Starbucks is renting me
I’ve never had a cup of coffee in my life. Not one. In fact, the only time I ever go to Starbucks is to use their restroom or their wifi. Needless to say, I’m not a profitable customer for Starbucks, nor am I a valuable member of their “Community” in any way.
Yet I’ve personally owned Starbucks (SBUX) stock for much of the past decade.
In theory, my training as a financial analyst makes me capable of determining the value of a company like Starbucks even if I’m not a consumer of their products. And as an investment, you could argue this decision made sense (as has just about any stock purchase over the past decade).
But a few important things stand out about this position in my portfolio:
- I receive absolutely no utility from owning this stock other than financial reward
- Starbucks receives absolutely no benefit from me owning their stock, as I’m not a customer or an evangelist
My ownership stake is purely a 3rd party transaction.
The Incentive Mismatch
This mismatch of interests between shareholders and companies is not unique. Looking deeper across my personal equity portfolio, the majority of companies that I own are not products or companies I care about in any way, shape or form. I have no personal attachment or loyalty to most of them, I don’t follow them on social media or engage with other stakeholders, and I don’t do anything to influence the outcome of my financial stake.
Conversely, and unfortunately, I don’t have a financial stake in ANY of the products, services or assets that I actually use on a daily/weekly basis, despite having a real passion for, and emotional attachment to, these products. These companies and services would absolutely benefit from me having a financial stake in their success, which would lead me to evangelize even further and utilize their services even more than I already do. Similarly, I would benefit financially and psychologically from owning a piece of the companies that I am actively helping to grow. Frequent flier miles and loyalty rewards come close to achieving this effect (I fly Delta as often as possible to earn miles, and I shop at Whole Foods & Amazon to get cashback on my credit card). But those programs only provide me with small personal savings, and my rewards are independent of the success of the company itself. Whereas an ownership stake would incentivize me to look beyond just my own use.
Take a look at my actual schedule on Saturday this past weekend:
- My wife and I took our kids to breakfast at Gulp, one of our favorite local establishments (privately owned)
- We played at the public park (no ownership)
- We made the kids Nutella (privately owned) and Jelly sandwiches with Pirate Booty (B&G Foods) for lunch
- We packed both kids into my Volkswagon Passat (public stock available in the US only as an ADR) and listened to the “Hello Everybody” kids CD provided by Music Together (privately owned company that provides my daughter’s music class, which we also pay for)
- We took our kids to their favorite indoor rock-climbing place, Sender One Climbing(privately owned)
- We came home and watched a Planet Earth II documentary on jungle animals (BBC documentary, privately financed)
- We played Osmo on the Ipad (Osmo is VC Funded)
- After the kids were asleep, I opened a bottle of Erath Pinot Noir with my wife, one of our favorite vintages (Privately owned)
I happily spent money on a variety of products and services in order to enjoy a 13-hour day with my favorite people in the world, while doing our favorite activities. We gained immeasurable happiness with no financial reward. Simultaneously, on every corner surrounding our adventure, others were drinking coffee at Starbucks and potentially impacting my financial future. This is a complete economic failure of incentives.
Tokenizing the World with Blockchain
One of my favorite concepts born from the advent of blockchain technology is the idea of “Tokenizing the World”. For those not familiar, tokenization essentially creates fractional ownership of real assets that can trade freely on exchanges via tokens on the blockchain. Often, these tokens have code written into them called smart contracts that determine legal and monetary rights.
There is a school of thought that all assets, services and businesses will eventually be tokenized. The advantages are undeniable: Lower fees, fractional ownership, faster deal execution, free market exposure, larger investor bases, etc. But perhaps most importantly, it aligns business owners with their customers. This is not dissimilar to what we’ve already seen with ICOs. ICO Investors give companies money to build products that the investors themselves ultimately want to utilize, thereby potentially giving the investor both a financial reward (as increased demand for the service leads to an increase in the value of their token), and an emotional reward (the positive utility gained from using the technology). Companies are leveraging their communities of passionate users to also fund the growth of their company.
Looking back at this past Saturday, I would happily combine my emotional reward with that of a potential financial reward. Unfortunately, each of the products or services used throughout my day were either completely uninvestable by me, or required me to buy stock in larger conglomerates that don’t isolate the product/service that I actually care about. One day soon though, via tokenization, these companies will be able to sell ownership stakes directly to me, or I’ll be able to buy a stake on an exchange at any time after discovering their services. In fact, these companies may require that I own a stake (token) in order to even use their services. I’ll be able to create a portfolio that mimics my actual life, and become a member of different communities built specifically around a shared interest in these same companies.
Until then, someone please alert me if people stop drinking coffee.
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