Sharing Economy Startup Favabank founder John Durrant is going to give you a new alternative to the quid!
This article is part of Your Allies’s entrepreneurship series. We profile entrepreneurs and their business concepts and give our view on their marketing approach. There’s always something to learn from real startup and business growth experience!
What was your motivation to set up Favabank and what mission have you set yourself?
“The idea for Favabank came out of a curiosity about money, where it comes from, and why the system can’t work without the need for never ending economic growth that we hear so much about in the news, but which is never explained. I discovered that money as we know it is primarily created not by the government as many think, but by high street banks as they make interest bearing loans for their own private profit. This way of creating money requires continual economic growth to be sustainable, so that there is ever more money sloshing around in the system to keep paying interest on the debt. When the system fails, as it did with the bank bail-outs of 2008, it is ordinary people who suffer while the banks carry on as before – privatising profit while socialising risk.
My inquiry into the subject of money led me onto ideas of alternative currencies, and how the way that a currency is created could have an effect on the relationships between the people who use it. Our mainstream currencies create a sense of scarcity of money which sets people against each other in competition for money while consuming the planet’s resources via the addiction to continual economic growth.
Favabank provides a currency, called a Fava, which is based on idea of mutual credit where a unit of currency is created in the act of doing something for someone else. The Fava is therefore a currency which is ‘earned’ into existence rather than ‘loaned’ into existence. The Fava doesn’t carry interest, it is open and traceable, and as abundant as people’s willingness to share and help one another.
The idea of mutual credit systems isn’t new and has been proven in a system known as LETS (Local Exchange Currency Scheme). Favabank builds on this idea with the emphasis on ease of use without a heavy administrative burden to manage. The ambition is for the Fava to become a widely understood and accepted means of transaction for everyday neighbourly favours and exchanges.”
Your Allies’s says…The issue of money being created by banks as debt, relying on ever more growth fuelling a consumerist society is one that is close to our hearts too, and one that more and more forward thinking people are becoming uncomfortable with. There’s still a great need to educate the public about how our current monetary system works and as John points out that it redistributes wealth from the many to a few but risk from a few to everyone. As the Fava is going to stand for real value, not carry interest and is going to reconnect communities, it’s going to be a fantastic way to educate people about the shortcomings of the system in place versus the benefits of a system where money simply fulfills its original purpose: to make trading between people easy.
What makes Favabank unique, unlike any direct and indirect competitors?
“With Favabank I have tried to tick all the boxes as far as creating an intuitive platform which allows people to do peer-to-peer trades of skills and items with built in mechanisms for ensuring trust amongst members, partly through vouching for one another’s authenticity but also through offering a social space for local people to have conversations and getting to know each other.
One obvious thing that makes Favabank different is the idea of developing an alternative currency, based on neighbourly good-will. But for me the main distinguishing factor is the way the whole venture is being structured as a cooperative which is owned by its members, for the benefit of the members. This will give people an experience they’re unused to, of having a democratic voice in the technology platforms they’re using. Instead of having new features of policies thrust upon them, they will have a right, determined by the legal structure, to have their opinions democratically considered.
There are several companies operating under the flag of sharing and ‘collaborative consumption’ who are heavily funded by venture capitalists seeking an ultimate exit. With Favabank I want to extend the idea of ‘sharing’ throughout the venture, creating an open and transparent experience for the membership, rather than having them treated as means to a successful exit.”
Your Allies’s says… Making sure all the right boxes are ticked and combining that with the alternative currency and a cooperative structure gives Favabank a strong differentiator. Overcoming the challenge of growing the user base fast, while establishing local critical mass, will still remain hurdles to address. We’ve seen that John is planning to use share incentives for 5,000 early members. That is a smart move for a startup with Favabank’s cooperative structure to get people on board, and committed early on.
What is your business strategy to accomplish your mission?
“Our strategy is to provide members with a means to acquire things of value in a special way that they would not find elsewhere: peer-to-peer skills, specialist help from a neighbour, access to everyday items. Through our local pages we aim to provide a space for people to get to know one another, build trust, and have fun.
It’s really all about scaling the membership up to a critical mass in each area so that we create opportunities to trade between members, activity on the website, and will then have the page footfall to be able to attract corporate interest in the sponsoring of local pages and discrete, locally targeted advertising.”
Your Allies’s says… The combination of aggregating local sharing options and a virtual currency to trade them is a concept we’ve not come across yet. Sponsorship and advertising will certainly be two interesting avenues to test once Favabank has established a sufficient level of scale, however are adding another target group that needs managing. Progressing from sponsorships to building more mutually beneficial relationships with businesses (i.e. running campaigns together) could be a great next step.
What marketing strategy have you put in place to reach your business objectives?
“I’ve been living with Favabank since 2010, but in terms of product lifecycle it is taking its first baby steps. The key to our success will be gaining sufficient exposure to allow us to scale. We have created a local page for every postcode district in the UK and our aim is to have local managers who will act as Favabank advocates and ambassadors to promote Favabank to members in their local areas and encourage participation. We are adopting a ‘freemium’ model where users can gain access and participate to certain levels on a free of charge basis, with the option to go premium for advanced services.”
Your Allies’s says… The ‘freemium model gets users testing a platform without asking for much commitment, and simultaneously allows Favabank to start educating them about a mutual credit system. Two birds, one stone – smart move indeed. Local managers can lend Favabank a very personal note which is great but will obviously require training, support and ongoing management by Favabank – a logistic challenge given the number of postcode districts. Still a promising approach when they can make it work.
What was your biggest challenge in developing Favabank so far and how did you overcome it?
“The challenges for me personally have involved an awful lot of plate spinning, trying to develop a sophisticated platform without any external funding while still needing to keep going with the day job and family commitments. As the birth of Favabank coincided with the birth of our twin children it has certainly required bucket loads of persistence and faith in the idea.
The biggest challenges are still ahead of us. We now need to engage the membership into the idea of setting up the cooperative together, as well as create a way to gain exposure, introduce new members, and giving them the confidence to participate and scale to nationwide memberships. We are still in desperate need of external funding and will be aiming to attract the right kind of investor once we have the cooperative legal structure in place.”
Your Allies’s says… Starting up a business of the scale of Favabank while holding up a day job and starting a family – apart from determination, discipline and belief in his idea we’re wondering whether John found another energy source to keep him going. If so, we and probably other aspiring entrepreneurs would be eager to know. The pressures of plate-spinning, bedding processes and components down and raising funding will ring true with many entrepreneurs. But with a business concept like Favabank’s we’re confident the reward will be well worth the sleepless nights.
Much success for raising funding and bringing it to life!
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