Fresh-baked business model works well

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Back in 2007, the band Radiohead released an album titled “In Rainbows” digitally with a pay-what-you-want scheme. Users could pay as much as they wanted for the album – or as little. Radiohead and its management have been quiet about actual sales statistics for the digital album.

Trent Reznor of Nine Inch Nails, however, was not so quiet about his pay-what-you-want album, titled “Ghosts I-IV.” He made $1.6 million by giving away the first nine tracks for free and asking for $5 for the other 27. Of course, Reznor had higher-priced limited-edition deluxe packages too, but the point remains the same – asking people to pay what they wanted worked.

Since, this model has gone on to great success with www.bandcamp.com – essentially a distribution site that allows bands to set a minimum price, then allows fans to tip as much as they want.

Jay Randall of Agoraphobic Nosebleed has turned Bandcamp’s model into an entire record label. In the last two years, his label, Grindcore Karaoke, has released over 200 albums, all for free – Randall pays overhead costs with merchandise sales, according to his recent interview with Forbes.

So people can profit online with nothing but a tip jar. This is great for people who can sell their wares in a digital format. They face no material costs; digital wares can be replicated infinitely at original quality at no cost. But this business model could never work for a business that relies on a brick-and-mortar storefront. It could never work for, say, a bakery.

Could it?

Missouri-based Panera Bread is a combination bakery and cafe with over 1,500 locations and 4,500 employees. This month, it will open a Panera Cares store in Boston, with no register and no cashier – just a donation box. This is the fifth Panera Cares location. Today, the four Panera Cares locations each serve 3,500 people per week.

Panera Cares started in St. Louis in 2010, asking for donations or volunteers in exchange for meals. The idea came from the SAME cafe in Denver, which was based on the OWEE cafe in Salt Lake City.

OWEE stands for One World, Everybody Eats. The cafe was founded in 2003, and it has served over 200,000 customers since. All of the food they serve is organic, and as much of it as possible is locally grown. Much of the food is donated by customers or grown by volunteers. In recent years, OWEE cafe’s owner, Denise Cerreta, started www.oneworldeverybodyeats.com, which contains help for anyone who wants to replicate her success.

It helps, of course, that the food is good. Their organic meals are diverse and change based on what is available. SAME cafe, fully named So All May Eat, does the same thing. Several other restaurants around the world have adopted a pay-what-you-will model as well.

Panera Cares, though, works from an existing menu with recommended prices. A more fixed menu makes the restaurant rely on the existing Panera infrastructure, but volunteers still help out behind the counter in exchange for meals.

This is the kind of system that brings out the best in a lot of people. It’s nice to see that human decency still exists, that when given the choice, people will still pay a fair price for their food. There are a few who walk away without giving anything, but they are few and far between, according to interviews with the owners of successful pay-what-you-will restaurants.

People can sometimes be sustained on the milk of human kindness. That could leave a good taste in anyone’s mouth.