We make several assumptions in this Strategic Plan
- The profit margin of open source enterprise that we propose will remain high even when competition enters.
- We have a market in the Cultural Disruptives population
- The social model of OSE Incubators and Campuses is sustainable
We explore each of these in turn.
Decreasnig Open Source Enterprise Profit Margins?
The main critique of our business model is that the solid value generation (profit margins) that we enjoy currenly will be reduced under the free enterprise assumption of competition. We invite such open competition, and we are proposing a paradigm where non-monopolistic production works to the benefit of everybody – as indeed should be obvious if one is not indoctrinated in mainstream economic paradigms.
Open source enterprises have a potential dilemma of decreasing profit margins because open IP allows other to compete on a more level playing field. This is not catastrophic, and can be negotiated successfully in various ways. This has been shown by Makerbot Industries, where their competitive advantage is sourcing and production efficiency for large volumes of machines, as well as by primacy/brand recognition/social capital within the community.1 This has also been shown by DIY Drones, which remains in business even though Chinese competitors can make the product cheaper.2 This is because of loyalty from a support and developer community – as well as loyalty that stems from local production in a California facility.
The OSE case is much harder, in that we use universally-available sourcing, we publish production optimization information, and we train our competitors.
How do we stay in business?
It seems that the short answer is social capital - people want our platform to succeed.. We do well with crowd funding, foundation funding, and product sales from early adopters. However, there are several strategic considerations that influence our success outside of 'good wishes' from the rest of the world.
As developers of products, we have economic primacy for a limited time. Currently, we are developing a milestone of $5k/day net earnings from collaborative production – with 8 people on the production team – so that we could generate $20k/month for bootstrap funding of our effort. However, we are open source and we publish both our products designs + business models (we are a Distributive Enterprise), and on top of this, we train our competitors. If our program succeeds, then the price and profit margin of the products will necessarily decrease as others join the producer pool.
The above is an assumption based on standard economic practice. I will consider two cases: one, where this assumption holds, and two, where the assumption does not hold and we retain the above profit margins.
CASE 1. Lowered Profit Margin Assumption
According to standard business thinking - if the assumption holds, then we can enjoy our primacy for a limited time only. That time is probably on the order of a year, as others join the producer pool and start competing businesses.
Our initial competitors will be other small entrepreneurs/early adopters, followed by larger corporations, perhaps when the small-scale, flexible fabrication reaches ~2% of the marker share - and larger market players begin to notice. Our strategy is to develop one machine at a time, produce it, and distribute the enterprise. Since our goal is distributing production, we are meeting our core objective. We then move on to develop the next product in line. Since the market size of the GVCS is at least $100B per year3, then a 2% global market share is $2B. If our financial goals for Factor e Farm are ~$1M/year in net production earnings, then we need to capture less than 0.1% of the early market. This should be easy over the next 3 years, as we continue to release new products, because of our primacy and social capital – such that we can self-fund the entire development effort on a shoestring budget – while still attracting several million/year in other volunteer support and from foundations - to achieve GVCS development goals (a modest ~$5M development budget).
This takes us to year-end 2015, by which time we have finished the whole GVCS and we enter the replication phase.
CASE 2. Profit Margins Do Not Decrease One needs to look at the details of the flexible fabrication business model and to the details of the GVCS platform to appreciate that the lowered profit margin assumption does not necessarily hold. Indeed, the sufficiency criteria for breaking the assumption are any single one of the following 3 points:
- GVCS machine production includes optimized fabrication and sourcing processes which cannot be simplified. Thus, it is not possible to produce the GVCS goods more cheaply.
- Certain features of the GVCS technologies make them unfit for mass production business models, and is therefore not pursued by large finance capital.
- Economic autonomy of regions – under the assumption that the GVCS achieves its stated goal of producing the infrastructure for a complete local economy - provides no incentive for any economic player to centralize and mass-produce. Instead, such autonomy tends to enable and refocus economic activity on regional prosperity, quality of life, and cultural/scientific advancement.
- We shift to a raplication and teaching capacity by 2016.
Point 1 requires careful scrutiny, as our efficiency comes not only from the efficiency of production – but efficiency of design-for-fabrication, sourcing cost reduction via technological recursion, low overhead via autonomous operation, and the social model of production.
Efficiency of production includes CNC machining and automation – an essential component of the GVCS. Ergonomics of production include proper work-flow design standards. Skilled personnel are key to effective production – in the form of a master fabricator being present during production runs. We are also very selective in our admission criteria – choosing only the most integrated top 99.9% of the human population.4
Design-for-fabrication involves using the simplest possible design from the fabrication perspective – while retaining the necessary functionality. This involves using easy-to-source stock parts, minimum parts counts, and minimum unique parts counts. We are able to achieve this type of design because typicially our designers are also the fabricators and users, so they have profound insights into the requirements for achieving the highest performance in the simplest possible way. This is a significant advantage compared to industry standards, where the designers are not the engineers, the engineers are not the gabricators, and the fabricators are not the users.
Our sourcing costs can be lower than a typical manufacturing due to vertical integration of metal production into our operations via the induction furnace and metal rolling processes. This is calculated to produce heavy machinery (>2000lb weight) at 3/5 of the market cost of stock steel, including labor.5 Sourcing is further simplified by design-for-fabrication.
We can enjoy low overhead by autonomous operation. We are able to produce energy, food, fuel, housing, and other technologies. We can reduce the costs of electricity and fuel, which can be produced on-site produced on-site via access to the GVCS, including solar concentration, biomass gasification, biogas, biomass pellets, modern steam engines, and wind turbines. We also reduce the cost of the built environment by using the construction equipment of the GVCS. As a small enterprise community of 30 people in 2015 and 200 later on – we minimize organizational complexity as part of our structuring.
Our social model of collaborative production, an extension of collaborative consumption, is perhaps our most significant reason for us remaining competitive far into the future.6 This model involves a master fabricator (management) who works with 8-16 apprentices. These apprentices are volunteers who are interested in becoming makers and entrepreneurs, but who are looking for more meaning than standard industrial or mainstream jobs. This model involves cross-training of the apprentices in fabrication and other skills. These apprentices engage in production runs under the guidance of the master fabricator – such that the apprentices gain skills and training in exchange for their labor in production.
It should be pointed out that the collaborative production model will be most effective when these supporting functions are provided: (1) curriculum and augmented reality training materials for cross-training; (2) video support to produce instructionals and augmented reality training materials; (3) product research and development to continue development; (4), design, CAD, CAM, and programming support for development; (5) branding, marketing (blogging, social media), strategic collaboration, strategic planning, and enterprise replication support; (7) physical infrastructure support, and others.
The social model of collaborative production may be used to fund staff on site. We are organized under a collaborative production contract – instead of having employees – to simplify organizational structure. Our enterprise model will shift to replication by year-end 2015, so it is important for our staff to be involved in hands-on production runs – while earning to cover their costs.
One cause of concern could potentially be that huge finance capital is thrown by another major corporation to run us out of business. We can train them. It is unlikely that a large economic agent – due to their large overhead, labor, managerment costs - and diversified skill requirements – will be able to compete with us.
Further, we design products for flexibility, user maintenance, and lifetime design. This is directly opposed to the planned obsolescence business model that mainstream companies endorse. Therefore, we will carve a niche for those people who need lifetime-design equipment. If the mainstream producers decide to produce lifetime design eqiupment, they will have to change their business model, which would mean disruptive change – possibly an enlightened economy of abundance. Major psychological upheavals would occur in the human population.
Basically, if large corporations were to adopt our business model, that would be a win-win situation – as the world adopts a mindset of post-scarcity. That is aligned with our core positioning of creating the open source economy where advanced, collaborative, open source production increases innovation 10-100 fold and pressing world issues are solved one by one.
Would there be a tendency for certain small producers to grow to a gigantic scale if the GVCS is developed? It is our assumption that if production of GVCS tools is distributed, the tendency for any particular player to monopolize production is limited because with open competition, centralization is risky.
The implication of free enterprise is that regions begin to build up their economies independently of global geopolitics.
Our business model relies on constant innovation. We plan on teaching entrepreneurs to replicate the OSE Campus concept. We can then generate revenue by open franchising of our brand under specific support agreements. This is intended to be our revenue stream from 2016 on, where we enjoy a 2 hour work day to create a modern standard of living, and we interact economically with the outside world primarily to replicate our efforts. The details of these arrangements need to be worked out. We foresee Factor e Farm expanding in size and increasing its training capacity to a campus for training 12 groups (teams of 4 in each group) the first year of operations as a replication facility (2017).
The first replications would be on site upon graduation of a first 2-year class – where the class itself would work to exapnd the infrastructure on site at FeF. The 12 trained groups would then start their own facility elsewhere on the scale of 1 year upon purchasing land upon graduation – with capitalizationi assistance from OSE. The new facility would begin a training program within 2 years of leaving FeF training – to train 12 additonal groups. Therefore, each campus generates 12 more on a 4 year time scale (2 years for startup, 2 years for immersioin training of new 12 trained groups) to generate. Thus, by 2019, there will be 12 facilities worldwide, 144 by 2023, and 1700 by 2027. That's a s far into the future as we want to look now.
We have cleared $25k last year in product sales in 2011. Now we are building our productive infrastructure to net $20k/month by 2013, and $80k/month by 2014. To date, we have several product requests per month for beta-release products without advertising. These are not ready for mainstream adoption as they require thousands of hours of testing for general adoption by the rest of the world. Initial data has shown several replications and 3 other producers began selling machines.
We are a diversified hybrid organization of for-profit and non-profit activity. The 2015 milestone involves a single OSE Campus built at Factor e Farm, with $80k/month earnings from production earnings, $20k/month from True Fans (Totaling about $1M in revenue) and about $4M in nonprofit sector funding (see Revenue Projections elsewhere).
As an organization, we aim to grow to a ~$15M annual budget by 2018. The sources for this are scaling of production to 5 productive facilies within the USA, each for approximately $1M/year net. The rest of the funding will come from foundations and high net worth individuals. We are currently building our non-profit and for-profit infrastructure.
Cultural Creatives and Cultural Disruptives
Sociologists Anderson and Ray estimate that 25% of the US population are Cultural Creatives.7 At OSE, we are making the assumption that less than 1/100th of the Cultural Creatives falls into a deeper change-maker category – the Cultural Disruptives. These are people who are willing to engage in disruptive change based on not only the awareness of – but also a pro-active stance for - building deep and lasting solutions to pressing world issues. We estimate that the fraction of the population that falls into this category is approximately 1 out of 1000 people, or 0.1% of the world's population. We believe that this section of the population has cultivated the necessary mindset to obtain the required skill set for engaging in the OSE Campus model. This means that these people have the intrinsic motivation to seek and organize with other like-minded Disruptives – who also find sufficient purpose and meaning in such a lifestyle. As such, these are people who are likely to sever societal expectations and attain an integrated lifestyle. This means that our market size is approximately 1 million people in the developed world.
I would like to emphasize that in the 4-year development phase of the GVCS from 2012, our target audience is the developed world. This is because the technology base necessary to develop the GVCS is not found in the developing world. Once the GVCS is developed in full, it will have its own bootstrapping technological capacity to build advanced, appropriate technology in the world – therefore allowing the concept to be replicated in areas of the world which currently do not have modern industrial infrastructures. Therefore, we predict that it will be appropriate to take the technologies to the 'developing world' in 4 years, not now. Many people currently suggest that we should work in the developing world now. This is inappropriate unless a certain level of basic industrial infrastructure support exists in a given location – such that when the machines break down, there would be a way to service them. This would bypass type 1 errors suffered by many third-world aid programs.
We are proposing - eventually - an industrial bypass – or technological leapfrogging – for developing countries. Our approach is developing the enabling technology in the Western World. Thereafter, we will be in a position as an organization to assist disruptive entrepreneurs in the developing world.
Community Model: Social Sustainability
The FeF community is presently a research and development community for the GVCS. The intent of this community is to become a virally-replicable (5,000 communities of 200 people within 2 years of 2015). If we assume that the GVCS tools are developed fully, the next question is whether the social model is sustainable. A sufficency criterion for the social sustainability of such a community is:8 1. 2 hours per day work requirement, 5 days per week. If a modern standard of living can be achieved with 2 hours of work per day, then adoption may occur based on sufficient provision of creature-comforts and the ability of the people to pursue higher purpose in their free time. 2. Engagement in some form of integrative mind-body-spirit practice towards becoming an Integrated Human.9 Integrative practice is consistent with Daniel Pink's concept that the deepest human motivation is a desire for autonomy that enables one to pursue mastery – consistent with higher purpose.10 Since 7% of the US population practices yoga, the integrative practice condition should not be a block to building a sustainable social infrastructure for an OSE-style community. 3. Design of the community as an inter-generational community based on couples and families, as in the rest of society. This indicates that 1/8 of the population will be non-productive children, and the rest will be adults. 4. Interesting life. City centers are favored by many people because of the diversity of activity and exchange. The OSE Campus concept is built by extraordinary people and integrated humans. Therefore, it should be easy for somebody to live an interesting life in such a setting – as centers of cultural and scientific progress. 5. Open door policy for positive outside relations. Campus doors will be open for visits, workshops, training, education, and other forms of exchange with the outside community. Every OSE Campus should have a positive economic effect on surrounding areas because it is in itself an autonomous, economic powerhouse. We expect that the OSE Campus will transform surrounding communities to local food systems, autonomous fuel and energy provision, sustainable housing, robust economic productivity, and general cultural and scientific progress. 6. 'Normal' Lifestyle. By current standards, an autonomous community is an extreme phenomenon. Because the community is organized around a low-hour work week and multi-generational, family-centered design – the communities will not be particularly different than other places. This is especially true if we assume that a world renaissance is forthcoming within a decade as peoples' consciousness expands via access to the internet. It is expected that OSE Campus-type communities will by their nature have a significant effect on surrounding communities – on simple economic grounds of enterprise replication by those who see the OSE Campus for themselves. This type of feedback, along with the intrinsic motivation of the community participants – will make the communities a hub for innovation. It may seem that 'transforming the countryside' is an ambitious goal – but it appears that this will indeed happen naturally.
Autonomous Communities and Security
It appears that one major preoccupation of humanity is protectionism – such as evidenced by large standing armies. This needs to be questioned, as alternative negotiation of security issues is desired over the standing army – if our goal is to build peaceful, productive communities.
One typical critique is that peace will never happen - as humans are subhuman - and human relationships easily degenerate into armed conflict,whether in adults, or in children as in The Lord of the Flies. Is thare an alternative?
We are proposing material security – combined with the re-weaving of the community fabric via relocalization - as the ultimate solution to the global security issue. Has any solution more robust ever been proposed as a sound theory or practice?
If a community is able to produce all of its essential needs for thriving, then by design – the tendency towards resource conflicts is mitigated. An autonomous person – and only an autonomous person – is able to negotiated with others in a healthy way. The same applies to communities.