A Proposal for an Alternate Business Model

So I think I can propose a better way to operate a business than the existing for-profit stock model.

Well, ‘better’ in the sense of being more sustainable, being better capable of nurturing a community rather than taking from it, and possibly even better at providing a superior product.

What I’m thinking, is that a company could shift to a profit-through-tip-only system.

All revenue is reinvested into the company (the employees, especially management, would need to be appropriately wage controlled), and the company is not publicly traded (I don’t think it would work with a public company, at least in the concept’s present, fledgling form). Instead, customers are at some point informed that the company is not a traditional for-profit company and that the only profits the company makes are through tips.

Tips rendered by customers are given in some proportion to the owners, as well as the workers.

This means that, instead of a profit motive oriented around increasing revenue and reducing costs, the profit motive is now oriented more directly around customer satisfaction. It also provides a stronger incentive to nurture the community, as you would want customers willing to be charitable and having the cash onhand to do so.

The idea has significant potential problems.

  • I can’t think of a good way to apply it to a publicly traded business.
  • It’d probably be less profitable than a profit-oriented business, so a free market would never pick up on it. Even if it was more profitable, the focus isn’t on profit, so there’s little reason to believe such a shortsighted culture as a free market culture would ever pick up on it anyway.
  • The model probably wouldn’t work at all when dealing with for-profit companies as clients – what for-profit company would ever issue a tip? Only human beings can be counted on for the charity that would make this model work.
  • It wouldn’t discourage advertisement and other manipulation of customers, even exploitative methods.

Nonetheless, I think it shows promise.

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One Response to “A Proposal for an Alternate Business Model”

  1. Luonnos Says:

    Of course, the primary problem with this is that there is no guarantee that the tips will accurately reflect the quality of the services provided.

    First, not all people are charitable. In fact, people aren’t really charitable in the usual purely altruistic sense. They are profit seeking. Well, not profit exactly, but all people want to maximize benefit and minimize cost. It just so happens that charity makes some people happy, which is why they donate. This business model essentially creates a charity with a product to sell, which can be oh so easily abused. Without a way to guarantee a donation (e.g. a normal price system), the company will quickly be out-competed.

    Now, let’s assume that we do have a very charitable community of consumers. It seems that the goal of this business model is to incentivize employees/the company to satisfy the customer to a greater degree. In return, greater tips would theoretically be received. Unfortunately, once more, I don’t think this would have a great enough effect to be advantageous. In some cases, tip size would definitely be based on quality of services. In general though, I’m not sure if people would change their tip based on services. Consider a waiter in a restaurant. A person does not usually change the size of their tip from meal to meal (15-20%, 0% if you enjoy that extra saliva-y taste). It is only in cases of extremely bad or good service that the size of the tip is changed. This might be enough of an incentive to satisfy the customer that the company will prosper as a result (in our community of altruists), but I really doubt it.

    In short, people can’t be trusted to tip accurately, or even to tip at all. If the product was chosen so that customer satisfaction could be measured and quantitatively charged for, I think that the incentive structure could work well. This, however, does not apply to many goods. Maybe the number of times a person uses a piece of software or how far the zygomatic muscles contract at a comedy theatre could be measured. If a way could be found to make the tips accurately represent customer satisfaction, the company just might be more competitive than the others. I don’t really know, this is just my opinion (after taking a single econ course).

    Best of luck with the whole profit-through-tip-only thing.

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