Crisis Breeds Innovation: The Roots of the “Sharing Economy”

Crisis breeds innovation… and since the financial crisis, people and businesses have come up with some pretty creative solutions to make ends meet.

With strong, full-time employment a rare commodity these days, it’s no surprise people would take the simplest path for the greatest good.

We call it the “Uber Economy” or the “Sharing Economy” for a reason — if you have a car, take someone for a ride, and get paid to do it. If you have a spare room, rent it out!

This growing trend has been criticized as “entrenching us in part-time purgatory” … but if some people are content to settle for this kind of employment based on economic conditions or just where they’re at in their lives, who cares? Plenty of others use these platforms to subsidize income coming in from another job.

Who wouldn’t love an extra $300 to $400 a week?

But I think the real point is this — don’t underestimate the entrepreneurial spirit of humans, especially in desperate times.

Uber is available in 55 countries in more than 200 cities worldwide. But even they’re not the best example.

Airbnb — the faux “hotel chain” that allows folks like you and me to turn their spare room, garage, private island, treehouse, castle, or igloo into a bed and breakfast — recently celebrated the opening of their one millionth room… in over 190 countries… and 34,000 cities.

I think back to an op-ed in The New York Times by Thomas Friedman — one of my favorite mainstream authors — recounting how the business first started.

It started with two friends who, short for cash, turned their house into a bed and breakfast, even though they had no extra beds. They simply got some air mattresses and advertised the available place to sleep.

They started renting space to travelers when there was a big convention in San Francisco and hotels were sold out. They took in three guests, who slept on the air mattresses, then cooked them breakfast each morning and became their local guides. All for just $80 a night (per guest).

And just like that, “Airbed and Breakfast” was born.

Their success lead them to start the website Airbnb, which has grown so large and fast, they have more rooms than Hilton and Marriott.

Who would have thought so many people would want to sleep on the floor and be part-time innkeepers?!

It’s not like you’d pick up a person from off the street and ask if they wanted to spend $80 to stay in your treehouse. There’s a hundred and one different ways that could end badly.

But with the Internet and its unlimited connectivity, we can learn everything we need to know about a person to feel okay with this happening… and the growing size of this market attests to that.

Through Airbnb’s website, you can swap information — such as your driver’s license number or passport — so renters can hold their guests accountable, and vice versa. Plus, renters and guests can rate each other, so that anyone who doesn’t hold up their end of the bargain gets kicked out of the market.

And with Airbnb offering $1 million in insurance against damage and theft… there’s just nothing to lose.

This is just another way the new economy is turning the average Joe into an entrepreneur, a principle I’ve stressed in my books on the new network organization, and that I cover in my nine-CD business course.

Airbnb has not only spawned a huge Internet site that generates billions of dollars in economic transactions. It’s created networks of part-time people who clean, cook, guide, drive… you name it.

And that’s exactly what you’d expect to see arise from the ashes of a downturn.

The challenges that come with downturns always inspire innovation and entrepreneurial businesses. That’s why they’re such a necessary part of our economic growth and evolution.

Of course, I see the winter economic season — the most challenging in the 80-year economic cycle — lasting until the early part of next decade. New, innovative markets like the ones Uber and Airbnb occupy show that the economy still has some kick, but winter still hasn’t taken its toll…

But even after it does, we’ll see a whole host of new, surprising, and maybe even simple innovations that thrust the economy back into gear.

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Harry

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Categories: Innovation

About Author

Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.