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Business model 2.0
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This model was built for SENSORICA, which is an open, decentralized and self-organizing value network, designing, producing and distributing optical fiber-based sensors.
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Describe how SENSORICA functions.
This is the second version. See Business model 1.0 document.
As SENSORICA was forming in 2011, the founding group had some discussions about value accounting and exchange models. During a group meeting on March 23, 2011 we tried to converge on a legal form for our enterprise. We discussed the pros and cons of different legal forms, the corporation, the coop, and the LLP. Tibi presented a simple business model which constitutes the starting point of the present model. Since 2011, many SENSORICA affiliates have contributed to SENSORICA’s open value network model.
NOTE: this document is built on a first version.
What defines this new economic paradigm and what constitutes the departure from capitalism and socialism?
Consequences (open to discussion!)
Our model is based on extracting value from know-how rather than from knowledge itself. Information and knowledge are now abundant (very good ideas are still scarce tough). Know how and capacity of production are scarce. People who make things are scarce. The idea is that we are moving towards a know how economy, not a knowledge economy!
SENSORICA is designed to become a large and dynamic pool of know how and shared resources, by attracting talented and hardworking individuals and their assets from across the planet. These are individuals that are searching for a stimulating, empowering, humane, and ethical work environment. Through open collaboration, SENSORICA bridges the world of haves with the world of have-nots. It gives individuals with great potential access to more resources and to a platform, allowing them to contribute to the world’s well being.
We are planning to reach a high state of creativity and productivity by putting in place a set of strong positive incentives and mechanisms for self-organization.
We are building a self-organizing value network. This will allow SENSORICA to navigate through a rapidly-changing economic environment.
SENSORICA will also grow its capacity by aggregating unused capacity from the old economy. For example, we believe that manufacturers will be attracted by our hyper-innovative network that will supply them with a continuous stream of useful, high-quality, and ethical products.
The diagram above represents some important elements of the model.
The bottom right of the diagram is occupied with a big pink-red oval, representing the enterprise. This type of enterprise is better described as a community.
The brown rounded rectangle represents the market.
In the middle, we have a full blue oval, representing the product (can be a service).
The area of this full blue oval represents the market value of the product.
Around this full blue oval we have a ..... blue oval that represents the commons.
The green happy guys are all active affiliates of the community. They all contribute to increase the value of the product and to develop and maintain the platform.
Active affiliates can be of different types, forming different cultures. For example, some affiliates contribute mostly to R&D. They usually appreciate more freedom and can be more risk tolerant. They can respond more to intrinsic incentives, and appreciate equity as extrinsic motivation. Others participate to manufacturing, and might want to trade freedom for revenue stability. They can respond better to per-part extrinsic incentives (revenue based on items produced). Yet others, participate in sales or market development. They can be more mobile (working on different projects at the same time), tolerate more risk, and respond to equity or revenue related to volume, as extrinsic motivation.
The dark green guys are inactive affiliates.
The light green ones are unafiliated.
The Organizational Structure document describes permissions and integration procedures for all these degrees of affiliation.
The red dome represents the Exchange firm, which is the medium of exchange (of exchange value, or tangible value, or products/services) between SENSORICA and the market.
The Exchange firm can be simply an interface, in which case marketing and sales activities come from the network. In this case, it is a neutral service provider that takes care of the logistics for billing and for the redistribution of revenue, and takes on the legal liability of the product. The Exchange firm can also be an existing company that wants to integrate one of the SENSORICA’s products into its own offerings. In this case, it can also take on the roles of marketing.
The information based on which the redistribution of revenue is calculated comes from the value accounting system, which is part of SENSORICA’s infrastructure and is entirely under the control of SENSORICA’s active affiliates.
The Exchange firm’s role is also to avoid a concentration of power within SENSORICA. SENSORICA’s products are created by its affiliates and the exchange with the market must be mediated by a neutral entity, in order to make sure that the community benefits, that the ecosystem is sustained.
If we allow affiliates to complete transactions with the market unchecked problems might arise.
The Exchange firm insures that SENSORICA’s products meet the required quality and ethical standards. It also has the role to guarantee a SENSORICA genuine product.
It does this by stamping every product with SENSORICA’s logo.
The Exchange firm has the exclusive right to use/distribute SENSORICA’s copyrighted logo.
The Exchange firm nurtures the SENSORICA brand.
The Exchange firm allows SENSORICA, which is an informal entity, to function as a global, p2p network of innovation, production and distribution.
The community has a very low entry barrier. In fact, anyone who promises to create/add market value (to create a product or to increase the market value of an existing product), or to develop and maintain the platform can become an active affiliate.
Offering a simple service for which there is an immediate reward, an activity with no or very low risk associated, is NOT considered a contribution that increases the market value or the value of the platform. Someone only offering this kind services is NOT eligible to become an active affiliate, is not entitled to equity.
Among active affiliates we can find individuals with technical skills (hardware, software, optics, biology, etc.), individuals with business skills (marketing, accounting, community building), etc.
The Organizational Structure document describes permissions and integration procedures for all these degrees of affiliation.
All affiliates can also conduct business outside the community.
No affiliate can have exclusive commercial rights over a SENSORICA product, or over its infrastructure.
The knowledge on which the product is built is open.
For more on the open knowledge issue see the following posts.
Most processes within SENSORICA are visible to unaffiliates.
Overall, taking into consideration large scale effects within a strongly interconnected and well-coordinated world, transparency brings more advantages than closeness.
Transparency renders the community more dynamic. It increases the probability of participation: if others know what we do they can decide to join, to contribute. Less energy is spent looking for resources or communicating our needs.
Transparency also makes SENSORICA accountable. We believe this will have a positive impact on quality, as well as on ethics. SENSORICA’s brand will be positively affected, because transparency means trustworthiness.
Transparency helps with customer relations. The customer has direct access to our processes and can follow a ticket/issue as it moves through the system. This also opens the possibility for the customer to intervene in the process at critical moments, avoiding costly mistakes caused by misunderstandings.
On the other side, transparency exposes SENSORICA to potential market losses. Losses cannot be entirely avoided. Even closed corporations leak and are unfairly beaten to market. SENSORICA counts on innovation speed and on its brand, which is rooted in quality, fairness, ethics...
The product is exchanged under the SENSORICA brand, which belongs to the community, it is part of its commons. The custodian is responsible for defending the SENSORICA brand. The SENSORICA logo is copyrighted. Only genuine SENSORICA products can carry the SENSORICA logo on them; this is how one distinguishes a SENSORICA product from a clone.
A genuine SENSORICA product is one which is brought into existence through SENSORICA’s processes, AND one that respects all SENSORICA’s norms. The product must be approved by the SENSORICA community and sanctioned by the Exchange firm, taking into consideration different norms of quality, environmental, ethics, price, etc. Moreover, the product must be exchanged through the Exchange firm. which can have an exclusive right to label a product as genuine, based on a consensus reached within SENSORICA (this is not about power, the Exchange firm merely acts mechanically according to the consensus built within SENSORICA). This exclusivity is granted to avoid abuse. The exclusivity can be taken away if the community is not satisfied with the Exchange firm., i.e. the entity that played the role of the Exchange firm can be replaced with another entity. Again, the Exchange firm is not a SENSORICA affiliate.
Any active affiliates of the community can commercialize the product, the exchange with the market must go through the Exchange firm.
There are two main sources of value for a product (excluding emotional value and irrational desire). The first one stems from its functionality, from the need it satisfies, the problem it solves. The second one stems from the environment which produces this product, which translates in terms of quality, reliability, service, professionalism, continuity, innovation and production capacity, brand/image, ethics, etc. That leads to two major categories of contributors to the value of a product/service: those with technical skills, adding value directly to the product itself, and those with social, business, artistic, marketing skills, adding value to the community, to the platform, and to the brand.
An active affiliate can add value to the product for different reasons:
An active affiliate with business skills doesn't add value directly to the product. His/her function may be:
Revenue results from a market exchange of a product, or it can come in the form of a grant, or from crowdfunding.
Our revenue model revolves around extracting value from our collective know-how and capacity of production.
Active affiliates don’t receive a salary from the community. There are different ways to get rewarded.
See also SENSORICA Product Design Philosophy document, Tibi’s post How to play the open game in the present and future economy on Multitude Project.
This transaction is of the type supplier-customer. The customer expects to receive a fully functional and guaranteed product or a service, with some additional services, free or not free of charge (ex. repairs, assistance for installation, training, etc.). The client has no obligations other than to pay for the product, and non-free services. The supplier, (active affiliates of SENSORICA value network) must respect its obligations for repairs, supply of parts and consumables, assistance, training, etc.
The transaction is mediated by the Exchange firm. The product or service is exchanged in mainstream currencies according to market prices.
These transactions can be many-to-many, i.e. can include more than two (active) affiliates.
The value exchanged is mediated by the value exchange system, a SENSORICA currency, which mitigates the complexity arising in these transactions. Think of it as a complex, formal system of exchange of favors.
This value exchange system is NOT a simple barter system, it is rather a local/contextual currency.
Definition: an object of exchange (not necessarily tangible/material) is a complex of values that passes from one active affiliate to another one.
For example, one lab can offer technical expertise to another lab (one immaterial object), in exchange for samples (a material object). Or a lab offers authorship in a publication (immaterial object) in exchange of samples from another lab, and some expertise from yet another lab.
We are all acquainted with these sort of transactions, we perform them informally with our colleagues, but the SENSORICA currency facilitates a more complex exchange system.
The above procedure is still under debate..
from Patrick Anderson
==Intra-Owner Trade Agreement (IOTA)
As User you MAY:
0. Use this instance for any purpose.
1. Modify this instance by renting or buying the physical sources
needed for that modification. (YOU ARE ALREADY A CO-OWNER IF YOU PAID
PRICE ABOVE COST.)
2. Copy this instance by renting or buying the physical sources
needed for that production. (YOU ARE ALREADY A CO-OWNER IF YOU PAID
PRICE ABOVE COST.)
3. Share this instance or a copy - whether modified or not.
If you share this object instance or a copy - whether modified or
not, you MUST:
A. Accompany each instance with a copy of this DEED.
B. Treat all profit gained through the sale of this object or
through the rental of physical sources as an investment from that user
toward more physical sources.
C. Issue GNUrho currency against those physical sources.
The legal form is not an easy question.
Sensorica can be understood as an open space for collaboration, OR as an infrastructure for communication, coordination, and collaboration, as a tool, NOT as a legal entity. We can also talk about the Sensorica community, which is an open, decentralized, horizontal, value-based collaborative network of individuals, private organizations and academic organizations.
Affiliates of Sensorica ARE legal entities AND tax payers.
This is important in order to allow Sensorica to spread across the globe, to be fluid, and also to allow it to interface with other similar networks (communities like open source software, open manufacturing and 3D printing), which, as we are starting to understand, are very important for SENSORICA to reduce the costs of our products, to insure continuity for our clients, etc.
We are interested in increasing the market value of SENSORICA’s products. We have the technology to take input from a wide base of contributors, to filter it, and to add it up coherently. Even if the input is very small, worth one hour of work, we still want it, and if thousands of individuals are willing to participate one hour each a week, we want it all. This is what we call extracting value from the long tail. The classical model takes in only large portions of value from a limited number of individuals, which are supposed to produce at their maximum capacity. That is the bell curve regime applied until now. With the new model we want to cast the net wide, to collect as much as we can. This is why Wikipedia surpassed in volume Britanica in only a few years! This model has already been demonstrated to be viable. We cannot do that if we treat every affiliate as an employee. Affiliates, by the hundreds, need to be able to come in and out of the network, as many times as they want, adding value to the product a bit at the time.
The internal structure of the group must be maintained flexible. Subgroups must form dynamically around projects and they can dissolve once the work is completed, to be recycled into other subgroups within the larger network. Because there is no formal status within the network, this reshuffling can take place spontaneously. The internal bureaucracy must be greatly diminished.
How is the compensation handled? An independent entity, the Exchange firm takes care of billing the customer on the market side, and of redistributing the income to every affiliate, in proportion to their respective contributions. Affiliates declare their revenue in the country of their residence. The Exchange firm is not part of Sensorica network, but it is part if its ecosystem. It only offers a service to the affiliates of Sensorica. It can take the form of a non-profit. If we create a legal classical form for SENSORICA it will be harder to solve the income tax problem, and the logistics for paying contributors distributed all over the planet will become more complex.
Individuals can incorporate themselves. Corporations can become affiliates of Sensorica network, as any other form of organization.
I believe that our technology today, all these tools of communication coordination and automated logistics, allow such loose and flexible structures to maintain their coherence. The key concept is self-organization, set in motion by a powerful set of incentives, which can be created by communicating effectively and in real time the sources of value (rewards) and the system of flow of value, in and within the focus groups.
If you want to harvest the planet this is, in my opinion, the only way around. Otherwise you go back to the bell curve, i.e. large chunks of value contributions from a limited number of individuals, concentrated mostly locally, and we missed the technological revolution boat.
We need legal agreements between affiliates of some sort, firstly to grantee to contributors that they WILL BE paid (that’s where the main insensitive are) and secondly, to secure our tangible assets. Affiliates will have to disclose their full identity.
See also Open Capital and Open Corporate Partnership in If Not Global Capitalism - then What? by Chris Cook
SENSORICA is a commons-based production system.
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I totally agree with this structure. We act as individual entities bringing their skills to Sensorica on a volunteer way.
Just a note: when you earn more than 30 000$ from an activity (your main job or another one) you must register as a self-employed worker. Then you must pay to the government the TPS and TVQ corresponding to your revenues. Think of it when Sensorica will sell around the world !
Tibi: Francois, can you please expand on this problem, if you think it is a problem... On my part, if SENSORICA remains a coordination tool, NOT a legal entity, there is no problem, because the burden to declare revenue falls on every member, be it individual or organization.
Wikipedia offers a comprehensive introduction to the key business types we have in the states, namely, sole proprietorships, partnerships, corporations and cooperatives. Which one chooses depends primarily on tax liability, legal liability, risk management, and transaction costs. Also, not all states offer the same variety of optional structures within the business types. For instance, an LLC can be formed and can operate in all 50 states, but an L3C can can only be formed in less than 20 states (Ohio isn't one of them!) although it can operate in all 50.
Chris Cook offers a wide range of consistently insightful analyses of capitalism, economic systems, business structures, etc. through his research and writing. The issue rests on the definition of capital. Too often we interpret the term "capital" to mean "financial capital." It's much more complex than that. Shanna Rattner and others at the Yellow Wood Associates have expanded the body of knowledge about forms of community wealth (multiple capitals) in a series of publications entitled Wealth Creation in Rural Communities underwritten by grants from the Ford Foundation. While I realize these folks are not the only ones by any means to explore and contribute to this area of know-how, they do have direct experience working with groups in the process of figuring out how to build, strengthen, and sustain their local economies and business ecosystems. They have translated that experience into a set of useful materials that practitioners can quickly apply in the work they do with other groups that want to move in this direction.
This concept of multiple capitals and ways of measuring wealth is key in the determination of the value derived by my affiliations. The value of my affiliations directly relate to my sustainability. My sustainability follows Maslow's Hierarchy of Needs with basic physiological and safety needs at the bottom leading to esteem and self-actualization at the very top.
Capitals measure wealth. They are also indicators of how well what I do results in my sustainability within the Hierarchy of Needs. The same can be said for the kinds of affiliations I have, be they networks, communities, or teams in a social sense, and as individual contracts, partnerships, corporations, or cooperatives from a business standpoint.
The value of a particular affiliative structure equals the amount I must invest of one or more types of capital I have control over that results in my sustainability at one or more levels of the Hierarchy of Needs.
When the evaluation of a particular affiliation is made by more than one person, the reliability of that evaluation rests on an agreement about the type of capital and the targeted level on the Hierarchy of Needs.
Many times people don't do this and wind up comparing apples to oranges or reducing it to an absurdity. I mention this because as this exchange gets deeper into an evaluation of Sensorica in terms of purpose, business structure, and impact, it is critical that the evaluators answer those two conditions: capital and need. Otherwise, this will result in an endless philosophical discussion not unlike Macbeth's statement, "...full of sound and fury, signifying nothing."
This is great stuff, especially the pictures, thanks for writing it up. I added the word “exclusive” to the sentence “The Exchange firm has the exclusive right to use/distribute SENSORICA’s copyrighted logo.” (please remove if this was not intended).
One question: “The second role of the Exchange firm is to avoid concentration of power within SENSORICA. SENSORICA’s products are created by its affiliates and the exchange with the market must be performed in the name of the community, for the community. “ seems to imply that community members are not allowed to individually manufacture a clone of a SENSORICA product and sell it and keep all of the revenue. However, the “open knowledge” part, which takes a stand against patents, seems to imply that community members are allowed to do that, as does the discussion of the power of the exchange firm to control the SENSORICA trademark. Which is it? Are community members allowed to essentially undercut/compete with the exchange firm, as long as they don’t use the SENSORICA trademark/brand? Or are they prohibited from doing this (even if patents are eschewed other punishments could be applied; e.g. “if you go around the exchange firm, we won’t sue you for patent infringement, but we will be socially mad at you, and we will expel you from SENSORICA and stop paying you revenue shares”)? (i don’t know which of these is best, i just want it to be clear; or if this is still undecided, that should be clarified too).
Our current plan at PieTrust is as follows: DO use so-called intellectual property (since we are software, we plan to use our copyright monopoly, rather than patents, although we will have patents for defensive purposes), but only for a limited time (each release will become open source after ~2 years). During that time, PieTrust will have a monopoly on for-profit use of the work (however even during that time the source code will be online and not-for-profit use will be permitted by anyone). So, we’re using the copyright laws as intended, but modified to be more sensible (2 years instead of 90, and “fair use” broadened to include personal and other not-for-profit use).
Tibi: I remember this.
 This model came to Tibi after a discussion with Seb Paquet a few days before. Tibi was struggling to pass a heavier model he had design earlier, the Discovery Network. Seb proposed to reduce that to the basics and start from there.
 Titi’s example: Having the recipe doesn't mean you’re able to bake the cake. Even if the local baker makes his recipe public, you’ll still buy from him, most of the time, because it’s more convenient, and more economical. Some people will bake their own cake following his recipe, but that is not going to put the local baker out of business.
 This allows SENSORICA to integrate a gift economy, to balance duty and passion
 we are still behind designing and implementing the value exchange system.