How collaborative consumption is helping small businesses grow

A TaskRabbit worker delivers groceries. The website is part of a growing sharing economy.

Except for the super rich, frugal is the new black for many small-business owners and entrepreneurs. Doing more with less, but still succeeding, is the new American dream.

Roughly a third of Americans are living paycheck to paycheck. Of that group, about 66 percent are middle class, according to a recent study from the Brookings Institution. And given the recession's ripple effect, more consumers have turned to collaborative consumption as way to test the entrepreneurship waters. The trend sometimes is referred to as a sharing economy, which lets individuals pocket revenue by driving passengers and renting rooms. Popular start-ups in this space include Airbnb, Uber and TaskRabbit

"If you're living in New York City, you might have lost your job and you may be earning below the average income," said Melissa O'Young, founder of Let's Collaborate!, which connects people in collaborative consumption in New York City. "Using Aribnb to earn some money through rentals or by being a 'rabbit' on Task Rabbit can really help ends meet," she said.

Monetizing passions

For consumers, the sharing economy has created opportunities for individuals to monetize their passions.

Graphic designer Ozan Berke channeled his enthusiasm for typography and cartography to launch designerDad, a map-poster making company, in 2001. Twelve years later, he joined Etsy, the e-commerce platform devoted to showcasing handmade goods, and allowing makers to tap into the marketplace. The site also allows individuals to generate extra income with a flexible schedule.

Each listing on Etsy costs 20 cents. And Etsy charges a 3.5 percent transaction fee for each sale, according to its fees policy.

The move to Etsy has boosted Berke's business. "It's pretty much doubled or tripled my sales," said Berke. "Before that, I was just depending on my own website, designerDad.com," he said.

In 2013, more than 1 million Etsy sellers—mostly women running home-based businesses—sold more than $1.35 billion in products through Etsy and took home most of that income, according to Etsy's blog.

In May, CEO Chad Dickerson announced on Etsy's blog that the company would be moving to a new complex in Dumbo Heights, and committing to growing in Brooklyn, New York.

Helping small businesses

Beyond individual consumers trying to make ends meet, more small businesses are benefiting by dipping into the shared economy. Entrepreneurs can seek outside help to shave business-related costs, fill gaps in employment and promote sales. For example, online retailer GoVacuum.com uses Fiverr to outsource tasks and services. Fiverr is an online community of individuals wiling to do tasks for small sums of money.

Justin Haver, vice president of sales and marketing at GoVacuum, started using Fiverr in 2012, when his company needed to market and generate buzz for a $1 million gold-plated vacuum. Now he uses Fiverr and similar sites like Freelancer.com and Stinters.com to outsource various tasks.

"Let's say I had a $100 budget for a project. At $5 (a task), I can go in and have 20 things done with Fiverr," Haver said. "A marketing firm won't even laugh at me for $100. They won't do anything. So it's really the cost [savings]," Haver said.

But the collaborative consumption model isn't without controversy.

Some critics say the sharing economy among consumer peers glorifies the economic challenges of many Americans, who are struggling to find sufficient, full-time work. A collection of individual tasks, of course, doesn't come with retirement benefits or health-care coverage.

"I agree that we must not be overly evangelical," said Rachel Botsman, an expert on collaborative consumption. "There is a thin line between empowerment and exploitation, and we need to be careful that pricing mechanisms in peer-to-peer marketplaces do not get continually driven down so that the participants suffer," she said.

The sharing economy also has created a headache for regulators and local municipalities trying to figure out whether it's legal for individuals to conduct micro businesses without traditional permits and authorization.

This emerging economy, meanwhile, continues to grow. Botsman has pegged the consumer peer-to-peer rental market alone at around $26 billion, according to the Economist.

And collaborative consumption can offer some supplemental income and flexibility when times are tough.

"These marketplaces give people a taste of entrepreneurialism," Botsman said. "It is arguably the easy way to become a 'micro entrepreneur,' and that engages them in society and the economy in productive ways."

Written by Nia Hamm
Source: CNBC