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06. Trust Funding

Systems That Build Trust Build New Economies

May 20, 2011

We’ve seen the web transform commerce again and again; from online shopping carts, to algorithmically targeted advertising, to flash mob coupons. Now we’re seeing the beginnings of a new transformation taking place, and it may be the most radical shift yet. It’s fundamentally altering our assumptions about what commerce is, what we buy and who we buy it from.

Trust Is Key

Startups like AirBnB, Kickstarter, Etsy & Neighborgoods have each created systems that build and support trust where it was once scarce. In doing so, they’re reviving the economies of craftsmanship and creating new models for scaling craft-related business. The frameworks of trust that these startups have created link and promote more craftsmen to larger markets than was ever possible before.

Why is trust so important? Well, trust is the driving force behind commerce. Nationwide storefronts, customer service departments and money-back guarantees are the oil in the gears of big-box, corporate commerce. These reassurances encourage consumers to cough up their hard earned cheese by offering recourse should anything go sour. Without that trust, the gears of capitalism lock. Purchasing would grind to a halt.

But what if I wanted to sell you something I made or a service I could provide? How could you trust me or my product if I didn’t have a storefront or a website—much less a customer service department? How could you be sure I’m not hawking lemons? Well, until recently, it was pretty difficult. The due diligence required to gain some assurance was too much to bother with most times. It was a commonplace kind of friction in the market, keeping a lot of potential one-to-one transactions from taking place.

Enter startups like the ones mentioned above. These new businesses are creating new systems of trust between individuals, greasing the wheels of new commercial interactions. In doing so they’ve given individuals—craftsmen & craftswomen—the ability to compete with corporations (on a smaller scale of course). To my eyes, there appear to be two approaches that are empowering the revitalisation of craft economies: Trust Expansion, and Trust Facilitation

Trust Expansion

Trust Expansion makes use of a user’s social grid. This social grid is already filled with trust. It’s the people a user knows, the people with whom they’ve shared dirty jokes and more than a few drinks. The actors within this social grid are bound by real-life social pressures to not be a dick. Beyond that, they’re also a source of trusted opinions.

But Trust Expansion goes beyond just connecting you to your social grid in a new context. “Expansion” is part of the name after all. Trust Expansion extends the benefits of your social grid to those whom you may never even know. Kickstarter is a great example.

If you’re unfamiliar with Kickstarter, it’s a crowd funding site for personal artistic projects. An artist, musician, engineer, designer or whoever, signs up to raise funds for their DIY pet project. They set up rewards for certain levels of monetary pledges. For example, a band might offer a free digital copy of their album for a $5 pledge, a CD plus a poster for a $25 pledge, or a live rock concert in your living room for a $500 pledge. The levels and rewards are up to them. The trick is that no kind, money-pledging soul is charged until the project meets its goal, ensuring the potential for success before the funds are ever commited.

The artists are largely responsible for spreading the word about their projects. They send emails, tweets, post links on facebook and otherwise alert their social graph. Apart from a few runaway projects, funding comes largely from this social circle of trust. That’s important, because there’s no contract guaranteeing delivery of the promised project or even the rewards for a pledge. Literally nothing. Even if they wanted to, how would Kickstarter hold a 14 year old kid legally accountable for the stop-motion movie he wants to make, while also ensuring that every person on his pledge list gets the rewards they were promised? It’s an impossible task.

This is where Trust Expansion comes into play. Because the artist’s social graph makes up the lion’s share of their pledges, it’s highly likely that the artist will do their best to ensure the project and the pledge rewards are delivered as promised. If they were to fail, they would let down their friends and family. Few have the chutzpah to do that. Because the artist is bound socially to fulfill their obligations, the strangers who have pledged benefit as well. The bonds of trust established in the artist’s social network now extend to everyone who wants to pledge.

It’s this model of Trust Expansion that lets strangers benefit from a social bonds they’re not even a part of.

Trust Facilitation

Trust Facilitation is an arbitration approach. In trust facilitation the service acts as the intermediary connection between two strangers and makes sure that both ends of a bargain are maintained before releasing benefits.

AirBnB (Airbed and Breakfast) is a website where anyone can rent their spare cot, couch, room, or house to anyone in the world. The platform AirBnB has set up is incredible. There are clear details about the space, the arrangement, the host, photos of the space, reviews from previous visitors and even “friending” capability if you end up bonding with your host.

The site’s success belies the hurdles they’ve had to overcome in terms of the trust relationships between both hosts and guests. Guests are justifiably worried that they’ll get a dirty room, or be in a bad neighborhood or find the accomodations unfavorable in some way or another after having paid. Hosts are justifiably worried about their personal possessions and non-payment.

AirBnb steps in as an intermediary, taking payment from the guest and holding the sum until 24 hours after the guest has checked in. If the guest finds the room or accomodations not in line with expectations, they can alert AirBnB and the money will be returned and they can find another place to stay. This simple mechanism allows the guests to feel at ease with such a new and strange transaction.

Hosts have some control as well. Reviews give hosts a sense of who the guest is and because it’s their home, it’s perfectly acceptable to deny the stay request of potential guest who has unfavorable reviews or no review history. For the most part however, the simple fact that reviews are such an integral part of the site keeps both guest and host in check and facilitates the creation of trust.

Trust Facilitation hinges on creating a balanced platform, where both parties are held accountable in both the long and the short term.

Getting Crafty

So where am I going with this? Well, as I said before, these platforms are allowing everyday craftsmen & craftswomen to tap into incredible systems of trust that throw wide the doors to the world-wide marketplace and allow them to reach—in a targeted way—people who are looking for exactly what they do.

The Industrial Revolution moved us from an economy of individual craftsmen to an economy of collective industry. Craftsmen became designers, designing products that would be mass produced and mass marketed. Because only a few companies could dominate a marketplace, there wasn’t a lot of room for niche products and local craftsmen. How could they compete with million dollar ad budgets?

These startups are changing the model of scaling design and craft. Instead of one or a handful of designers at the top of a corporation, designing generic products that fit everyone more or less, think of these startups as their own corporation, with unlimited numbers of designers and craftsmen each only making a few products that fit a few people beautifully. Yet, each of these craftsmen are tapping into corporation-sized system of consumer trust and targeted placement.

Instead of the corporate model of one-to-many, slow moving progress and feedback; the craft economy is one-to-one, agile and targeted. The successes of AirBnB, Kickstarter, and Etsy are just the beginning and I’m excited to see how these new markets continue to develop.

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