New ‘sharing economy’ offers opportunities, pitfalls

Have you seen the cars with the pink fuzzy mustaches driving around town?

No, these are not the latest fad in auto accessories; it is the brand identifier for the ride-sharing service Lyft. Unlike traditional taxi services, Lyft allows virtually anyone to use their personal car to make money offering local rides.

Powered by a mobile app, Lyft is one of the growing number of companies at the forefront of a new trend: the sharing economy. The sharing economy creates value for customers by optimizing the use of under-utilized assets such as buildings, vehicles and equipment. This new take on the age-old value of sharing provides opportunities for consumers and small businesses to cut costs, but may also threaten many traditional industries.

Recently I decided to give the new Lyft service a try. I downloaded the app, which links to your Facebook profile, entered my credit card information and clicked on the map interface to request a ride. Less than 10 minutes later, a Subaru with a pink mustache came around the corner to take me to my destination.

At the end of the ride, passengers are requested to make a “donation,” a strategy designed to avoid the onerous rules for taxi services. I asked the driver, Steven, a young man in his twenties, why he decided to be a driver.

“When I graduated college, my parents bought me a car, but what I really needed was a full-time job,” he said. “I can only find part time work right now as a Web designer, so this helps pay the rent and student loans.”

Small-business owners most often leverage the power of the sharing economy through flexible workspaces, providing office and meeting facilities for far less cost than a traditional multiyear lease. Office Nomads in Seattle brands itself as a “Coworking Community” where members share not just space and amenities, but also build networks, bounce ideas off others and enjoy the camaraderie of the workplace.

Office Nomads’ community cultivator Alex Krause said members experience an uptick in productivity and work-life balance when working in the community.

“Increasingly people who work from home, as employees or independent professionals, need separation between home and work. Our clients often say they get three to four days of work done in a single day working at Office Nomads versus at home where there are constant distractions.” Krause said. “Here people can focus on work projects but also build business networks and friendships that are the positives of a traditional work environment.”

Travelers too can reap the benefits of the sharing economy. Airbnb allows individuals to rent out their apartments or rooms in their home directly to travelers through a peer to peer website, often for a fraction of the cost of a hotel room. Want to park your car for free at the airport? Relay Rides gives you free parking and a car wash in exchange for allowing the company to rent your car to other travelers while you are away.

Not everyone is happy about the emergence of these new businesses. Taxi drivers, who are subject to heavy regulation and government fees, are crying foul in Seattle, resulting in the city council considering new regulations to govern Lyft and other ride-sharing services.

New York has begun cracking down on Airbnb vendors whom it says are illegally evading hotel taxes, costing the state and municipalities significant lost revenues.

Small businesses must strive to contain overhead costs that threaten profitability and quickly devour cash flow. The growing sharing economy provides opportunity for start-ups to postpone capital asset purchases or other costly upfront costs.

Is your business really ready to invest in that long term lease or new vehicle? Or can you create a customer base using opportunities from the growing peer-to-peer networks in the sharing economy?

In addition to opportunities, the emergence of sharing networks may create a threat to your business through new competition or lowering the barriers to entry. Business owners would be wise to take an inventory of their business model and see where sharing can enhance or harm future profits.

The Herald’s entrepreneur column is written by Ryan Davis and Pat Sisneros. Davis is the dean of the Business and Workforce Education department at Everett Community College. Sisneros is vice president of College Services at EvCC and a longtime small business owner.

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