Startups not only disrupt industries, they shake up traditional business models too. The Economist argues: “In the same cities where Ford, Kraft and Heinz built empires a century ago, thousands of young people are creating new firms in temporary office spaces, fuelled by coffee and dreams. Their companies are pioneering a new organisational form.”
The Economist states that the tried-and-true model of a public company “is showing signs of wear,” due in part to managers who put their own needs first. Newer companies transform the status quo with a different ownership model that “aligns interests and creates a culture of hard work and camaraderie.” These startups build their companies around shared ownership, incentivizing employees with equity and performance-based rewards.
Skeptics argue, however, that this new model is a passing trend rather than serious contender to traditional organizations because for three reasons:
- The startup model only exists in Silicon Valley.
- Successful startups sell to public companies anyway, folding into corporate businesses.
- Public companies offer ordinary people the opportunity to buy shares — startups can’t offer that same service.
The Economist debunks each objection, maintaining that startups are changing the “basic building block of capitalism. First, startups succeed in every sector from retail to traditional manufacturing. Second, a growing proportion of startups are choosing to stay private and maintain control over their product and management. Third, everyone can invest in startups through mutual funds and SeedInvest.
Their third point became even more solvent with the recent news that the Securities and Exchanges Commission (S.E.C.) approved equity crowdfunding last week. Now, small companies can raise up to $1 million in a twelve-month period, opening the door for a new generation of startups to find public funding. Anyone can invest in these emerging companies in exchange for equity, just as they would on the stock market.