1123: Exit to Community

1. Overview

Exit to Community (E2C) is a strategic pathway for companies, particularly startups, to transition ownership and governance from a small group of founders and investors to a broader community of stakeholders. This community can include employees, users, customers, suppliers, and other key contributors who are integral to the company’s value creation. The fundamental problem E2C addresses is the extractive nature of the conventional startup lifecycle, which typically culminates in an “exit” through an acquisition by a larger corporation or an Initial Public Offering (IPO). These traditional exits prioritize maximizing financial returns for a narrow set of shareholders, often at the expense of the community’s long-term interests, the company’s mission, and broader social and ecological well-being. By providing an alternative to this model, E2C seeks to embed the company within its community, ensuring that it remains accountable to those it serves and that the value it generates is shared more equitably.

The concept of E2C builds upon a rich history of cooperative and community-owned enterprises, drawing inspiration from models like worker cooperatives, consumer cooperatives, and community land trusts. While these forms have existed for centuries, the term “Exit to Community” was popularized in the late 2010s by researchers and practitioners like Nathan Schneider and the Media Enterprise Design Lab, who sought to apply these principles to the modern digital economy. The rise of platform capitalism, with its tendency to create powerful monopolies and precarious labor conditions, created a fertile ground for exploring alternatives. E2C emerged as a response to the growing recognition that the venture capital-fueled model of Silicon Valley was not only unsustainable but also fundamentally misaligned with the creation of a more just and democratic society. It represents a conscious effort to graft the lessons of older, more democratic ownership models onto the innovative and scalable technologies of the 21st century.

Exit to Community matters profoundly for the future of organizations and the commons because it offers a practical framework for building a more regenerative and equitable economy. For organizations, it provides a way to secure their mission for the long term, foster deep loyalty and engagement from their stakeholders, and unlock new forms of value that are not purely financial. By aligning the interests of the company with those of its community, E2C can lead to more resilient and innovative businesses. For the commons, E2C represents a powerful tool for decommodifying essential goods and services, from digital platforms to local businesses. It enables communities to build and control their own infrastructure, fostering local economic development and creating shared wealth. In a world grappling with extreme inequality, ecological crises, and a crisis of democratic legitimacy, Exit to Community offers a hopeful and actionable vision for a future where businesses serve humanity, rather than the other way around.

2. Core Principles

1. Community as Rightful Heir: The community of people who contribute to a company’s value—including users, workers, customers, and neighbors—are its legitimate successors. This principle asserts that those who give a company life have a right to a stake in its future, challenging the notion that ownership is the exclusive domain of capital providers.

2. Shared Ownership and Governance: The transition to community ownership must be substantive, granting stakeholders not only a share of the financial returns but also meaningful power in decision-making. This involves designing governance structures that are democratic, participatory, and accountable to the entire community.

3. Equitable Value Distribution: The economic surplus generated by the company should be distributed fairly among all stakeholders who contribute to its creation. This principle stands in direct opposition to the winner-take-all dynamics of conventional exits, aiming instead to build shared wealth and economic security for the many, not just the few.

4. Long-Term Mission Lock: The company’s core purpose and social mission should be protected and preserved for the long term, beyond the influence of short-term profit motives. Legal structures and governance mechanisms are designed to ensure the company remains true to its values, even as it evolves and grows.

5. Financing as a Means, Not an End: Capital is treated as a tool to serve the company’s mission and community, rather than as the primary master. This involves seeking out aligned investors and utilizing financial instruments that support, rather than undermine, the path to community ownership.

6. A Phased and Intentional Transition: The process of exiting to community is not a single event but a gradual and deliberate journey. It requires careful planning, community organizing, and capacity building to ensure a smooth and successful transfer of ownership and control.

3. Key Practices

1. Stakeholder Mapping and Engagement: The first step is to identify all the groups that contribute to the company’s success and are impacted by its operations. This involves a deep analysis of the entire ecosystem, followed by a process of outreach and dialogue to understand their needs, aspirations, and potential role in a community-owned future.

2. Community Organizing and Education: Building a cohesive and empowered community is essential for a successful E2C. This involves creating spaces for connection and deliberation, providing education on cooperative principles and financial literacy, and fostering a shared sense of ownership and collective identity.

3. Designing Democratic Governance: This practice involves creating the formal structures for community control, such as a multi-stakeholder board of directors, member voting rights, and participatory processes for key decisions. The design should be tailored to the specific context of the company and its community, ensuring that all voices can be heard.

4. Legal and Financial Engineering: Choosing the right legal entity and financial instruments is critical. This may involve converting to a cooperative, establishing a perpetual purpose trust, or using novel structures like DAOs (Decentralized Autonomous Organizations). The financing for the buyout must be structured to be non-extractive and patient, often involving a mix of community investment, philanthropic grants, and aligned institutional capital.

5. Fair Founder and Investor Buyout: A key part of the transition is structuring a fair and reasonable buyout for the original founders and investors. This acknowledges their early risk and contributions while ensuring the company is not overburdened with debt, allowing it to thrive under community ownership.

6. Cultivating a Culture of Stewardship: Beyond formal structures, a successful E2C requires a cultural shift towards stewardship and collective responsibility. This involves fostering transparency, open communication, and a shared commitment to the company’s long-term mission and the well-being of the community.

7. Measuring and Reporting on Impact: To ensure accountability, the company must develop metrics to track its performance not just financially, but also in terms of its social and environmental impact. This information should be shared transparently with the community, enabling them to hold the company accountable to its stated goals.

4. Implementation

Implementing an Exit to Community is a complex process that requires careful planning and a phased approach. The journey typically begins with the founders and core team developing a deep conviction for the E2C path and socializing the idea with key stakeholders, including employees and early investors. A critical early step is to conduct a thorough stakeholder mapping exercise to identify the various communities the company serves and depends on. This is followed by a period of community organizing and capacity building, where the company actively works to educate and engage these stakeholders, preparing them for the responsibilities of ownership. This phase is crucial for building the social fabric and shared understanding necessary for a successful transition. Once a strong community is in place, the focus shifts to the technical aspects of the transition, including legal structuring, financial modeling, and securing the necessary capital for the buyout.

Several key considerations must be addressed during implementation. Choosing the appropriate legal structure is paramount; options range from established models like worker or consumer cooperatives to more innovative approaches like perpetual purpose trusts or DAOs, each with its own implications for governance and financing. Securing financing for the buyout is often the most significant hurdle. This may involve a combination of community fundraising (e.g., through a community share offering), loans from community development financial institutions (CDFIs), grants from foundations, or patient capital from impact investors who are aligned with the E2C mission. Throughout the process, it is essential to maintain open and transparent communication with all stakeholders, managing expectations and building trust. Success metrics for an E2C should go beyond financial returns to include measures of community engagement, stakeholder well-being, and the company’s adherence to its mission. Tools like the 7 Pillars framework can be used to assess the company’s readiness and progress on this journey.

5. 7 Pillars Assessment

6. When to Use

• When a company has a strong, identifiable community of users, workers, or other stakeholders who are essential to its value creation.
• For founders who are motivated by a deep sense of purpose and want to ensure their company’s mission outlives their own involvement.
• In situations where the traditional venture capital path and its exit imperatives are misaligned with the company’s values and long-term vision.
• For businesses operating in sectors where community trust and long-term relationships are critical for success, such as local news, social platforms, or food systems.
• When there is a desire to create a more democratic and equitable workplace, empowering employees with a real stake in the business.
• As a succession planning strategy for retiring business owners who want to see their legacy preserved and their company continue to serve its community.

7. Anti-Patterns & Gotchas

• Tokenistic Community Involvement: Granting the community a small, non-voting stake or a purely advisory role without real power. A true E2C involves a genuine transfer of control.
• Founder Abdication: Founders who see E2C as a way to simply walk away without ensuring the community is ready and equipped to take over. A successful transition requires a period of mentorship and support.
• Ignoring the Financials: Failing to create a viable business model that can sustain the company and provide a fair return to community owners. E2C is not a substitute for sound business fundamentals.
• One-Size-Fits-All Approach: Applying a generic E2C template without tailoring the legal, financial, and governance structures to the specific context of the company and its community.
• Underestimating the Importance of Culture: Focusing solely on the technical aspects of the transition while neglecting the cultural work required to build a sense of shared ownership and collective responsibility.
• Premature Transition: Attempting to exit to community before the company has found a sustainable business model or built a sufficiently strong and engaged community. The riskiest early stages are often best shouldered by the founding team.

8. References

1. Schneider, N. (2020). Exit to Community: A Community Primer. Media Enterprise Design Lab. https://www.colorado.edu/lab/medlab/sites/default/files/attached-files/exittocommunityprimer-web.pdf
2. Mannan, M., & Schneider, N. (2021). Exit to Community: Strategies for Multi-Stakeholder Ownership in the Platform Economy. Georgetown Law Technology Review. https://georgetownlawtechreview.org/wp-content/uploads/2021/05/Mannan-Schneider-Exit-to-Community-5-GEO.-L.-TECH.-REV.-1-2021.pdf
3. e2c.how. Exit to Community Collective. https://e2c.how/
4. Scholz, T. (2016). Platform Cooperativism: Challenging the Corporate Sharing Economy. Rosa Luxemburg Stiftung. https://rosalux.nyc/platform-cooperativism-challenging-the-corporate-sharing-economy/
5. Boyle, D. (n.d.). Community Shares. Community Shares. https://communityshares.co.uk/