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CouchSurfing International has stood apart from comparable collaborative consumption housing services (like Airbnb or Inhabit) for its non-profit orientation. Instead of charging for rentals - a model that's attracting a lot of investor interest - CouchSurfing users all stay for free. It has more of a do-gooder feel, arranging housing as a global public service rather than as a business. This is why it was so surprising to some when, last week, CouchSurfing certified as a for-profit corporation. But CouchSurfing is trying to thread a tricky needle of social responsibility and growth using a new legal category.
First, a little history.
The legacy of "corporate responsibility" is mixed at best. An outcome largely of the 90's anti-globalization movement, the discourse offered a way for companies to turn public concerns about their effects on the world into advertising copy. The truth has always been - at least in the modern era - that corporate social irresponsibility is written into the law itself.
In 1919, Henry Ford was running his Ford Motor Company according to a strange philosophy. He sought to minimize prices and increase his own labor costs by paying workers above industry standard wages. But when Ford tried to suspend shareholder dividends in favor of new factories where he planned to employ more workers and cut the cost of his signature Model T even further, two of his shareholders sued him. The Dodge brothers, who would found their own company you might have heard of, contended that Ford should have to operate the company in the interests of shareholder monetary value, not for larger social values.
And they won. In the Michigan Supreme Court case Dodge v. Ford Motor Company, the court ruled for the plaintiffs. Although the case doesn't get cited a lot in current corporate law, it established in law the singular motive of publicly held US corporations: shareholder profit. So when an organization like CouchSurfing that is ostensibly dedicated to international understanding before profit incorporates, it's understandable that eyebrows go up. The case that might be more relevent (even if not controlling) here is Revlon v. MacAndrews & Forbes, in which The Deleware Supreme Court ruled that, when a company is about to be sold, the directors' responsibility to their shareholders boils down to one thing: get the highest price.
Let's imagine the standard start-up route and we'll see the kind of double-bind CouchSurfing is in. You start with a good idea, attract high-value employees cheap with equity offers and big investment cheques, you hit the Initial Public Offering (IPO) and everyone gets paid, then if you're lucky, a bigger company will try and buy you for even more money. CouchSurfing wants to attract the high-level programming talent and investment capital that comes with a good idea (and is necessary to realizing that idea), but they don't want to risk losing control of the organization's mission to shareholders. What's an ethical start-up to do?
What CouchSurfing did is register as a "B corporation." B (or Benefit) Corporations compose a new class of US corporations, dedicated to social as well as financial good. Five states have passed laws governing B corps, and a bill is moving in California now. Although there are other benefits, the biggest one seems to me described on the B Corp site: "As a B Corporation, founders and other mission-driven shareholders can hold directors accountable to consider the impact of operating and liquidity decisions not only on shareholders, but on all stakeholders." By building responsibility and accountability mechanisms into the founding of the corporation, the B Corp framework seems substantially different than the "corporate responsibility" cons.
As part of the B incorporation, CouchSurfing accepted $7.6 million in venture capital funding, something they never could have done previously as a non-profit. Combined with the site's already 3 million-large membership base, the site seems ready to take it to the next level. However, the directors maintain CouchSurfing will always be free for participants. Here's hoping the B Corporation framework helps them, and maybe provides a model for start-ups facing the same conundrum.
Comments
robino wrote on 09.01.11, 6:39am:
Because the focus of the article is on B-corp, there are quite some points that have been left untouched about Couchsurfing itself. Let me fill in some gaps.
First of, Couchsurfing as I see it has almost nothing to do with this what you call collaborative consumption Malcolm. It is about doing away with that model of production and consumption. It is hospitality. It is allowing a stranger to be your guest. It is l-i-f-e. It is sharing your life with someone for maybe a day, maybe a couple of days, and sometimes even longer. For many of these people, traveling is NOT a product, neither is hospitality, neither is sharing. It is how we live.
That's why there is no money involved, that's why they like non-profit, this is why many members inside the community are currently so upset. Because we want to do it the other way: without the profit, without the money. And because we know it can be done.
When Airbed&B came about, years after, well that's a different story. That's rather a deepening of the concept of bed&breakfast and short-term rentals, mixed with hospitality only in some cases, enabling people to make money out of the extra space or housing they got. It's a different market. It's what my dad does because he thinks that way, and my friends whose rents are too high. But it's not what the young travelers do, which is the Couchsurfing/ Hospitality network target-group.
Couchsurfing never had much competition, apart from the beginning when hospitality club was the "leader". But within 3 years after starting CS really became the platform for everyone to use, and it grew and grew, and the idea of hospitality networks spread... New platforms started, such as the commercial https://www.tripping.com/ that slowly starts to form a real threat (notice how CS started to look like tripping since last week?) and ex-volunteers of HC and CS started a democratic organisation/ association called http://bewelcome.org (which so far never became a real threat to CS because of its lack of outreach).
Couchsurfing though never wanted to make the step to transform the organization into a democratically run organization, or to make the source-code of the website available for people to hack on it. They said they wanted it to become a charity (for tax-purposes) but never got that up and running either, and after years of inaction and numerous expensive retreats, decided to go for a "sell-out", when their member-base was finally big enough.
Around 90% of CS-members probably don't really care about that. They just want to have a good website to find hosts and guests, but the others (the ones who speak up the most) do care about it. They are critical about their data that has just been sold to a new corporation. Their data, their profiles, their personal references, their personal information, their friends that they once provided to a non-profit association and not to a corporation with CEO's and investors.
Having said all this, we'll see where this goes, and how it will affect the networks. For one, the success of Couchsurfing really depends on people like me who are "active hosts" inside the big touristic cities. And with this enormous growing member-base of Couchsurfing that we've seen for the past years, it has become really hard for these hosts to keep up with the amount of requests they get. And this announcement of Couchsurfing turning into a profit-organization (why is that legally allowed anyway?) might be a final drop for quite a few of them.
Adrian wrote on 09.03.11, 12:45am:
First of all, IS SIMPLY THAT LOTS OF DONORS AND VOLUNTEERS WERE DOING WHAT THEY DID AND NOW THEY HAVE BEEN STRIPPED OF ANY PARTICIPATION. It is a Fraud.
An active community that constructed one of the most succesful social network, in terms of participation and cooperation now can only watch corporations running the website and NOT BEING EVEN ALLOWED TO DONATE OR PARTICIPATE BECAUSE THIS FOR PROFIT CORPORATION CAN NOT TAKE DONATIONS. For people who just used the network might be cool, but for the people who were involved in constructing it WILL BE NOT COOL, REALLY BORING!
Kasper Souren wrote on 09.03.11, 2:47am:
I wrote something smart that was deleted. Fortunately Robin wrote something smarter :)
Neal Gorenflo wrote on 09.03.11, 6:35am:
Sorry for deleting your comment Kasper, it was accidental. We get a lot of comment spam and unfortunately deleted your comment when deleting a large bit of spam. We're working on measures so this is less likely to happen again.
-Neal Gorenflo
Publisher
Andrew wrote on 09.06.11, 2:13pm:
Robino, there is quite a bit of the story behind CS missing in your post. As Casey Fenton's blog posts have been making clear for the last few weeks, CS's avenues for incorporating as various kinds of non-profit had been exhausted. They were told they could not set up as a 501(c)3 (according to the IRS, "As your members are not required to host or to travel, any cultural exchanges that occur are independent of your control and supervision.")
I agree that the best thing to do is look at what the venture capital money goes to buy, what impact the company's new "not-strictly-for-profit" articles of corporation will have, and how the community benefits as a result. Continued openness by CS' management and employees will be essential. In the short term, threats by CS hosts to leave the exchange service out of a sense of betrayal are very premature.
proconsc wrote on 09.06.11, 2:57pm:
Andrew, what about leaving the states? is really 1 million? what about asking for money to the community as wikipedia guy did? i think he should have done that before. I can see other options too.
Andrew wrote on 09.06.11, 4:42pm:
Proconsc, the Wikimedia Foundation can take donations because the IRS has not challenged their 501(c)3 status as a non-profit. Without that status, donations aren't a viable option to stay in large-scale operation. Their hand was forced by regulators, and this is the alternative to a standard just-for-profit corporation that offers the best fit for their human-focused philosophy. In the end, wherever they are based, being a non-profit got in the way of their core mission.
More people need to watch the videos that explain the reasons: http://www.couchsurfing.org/bcorp as well as the rundown of what a B Corp does and doesn't do that is linked in the article.
proconsc wrote on 09.07.11, 1:12am:
What about looking for a proper fiscal sponsorship and take donations??? It is much better than just going for profit and not allowing people to participate in the communitiy anymore.
robino wrote on 09.07.11, 4:14am:
Andrew, your response reflects the official Couchsurfing-spin with which I cannot agree. In my perspective as an outsider, the move from *non*-profit to *for*-profit is a result of five years of mismanagement. Couchsurfing fell for the corporate trap years ago, in my eyes due to a lack of understanding how community can work.
There are quite some argument against the official Couchsurfing-spin. You can find some of them already at http://couchwiki.org/en/FAQ_about_CS_B_corporation For me though I'd like to see this choice from a more historical perspective: If Casey (the Couchsurfing initiator) wanted, we could have made the swap to a community-based organization right after the 2006 crash. Instead he chose to close that road.
Casey's closest people over the past four years have very little experience with setting up models for community-organizing and commons and instead are far more "business-minded". The result: there is so much good-will in the network we're talking about but instead of leveraging that, it mostly has been exploiting that.
With the result of lots of highly skilled people stepping out of the organization over and over again, throughout the whole period since CS 2.0 (2006; when it was the community putting the pieces back together after Casey dropped the database-tables) until Casey finally had the right pyramid model in place and no-one would argue the fundamentals anymore.
In other words, it has been a choice to *not* go this way years ago and instead of that, Casey chose to create a small group of people around him that he thinks he can trust, while what he also could have done is putting himself at the service of the community and taking that as his base, as a starting-point and as his end-point.
And I think this is also sign of our times: we have great ideas to facilitate sharing, but (within our generation) there is very little experience in bottom-up self/collective-organization, especially since we are not talking about only software-development here, and even more if we start scaling up. But the tools are here and with the right attitude and commitment, scaling would also have been possible.
And unfortunately this culture of "me first" and this lack of understanding of how we can move along with community and create democratic community-based organizations is something that is a lot more widespread. In other words: what do we actually know about sharing? How much do we really care about it? How much is it just spin for our own self-benefit? How authentic are we?
So. To answer your question: I think B-corp is no more than spin and I don't take this spin for one bit: it's the perfect scape-goat! There is nothing wrong with staying a not-for-profit company without the no-tax status or even creating a whole new type of association, like Bewelcome has done (that did set up a democratic community model), or whatever else is possible. It's been a lack of commitment to community that is the engine here and why Couchsurfing now is officially for-profit. (And I am happy we don't have to argue about the real intentions of Couchsurfing anymore.)
Michael wrote on 09.07.11, 4:39am:
Andrew,
Casey only started communicating to the community via his blog a few weeks ago, long after the decision to go 4-profit had been made. How were revenues exhausted - since 7/8% of new members were getting verified. The community knew little about CS finances since they were usually posted 12 months or so after the fact, and only after much internal pressure to do so. Casey never came to the community and argued that revenue was exhausted. Indeed, we know little of CS expenditure (lawyers fees, travel, salaries), since it was kept from members. The B-Corp standards are meaningless, and only binding in five American States. The standards and so-called audits are a joke. We have no idea who owes what proportion of CS any more. It can be sold at any time, B-Corp or no B-Corp.
Mike
Marcellus wrote on 09.16.11, 1:01pm:
1. B corp is not the same as a Benefit Corporation.
2. In an interview with Spanish newspaper El Pais the CEO stated that IPO is actually the goal.
Marcellus wrote on 09.17.11, 4:00am:
Couchsurfing's design is starting to look a little dated so they definitely needed some cash to compete against well-funded commercial startups in this interesting travel by staying with locals sector.
I'm happy that they have stuck with their initial focus and gone with the B corp model where they can raise the capital they need to grow. 7.6 million should be plenty of money to get everything looking sharp again!
I had never heard of B corporations before I saw their video posted this week. Your history provides some interesting perspective. Hopefully more businesses will develop around this B corp model.