it’s the return of #realfood to the masses, and it goes far beyond organic.

In a marketplace that is dominated by ten major brands, and a supply chain saturated with GMO inputs (approximately 80%), we need to build a whole new stable of food companies who have both the brand and distribution power to take on the giants.

Graphic sourced from the Huff Post, and the article has 25K+ Likes …

As a starting point, there’s a target: to replace the ten mega multinationals – who strive for profitability at all costs – with a global network of real-food enterprises.

What can we do to tweak the business model to make this happen?

Looking at the business model of the typical food enterprise, it is pretty simple.

The primary cost drivers are inputs (ie. ingredients) and salaries, along with the cost of production equipment and facilities.

The primary revenue streams are product sales, whether through retail or wholesale channels, and for many prominent retail chains, franchising fees.

Click here to view the bigger image. Download the full PDF here.

Depending on the nature of the business, margins can range drastically, from razor thin in the case of most major supermarkets, to fat-cat juicy, as is the case with most premium products and brands. The major moneymaking factor comes through scalability – for retail products, it’s through global distribution, for cafés and restaurants, it’s typically through national expansion.

In the Market Beacons section of our #NewEraBiz research on Food, we highlighted several enterprises that are shifting the dialogue around the dinner table through their trailblazing efforts, including:

  1. The Peoples Supermarket
  2. LYFE Kitchens
  3. Real-Time Farms
  4. Credibles

+ A New Era of Business: FOOD

Beyond being innovative in their own right, each of these entities has used BMi to bring their business to the masses:

  • The People’s Supermarket uses a volunteer workforce to staff its store, and can therefore offer its products at a strong discount;
  • LYFE Kitchens is building a technological system, similar to McDonalds, to streamline and scale its all-organic fast-food offering;
  • Real-Time Farms charges a subscription fee to restaurants, caterers and grocers to use their crowdsourced farm and artisan guide;
  • Credibles has built on the crowdfunding business model and developed their own form of currency to help spur local food businesses.

On a macro level, we see three key areas of focus for sparking Food BMi:

Ingredients are the key cost driver in the food business; therefore, the key to being able to offer lower prices on organic (etc) products and compete against traditional GMO offerings is to focus on cutting the costs of ingredients.

While much of the focus is on expanding the organic (etc) supply chain through agricultural means, new collaborative models need to be developed to help bring down the cost using BMi.

Some ideas for this include:

  • Collaborative buying schemes, where multiple companies in the same industry build collectives to buy ingredients in larger quantities from growers and vendors
  • ‘Hacking’ to increase transparency in the market and shed light on the pricing structure and other variables in key input markets

Ex. Food-Tech Connect’s Hack/Meat Program

  • Open Source Product Development, where companies, suppliers and distributors work in tandem to bring new products to market.

There are already smaller derivatives of these types of ventures underway, as many entrepreneurs and food pioneers are already beginning to experiment in this space. The key is to remember that collaboration is more important than competition, and that the whole industry needs to be overhauled- there will be more than enough of this pie for everyone once the ball really gets rolling.

Technology is the great equalizer for small companies, and food is one of the industries where technology can be used to create scale and efficiency in ways that were traditionally only available to big companies.

Beyond ERP systems at the supply chain and inventory management level, companies can use technology to build rapidly scalable entities and connect across the ecosystem to source better ingredients, find new partners and enter new markets.

Some ideas include:

  • Operation Scaling, where companies such as LYFE Kitchens use the power of technology to add efficiency to production lines and save costs on menial staff labour;
  • Smart Sourcing & Data Mining, using sites like Real-Time Farms to find local producers and databases to find high-level information related to market, consumers (ex.% of the population who are lactose intolerant), etc;
  • Mobile Payment Applications to enable customers to pay more efficiently and reach a broader market, especially for single SKU companies and restaurant chains.

Ex. Sweetgreens salad chain partners with LevelUp to develop their own mobile payment app

Many companies already employ technology in small ways to help them become more efficient, but it is those who can implement technology into their core business model that will see the big results in the long term.

Getting products into key supermarkets and retails stores has always been the key hurdle for new food companies face. Up to this point in history, the strategy has always been to work with distributors and agents (ie. middlemen) and offer a percentage of sales made in return.

But in the network economy, companies can start to focus on reaching customers directly and bypass the middlemen.

Some ideas include:

  • eCommerce, developing a strong online business right out of the gates and making full profits on every item sold;
  • Networks, using social media and actively engaging with specific online communities to promote new products and special offers towards;
  • Mail, distributing a new product via registered mail

Ex. Graze in the UK delivers its weekly snack packs via Royal Mail

Rather than focusing on vendors and distributors, the new network economy will allow future businesses to build people-powered networks and kickstart their companies via online channels.

Overall, the food landscape is ripe for BMi on multiple different levels across markets globally. Those who can take advantage of network strategies to connect across the ecosystem, and build lean enterprises via BMI, will have competitive advantages that last for the long term. The time has come to stop picking the low-hanging fruit and start harvesting the bumper crop.

Have you seen any great examples of FOOD BMi?


PLAN – the Business Model

Business Model Breakdown is back and this time we’re going to get a little crafty as we examine the Etsy business model. The once tiny website that helped small-scale artisans and merchants sell their creations online had a sizzling hot 2012 and now grows at rates equal to E-Bay. That’s why we’re going to break out the canvas and start putting together the pieces behind the irresistible Etsy.

Small is Beautiful.

It’s a phrase that encapsulates what Etsy is all about. But what happens when you put together thousands and thousands of small & beautiful things together on one site?

An (artsy) explosion of e-commerce.

In 2012, Etsy sales were up 70%, new buyers increased 80% and there were 10M new members. Jewelry was the highest-grossing category, while furniture was the fastest growing. With almost 800,000 sellers and about 22 million members from about 200 countries, this enterprise is showing that handmade & homegrown is much more than just a niche category.

While companies like Amazon have built their empires on aggressive pricing strategies and questionable business practices, Etsy has kept it real from day one and focused on putting tools into the hands of its community to empower them to sell:

“The site was started to help support small creative businesses … It’s always been that way, but we just keep finding new paths to reach that end goal.” ETSY Seller Education Lead

The question is, how have they done it?

There are three key aspects to the Etsy business model:

  • community engagement is at the heart of their strategy
  • they continuously develop tools and educational materials to empower sellers
  • they are a mission-driven company that balances altruism with tactful strategy

If you were to ask the average seller what brought them to Etsy as opposed to alternative options (ie. Ebay, independent stores, etc.), the majority would tell you it is because of the community.

People who list their products on Etsy want to do business in a friendly and sustainable way. In the same way that many people yearn for the olden days of walking down the street, popping into local shops and seeing friends and neighbors, Etsy’s sellers want to create an authentic and highly personalized feel to their online stores. It is that sense of personal relatability and trust between not just buyers and sellers, but also sellers and sellers, that has allowed Etsy to build one of the most cohesive communities on the web.


Etsy seller’s breakdown …see the full Etsy infographic here

There is so much love in the Etsy community, in fact, that a whole new network (We Love Etsy) was spawned to share the feeling.

The company has gone far and beyond just providing its members with social tools, such as forums and blogs, to swap tips. They have built their community into their business model and given its members the power to influence and engage other members. From simple social media programs like the Guest Pinner program, to the merchant-driven Etsy Success Symposium, an annual gathering held ever year to help Etsy sellers increase their sales and reach. A quick look at the Etsy Teams page and you would see how Etsy’s community roles.

But none of these community-building initiatives would matter if a large number of people in the Etsy community didn’t have the ability to drive significant sales. That’s why Etsy has put a lot of emphasis on education and the development of tools to streamline the sales process for its sellers.

With materials such as the Etsy Seller’s Handbook, Etsy Success Newsletter and Etsy Online Labs, the company is ensuring that anyone with a handmade product to sell can learn how to / have the tools to drive sales using Etsy.

With over 800,000 sellers on the platform, they cannot simply create more educational material and hire loads of people to educate the entire community, they must also rely on the help of their top sellers to bring new sellers under their wing. Imagine trying to do that without the backing of a fantastic, supportive community!

And with the increasing number of sellers comes a greater and greater incentive to find new ways to reach buyers. Etsy had started to notice a growing trend towards more and more mobile traffic to it’s site (~25%), especially around holiday times (33%), so early this year they purchased the mobile photo collage app MIXEL, which bears some resemblance to Pinterest. After we talked a little last week about the numbers behind transactions being driven through sites like Pinterest, you can see how this could be a big benefit for the Etsy community going forward.

+ The Advent of Collaborative Commerce+

And it is precisely at the intersection of the two sides, the buyers and the sellers, where Etsy makes its money. They take a 3.5% cut of the commerce generated on the platform in addition to a $0.20 fee for every product listed. The business model canvas below further breaks down the Etsy business model:

View larger image here or download the full PDF.

In the end, however, none of this – a vibrant community, educational material, a beautifully-designed platform – would matter if people didn’t believe in the company itself. The last thing the world needs is another online behemoth that pushes products from place to place at the lowest possible cost. People buy into Etsy because they believe in it and they want to be a part of it. Not just the sellers, but the buyers too:

“The buyers at Etsy are more interested in supporting creative small businesses. They come to Etsy because they want something unique, they want something that has a story; that when they wear it they’re going to feel really special and want to talk about it. They’re a different kind of buyer – it’s a totally different kind of market at Etsy.” ETSY Seller Education Lead

Etsy exists to help small businesses grow in this big, globalized world – their mission is to ‘enable folks to making a living making things, and reconnect makers with buyers.’ The fact that they generated $895.1 million in sales last year wouldn’t matter much if it weren’t part of a bigger story. Etsy is about impact, and as we continue to drive deeper into 2013 we will see that more and more businesses are becoming impact-driven because that’s where the real energy is.

+ The Reason to Empreender – Impact

Etsy’s commitment to the world of small & beautiful can be seen in every aspect of their organization, from their creative hiring initiatives to their listing as a certified B Corp. While not flawless by any means, it is one of the best examples of a highly visible company doing business to a different drumbeat. And what a business it is, which is why this business model is so worth studying.

Overall, the shift to a more collaborative and creative economy can be seen in examples like Etsy. The next generation of companies is building their business model to generate impact for their respective communities without sacrificing profitability, and making it fun in the process. As the movement grows and more and more entities make the shift, the effects will be exponential – the new era of business is only just beginning.


PLAN – the Business Model

One of the newest buzzwords floating in the business ecosystem these days is ‘social commerce.’ Now that Facebook, Twitter and other large social platforms have reached critical mass, marketers and execs are starting to see the big opportunity to start selling their products through these networks. While there is no doubt that ‘social commerce’ has the potential to redefine e-commerce, the real potential lies in what we will call ‘collaborative commerce.’

The dawn of the new ‘Collaborative Economy’ is upon us. While there are many adjectives being thrown out there to describe this big economic shift (New, Sustainable, Sharing, Creative … Economy), at the core of the movement is a drive to collaborate across the business ecosystems and bring the next generation of big ideas to life. Perhaps there is no bigger indication of this movement than the advent of crowdfunding, which in the space of a few years has already began to reshape the entire financial landscape.

Late last year, we travelled through Spain to research elements of this new ‘Collaborative Economy.’ The most interesting part of the research process was seeing how different entities were coming together to form a more cohesive and fluid business ecosystem. When you combine crowdfunding platforms / collaborative consumption portals / community hubs, the whole framework for conducting commerce starts to shift. Rather than being driven by competition in a top-down fashion, commerce is being initiated by the community from the bottom up based on real needs.

+ The Collaborative Economy – Inspiration from Spain

In that light, we start to look at the possibilities enabled by ‘collaborative commerce.’ As these entities start to solidify themselves in the ecosystem and the networks develop, those networks become markets and the communities themselves will be driving commerce through them. And it’s not going to be the big platforms (ie. Facebook and Twitter) that drive all these transactions, although they will play a part in it, but the most cohesive platforms (mainly niche) that build the tightest community interactions.

A recent article on Social Media Today sheds more light on this trend. The leaders in ‘Social Media Marketing and Commerce’ were small and mid-sized web-only merchants, many of whom were new in the space; but they all shared one thing in common, they put social media at the forefront of their business strategy. It wasn’t big-budget marketing that drove these transactions either, but a sincere focus on developing real relationships with customers through social channels. Fab.com is considered the darling in this space, where 50% of the site’s membership registration comes from social media.

Beyond just the SME’s, artisans and merchants are also joining in, as can be seen by Etsy’s fantastic fiscal performance last year. In 2012, sales for the company were up 70%, new buyers increased 83% and there were 10M new members. Etsy allows such artisans and small merchants to create micro e-commerce stores to sell their products online and has built a loyal and diligent community to help protect the integrity of the listed products.

These examples are not simply an anomaly or the result of hyped-up advertising, but rather they represent part of a much bigger movement towards a more social and collaborative way of doing business. As we are now starting to see a new era of businesses that are being built from the ground up using social technologies (ie. crowdfunding, social media), these community-driven enterprises will continue to expand their social presence in order to drive sales. From the small baker on the corner to the upstart technology company downtown, the way commerce is conducted is being radically redefined as part of the advent of the Collaborative Economy.

And what do the numbers look like?

From this video, Pinterest : The Future of E-Commerce, the following data was revealed about the average order size generated through each of the following social networks:

As a further example, it was reported that consumers who were referred through Polyvore, a community of young stylistas who create and curate personal style collections (Lookbooks), had an average order size of $220. Bringing together a cohesive online community on a clean, vibrant platform is a lethal combo these days.

Overall, the ‘Collaborative Commerce’ trend signals that the pieces are fully in place for anyone to start empreending (see post The Reason to Empreender – Impact). The new era of business is about creating enterprises that work together in tandem to drive commerce that matters. Instead of buying a cheap product from Asia, people can start to buy great products from the people they know the best and reestablish trust in the business environment. Technology has enabled the connections to occur, now it’s time for the next generation to capitalize.


+ BMBreakdown: ETSY
+ Time For BMi


PLAN – the Business Model