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Podcast #54 - Analyst Barbara Gray and The New Era of Economic Abundance

Financial analyst Barbara Gray discusses her recent research report The New Era of Economic Abundance and predicts how the sharing economy can disrupt incumbent business models. 

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Adam: Okay. Hi everybody. And I have the pleasure of talking with Barbara Gray who is an analyst with Brady Capital Research Incorporated and the website bradycap.com. Wonderful to have you on this podcast. Well, I’d love to dig into the details about what you’ve done with this fantastic research about the on-demand economy –


Barbara: Hey, Adam. It’s great to be here.

Adam: The sharing economy and the New Era of Economic Abundance, a specific report you’ve obviously poured a lot of time and effort into. But before we jump into that report, I’d like to find out a little bit about how you got to where you are today.


Barbara: Sure. Okay. Just as background, I’m an equity analyst by training. And I’ve spent over two decades analyzing a wide range of companies and sectors. And specifically, I launched Brady Capital Research back in 2011 to focus on researching companies that are actually making a  positive difference in the world.


Adam: Excellent. Positive difference in the world. We need more companies like that.


Barbara: We do. And that was the problem because what I discovered – basically, my thesis was I was looking at social media and how it was going to be an exposing disruptive force. And so what I saw happening is that influence was being democratized. And so companies that were truly authentic, transparent and engaging would be able to really leverage social media because these companies have heart and soul. But the problem was I couldn’t find enough companies with heart and soul to build a real portfolio.


Adam: Wow. That’s indictment on some of the modern era that we are in with these bigger companies but hopefully we’re going to see a shift. I believe that this new era of economic abundance with the sharing economy is going to help push that direction as long as we don’t end up with a whole bunch of companies doing clever predictability analytics and social engineering. But that’s for a different podcast and different discussion. I’d like to dig in more around the report that you’ve spent this time on. And I got a few questions if you don’t mind. I’ll just fire off a few and get your opinions.


Barbara: Sure.


Adam: So specifically, you’ve talked about in your report about this New Era of Abundance. How have companies like Uber and Airbnb defined the traditional economics in achieving this accelerated value creation?


Barbara: So. I’m an analyst. An analyst, you basically want to look for what’s going to happen in the future. And what I realized when I started looking at Airbnb is that these companies are defined by traditional economic principles of scarcity. And this doesn’t usually happen. And I sort of figured out, you know, how has Airbnb been able to get to a valuation of 25.5 billion? How has Uber been able to get to a valuation of 51 billion? And these companies are less than a decade old. And the reason is because basically they’ve been operating in this New Era of Economic Abundance.


And so I looked at sort of supply and demand and what’s happening. And if you look at supply, there’s a book called The Long Tail by Chris Anderson and what’s happening is these companies are building a long tail supply. So their inventory growth isn’t limited by traditional time or capital constraints because they’re accessing what I call long tail of latent or underutilized physical and human capital.


And on the demand side, these companies create what I call “the blue ocean of demand” and this refers to the book Blue Ocean Strategy. And their revenue growth isn’t constrained by existing demand because they’re accessing new blue ocean market demand which expands the total addressable market beyond traditional categories. So, you put these two economic principles together and it’s incredibly powerful.


Adam: So what do you see are some of the drivers of that? Is it a change in attitude by the customers out there? Is it generational change? What would you say are some of the big points of difference that exist now that weren’t there 5, 10, 15 years ago?


Barbara: That’s a good question. I think what’s happened is – especially after the recession, we’ve seen sort of the convergence of three structural shifts. The first obviously is technology. You’ve got – well, first, you have social networks. Companies like LinkedIn, Twitter, Facebook, they allow people to basically build bonding and bridging capital with each other. And then on top of that, you’ve got everybody has a smartphone these days and everybody has apps. So that is really the technology.


And then you’ve also got the online payment systems. So that’s really what created this ability for companies, yeah, for companies and for individuals to transact sort of below the depths of corporate commerce.


And then you’ve also got societal. A big thing is people no longer are looking just for a functional product or service offering. They want something that makes a difference in their lives. They want to make and find meaning. And so people go looking for companies that bring them an emotional experience. And then also, they’re interested in what companies actually stand for. And the companies that do have heart and soul, they can create this psychological attachment that their customers will have to them. And this is how companies are really thriving in this new social era.


And then the last one is economic and this is especially with the recession. People need alternative means to earn an income. And that’s why these companies are so powerful. It’s because they allow people to use their underutilized personal assets, exchange goods and then just provide their own expertise or time.


Adam: Awesome. Really very comprehensive. One of the things that stands out for me in this shift and you mentioned earlier around e-commerce and the ability to transact between peers. What about legislation in keeping up with some of these shifts? I know with payment gateways, you traditionally have one too many transactions, my shop, lots of buyers. And now with the sharing economy and marketplace platforms, you have three people, the buyer, the seller, the marketplace owner. And that has a different payment process and a different set of possible legislation around it along with insurance. Have you come up against some of the nuances that impact payment processing and legal insurance?


Barbara: I think that whole issue of regulatory and legal is huge. And that’s why there are so many players that are starting to get into this from the legal community, from the insurance community and the background check community. And what’s happening is these companies – you know, they’re founded by rebels with a cause. These companies are trying to push the boundaries. They want to make things accessible. They want to create community and they want to create sustainability. And they don’t necessarily want to play by the old rules. So they’re aggressively lobbying for change. And what’s happening is that people are voting in favor of them and they’re bringing down long-time lobby groups and they’re making regulatory change.


The perfect example of that is Prop F by Airbnb. You know, that got passed. The bill got defeated. And then also recently in New York City, Uber was successful against the whole thing from the city of New York from stopping their ability to expand. So it’s really the democratization and being led by these rebels with a cause. And it’s fascinating. And I think what’s happening is you do have to worry about safety. You have to worry about privacy issues. You have to worry about all these things. And regulation will – it’s catching up but it will take time. But I think it will get there.


Adam: Yeah, I agree. Specifically, you mentioned these lobby groups and companies like Airbnb and Uber have economies of scale now particularly cash flow and capital behind them in order to level the playing field when it comes to lobby groups. How much capital has been invested in these top 75 companies that you’ve researched in your work?


Barbara: Yeah. So when we did our – we published our report in the middle of September. There was $15.3 billion, I believe, raised by these top 75 companies. Since then, there’s the additional 200 million raised. So we’ve had $15.5 billion being raised. But what’s interesting is the $10.8 billion of this or over two-thirds has been raised by with three big heavyweights, Uber, Airbnb and Lyft, in the past six quarters. So it’s really the big ones in the most recent amount of capital that’s been raised.


Adam: So one might say well all the big opportunities have now been eaten up. I don’t believe in that statement. So for those who might be thinking well, I’ve missed the boat, what would you say are some of the most attractive opportunities for entrepreneurs and investors right now? Are they the same, same? Or are they specific niche or vertical industries that are ready for disruption?


Barbara: Well first, in order to look at that, what you have to do is you know – the question is how do you classify these companies? What I think is – normally, you categorize companies by industry, by sector or people are calling them the Airbnb of X or the Uber of Y. But in the report, we actually go sort of to the hard evidence and we looked at what’s really driving the economic characteristics of these companies. And it’s the source of their value origination and that’s the long tail. So in the report, we actually distinguished between sharing companies which are about the sharing of assets, goods and expertise and then purely on-demand companies which are really just about convenience. And then, within each of those categories, we came up with 10 different verticals.


So you have to ask – the first part of the question is – you have to then look at what the different verticals are. And then based on our research, we actually figured out which verticals are the most attractive. And the most attractive that we found are the corporate asset sharing vertical. And those are companies that allow companies to really efficiently use and make use of underutilized or latent or vacant corporate assets. And I think that’s a huge growth area. And the way they do that is they bundle, unbundle these assets in terms of time, space and use.

Then the other area that I think is a huge growth area is professional services. Those are companies like HourlyNerd or the education services companies. And what they’re doing is they’re creating a long tail in people that have expertise. So those are sort of the two big areas that we see for growth. So that’s where – if I was an investor or if I was an entrepreneur, that’s where I’ll be putting my time and my money.


Adam: Yeah. We’re seeing the same as far as the types of marketplaces that are building on our platform. So I definitely agree with that. How could leaders prepare for this new era of economic abundance then?


Barbara: I think we have to do – and I can go back to my days as an analyst. So back in January 2008, I was working as a sell-side equity analyst and I was covering a company called Yellow Pages. And that was a company that was in Canada. It was the largest directory, Yellow Pages, directory page company. And I was actually one of the first analysts to downgrade it to a sell and that was because I saw increased structural decline risk because I saw that all these online disruptors were leading to a threat of change in the competitive landscape. And you know, that was the case because five years later, the stock trade down to the pennies and they filed to restructure.


And so having that in mind, with that framework, I’m looking at what’s happening now. And back then, that was about the democratization of content. Now we’re seeing the democratization of physical and human capital. So whereas last decade it was about disrupting traditional telecom and media companies, this time, I think these companies are going to disrupt a wide range of sectors. Almost every sector I think could be disrupted by this. And so I think the question that leaders have to do is they have to first, they have to familiarize themselves with the new era of economic abundance and realize how these companies are creating value by building long tails, by creating blue oceans. And then look at their own competitive position and come up with a strategy in terms of thinking about how can they leverage their own physical assets, their own customer capital or their own physical capital, their employees themselves to really create and access these new value creator.

Adam: And you’ve mentioned the economic abundance, scarcity, physical, the human capital side of things. How do companies create an abundance of the demand side? They may have the assets available and the human capital, intellectual capital that they want to make available. How does the demand get driven from your opinion?


Barbara: I think the main way they do this, and this actually goes back to the research I was doing five years ago, is they have to have a real social mission. What struck me and what I love about the sharing economy is that a third of the companies we looked at, actually 26 of the 75 companies, actually have a social mission. It was either around accessibility, sustainability or community. And what that allows companies to do sort of from a business perspective, from an investment perspective is that they don’t have to just look at being in a single category. They can actually expand their total addressable market beyond the traditional category like Uber is doing, like Airbnb has the potential to do. That’s the secret. If a company is just, if it’s really just out to maximize shareholder value which is traditional doctrine and it’s all about profit, that’s not the way they’re going to create blue oceans. So the way they’re going to do it is by having this greater purpose and coming up with innovative ways to bring this to life. And I think one of the key ways they can do that now is through the sharing economy.


Adam: This is really a breath of fresh air to hear you speak like this, companies with heart and soul. Well how does a strong and authentic stakeholder foundation convert into this high velocity of social capital that you are talking about?


Barbara: Well really, it just comes down to your customers, to your employees, to your suppliers. Do they actually care about what you’re doing? Do they believe in the values that your company does? Do they believe in what your company stands for? Because if they do, they’re going to act as unpaid ambassadors for your brand and they’re going to talk favorably about you whether it’s on Twitter, if it’s on LinkedIn, if it’s on Facebook, if it’s on Instagram, if it’s on Pinterest, whether it was on Glassdoor. And this is really the way you harness the power of goodwill. And it used to be word of mouth. Word of mouth is now viral and that’s what we’re seeing.


Adam: So true. Slide seven where you have the abundance economy pyramid, can you explain those three levels of the pyramid for us?


Barbara: Okay. Well just to give you a bit of background, so back in May 2014, I traveled to New York City with my husband and my then baby at that time. And when I used to go to New York for business, I used to stay at the Hudson Hotel. I had a corporate expense account. I don’t have to worry about things because I was on my own. When you travel with your family and you’re boot strapping your business, it’s a very different scenario. So I was trying to figure out how we can stay in New York. And I decided for the first time to try Airbnb. And it was an amazing experience because we stayed at a guy’s condo on the Upper East Side and instead of taking a taxi, we traveled by Uber. And what I did is after this experience –


This was when the dots really connected for me because what I’ve been doing the last five years is I’ve sort of been pioneering research into this field I call Abundance Economics, first looking at abundance of demand through as what you said heart and soul companies, companies that democratize influence. Then I looked at companies that could democratize connection, companies like LinkedIn and Zillow that are all about data and they’re creating abundance in supply. But then what I realized when I discovered Airbnb and Uber, personally experienced, I was like oh my gosh. These companies are creating abundance of both supply and demand. They’re connecting the two and they’re making money. And it was so powerful. And so that inspired me to write a LinkedIn article which I published in June 4, 2014 called Social Capital: The Secret Behind Airbnb. And that article actually went viral and it’s viewed now, it’s been viewed by over 395,000 professionals on LinkedIn.


And what I think – going back to your question, what I think really resonated with people was that I came up with this concept of the abundance economy pyramid. And in it, I showed sort of the three levels of abundance, the base of it being abundance of demand, the second tier being abundance of supply and the peak being abundance of supply and demand. And they showed the years that took companies in each space, how many years it took them to reach 10 billion in valuation. Your readers can’t see it but they’re welcome to go to the post. But basically, it took Starbucks 32 years, Chipotle 18 years. Those are both companies with heart and soul. It took LinkedIn only 10 years but then Uber and Airbnb, it took them six years and five years. And what I saw is that the higher you go up the pyramid, the increased rate of disruption and more importantly from an investor’s perspective, the increased rate of value acceleration.


Adam: We’re going to have another followup podcast on this. We’ve got lots to talk about and the time is drawing nigh when we have to wrap it up unfortunately but I have just a couple more questions I’d like to just sneak in here. And you’ll have to make sure that I pronounce this correctly. I think you know what’s coming then. You coined the term Copianomics?


Barbara: Yes.


Adam: So that’s to describe the signs of choice under abundance?


Barbara: Yeah.


Adam: Can you talk a little bit about that, the supply and demand?


Barbara: Yes. So I was trying to figure out after I published that article – since then, Airbnb has gone up to 25.5 billion, Uber has gone up to 51 billion. And I’ve been trying to figure out, how is this happening? And what I realized is the key is economics. And I haven’t looked at economics for two decades since I studied for my Chartered Financial Analyst exam. And so I looked up on Wikipedia and economics is defined as the science of choice under scarcity but that doesn’t apply anymore for these companies because they’re about abundance. So I decided to coin my own term. And copia in Latin means abundance. So that’s why I called it Copianomics. And really, it talks about as I said before the two economic forces. On one hand, you got supply, the long tail supply. On the other hand, you got demand and creating blue ocean of demand. And these companies are creating, they’re defying traditional economic principles of scarcity.


Adam: Well, the last two questions and in line with the previous answer, what are then the underlying economic fundamentals that differentiate the on-demand economy and the sharing economy?


Barbara: The biggest thing is that the on-demand economy is about creating a long tail of unskilled labor. Whereas in the sharing economy when you’re dealing with human capital, it’s about creating a long tail in skilled labor whether it be expertise in terms of a profession or a trade. So the big concern I have about the on-demand economy is that while it is about tech-enabled convenience, I’m concerned that the workers could be exploited, the workers being the ones that are providing the services. It could really be a race to the bottom if price becomes the only factor. So what I prefer are the companies in sort of the professional services and the trade services that provide an empowering platform that really creates legion for the suppliers not necessarily the on-demand part.


Adam: Yeah. And I think it’s the smart industries that identify that it is the key to their survival and maybe powering those marketplaces because they’re on the side of the community of practice. The expert, the industry expert are the persons who put their heart and soul into learning a trade that advocates for that and they’re not just interested in the race to the bottom because that destroys their industry.


Barbara: Exactly.


Adam: I think that’s a really key takeaway to take. All right. My last question. Thinking about your past and closing your eyes and thinking deep into your memory, what was the one thing that somebody said to you that had an influence that resonates with you now? It doesn’t have to have anything to do with this topic or what we’re discuss now but something that just sticks in your head around your professional and personal growth as a person. What was that one thing that they said to you that even now you stop to pause and go oh I’m so glad I learned that?


Barbara: That’s a really hard question. I had to think about that for a second. I think it goes back to grade 11 when I was in high school and we had to write a report and it was about the states made but it was about the North American Free Trade Agreement. And I remember I wrote this report and it was for the special group. And anyway, this person said this was an excellent report. This student is going to go places. And I think that’s what really stuck with me and that gave me the confidence to go and pursue my Chartered Financial Analyst designation after university even though it’s only 15 percent females. It’s what gave me the conviction to try to get to Wall Street and I got there and I got my training. And then it’s also what gave me the courage to try to move up from being an associate to being an analyst because again that’s a big step. And then also probably, the conviction five years ago to try to do my own thing and launch Brady Capital Research so I could truly focus on what I was passionate about, so I could do something that really fulfilled me and made the best use of my talents.


Adam: Well, we’re very thankful for whoever that person was who motivated you because you’ve put together some fantastic research in the report that we’re going to make available through this podcast and blog post. I really, really appreciated your time, Barbara. It’s been fantastic. As I said, we’re going to have to do this again because you’ve got an absolute treasure trove of amazing things that we need to share and get out there to people who are interested in this space, the on-demand economy, the sharing economy. There are various ways we can call it but I do agree that industries are getting ready for a big shakeup across the board and across geographies. And you’re at the point, the end of the spear as far as doing the research that people are going to really need to dig into. And bradycap.com is where we can connect with you. Can you share your other social media and personal connection information so that those listening can write that down?


Barbara: Sure. If you want to reach out to me on email, I’m barb@bradycap.com. You can reach me on Twitter. It’s @barbcfa. Or you can find me on LinkedIn. Just search for Barbara Gray under Brady Capital Research. And my website is www.bradycap.com.


Adam: Awesome. Well, thanks again, Barbara. It’s been wonderful to talk to you and we will do it again.


Barbara: Perfect. Thank you so much, Adam.

Download Barbara Gray's Research Report "The New Era of Economic Abundance".

Topics: The Crowd Podcast Interviews

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