Open Source Business, Part Two

Posted on October 5, 2005 by Dave Pollard

In Part One, I defined Open Source Business (OSB) as:

A radically transparent organization which (a) operates through open collaborative partnerships with customers, employees, suppliers, and the communities in which it does business, (b) shares its sources of information, designs, specifications and processes with them, and (c) allows open participation in and makes public all decisions it makes, all operating information, and all documents it produces, on a creative commons basis.

To remain competitive, at least as long as the ‘market’ economy remains in place, an OSB must be small enough to stay below the interest radar of potential larger competitors, or choose to operate on a zero- or small-profit basis, so that larger enterprises will be unwilling to match its price. So OSB is best suited to those who are looking for something other than big money in the way they make a living. That’s not to say an OSB cannot be very profitable. Profit, however, is not the intention of the business, and, because growth is not the intention of an OSB either, any surplus would normally be returned to the community and the customers. Not-for-profit businesses are not volunteer organizations. Its members earn a market-rate salary, but not more.

Businesses that are not-for-profit and which have no ambitions for growth are not of much interest to banks or investors, but may well be of interest to credit unions or fraternal financial institutions, which also operate on a not-for-profit basis (though generally they do aspire to growth).

Take a look through the standard industrial classification of businesses and other organizations — Agriculture, Forestry, Fishing, Mining, Oil & Gas, Construction, Manufacturing, Transportation, Media, Utilities, Wholesale & Retail, Financial, Hospitality, Recreation, Real Estate, Business, Repair & Professional Services, Education, Health, Government & Public Services — and you’ll have a hard time coming up with any business that doesn’t lend itself to operating as an OSB. The toughest are probably mineral exploration and pharmaceuticals, industries with a huge investment required and a substantial risk of having nothing to show for it. Just about any other type of organization, it seems to me (including government, transportation, health and education), could just as easily be community based, small, and not-for-profit, with what Jon Husband calls ‘wirearchy’ coordinating their actions with similar organizations in other communities. Size and hierarchy are unnecessary.

Industries like mineral exploration and pharmaceuticals could manage that risk the same way all other large risks are managed — by pooling their collective risks against failure, making the search a networked ‘joint venture’. The result for those in the risky businesses is the elimination of both profit and loss. For example, suppose there were 50 tiny pharma companies looking for an antiviral for Poultry Flu. All but one of the 50 invests $1M and comes up empty. One invests $1M and comes up with the answer. The drug is valued at $50M. All the small community governments (say a million of them) in the world split that cost by paying $50 each for an unlimited amount of the drug (cost of manufacture of the drug itself is usually negligible) and offer their members the drug for nothing — the $50 is part of the community’s health care budget. The $50M goes equally to the 50 pharma companies, eliminating their loss by covering all their costs. Nobody makes a profit, but no one suffers a loss, either. The people in the pharma companies get their standard ‘salary’ costs paid for, and the satisfaction of knowing they participated in finding a cure for a horrific disease.

In the comments and e-mails to Part One, readers asked three great questions: (1) How would an OSB be run, and wasn’t there a risk if it had no hierarchy, no one ‘in charge’ and responsible, that it could become anarchic and collapse? (2) Would we need to change our culture from today’s ‘enlightened self-interest’ (i.e. selfish) culture to an altrustic one before OSB could work? and (3) How would an OSB be organized and how does that differ from what I have called a Natural Enterprise? Taking them one at a time:

(1) There is lots of evidence that self-managed systems work, and work better than hierarchically-managed systems. But making them work is a learning experience, no different from any other. At first, OSB’s will have to draw on useful instructions from the commons on how self-managed enterprises can operate with a minimum of discord. Some will of course fail. But if there is a collective will from the members to make it work, it will generally find its legs in time. If you look at entrepreneurial businesses, there are probably more that continue in spite of having no self-management skills, by sheer will power, than there are entrepreneurial businesses that fail despite having good self-management skills. And in time, the new OSB educational organizations that emerge will teach the rest of us how to self-manage.

(2) I don’t believe people change, and since a culture is the collective beliefs and behaviours of its people, we cannot expect culture to change. I have worked with hundreds of (mostly small) business owners over the years, and while they wouldn’t complain about making scads of money, that’s not why they’re working. The joy comes from the sense of self-satisfaction, accomplishment, and pride that making a living with people you love brings. I’ve met quite a few open-source developers and participants since I started this blog, and they’re doing what they’re doing because they love doing it, not for altruistic reasons. There was a survey a few years ago that showed that most people who said they loved their work would keep doing it even if their salary was halved, while most people who hated their job would quit even if they didn’t get an expected raise. So I don’t think we need to change culture. But them I believe most people are inherently good, and want to do things that make life better for everyone.

(3) I think there are two significant differences between an OSB and a Natural Enterprise. The first is that a Natural Enterprise need not be transparent. An OSB must, by definition. The second is that a Natural Enterprise (a) is financed organically, rather than by investors or bankers, (b) is made up of intimates, people you love, not just acquaintances who share a common purpose, and (c) uses a disciplined up-front process to virtually eliminate business risk, before starting up. What they both have in common, most importantly, is the sense of responsibility they both accept that goes far beyond ‘shareholder expectations’, that handy excuse for amoral, destructive, unsustainable and irresponsible behaviour that personifies the behaviour of so many of today’s corporations.

In Part Three (maybe next week), the mechanics of creating an OSB, or transforming an existing organization into one.

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7 Responses to Open Source Business, Part Two

zach says:

October 5, 2005 at 17:31

Great description Dave. I see this as essentially using software to replace the management hierarchy. No more conventional hiring, collective strategy and vision, collective policies. Only “the queen bee” would control the actual computing architecture. I don’t think OSB has to be limited to small organizations. This model enables “organic growth,” in my opinion. Non-profit, maybe, privately held is a must.
zach says:

October 5, 2005 at 17:38

Oops. No conventional hiring. Collective strategy and vision. Collective business policies.
Paul says:

October 5, 2005 at 18:09

Hi Dave-You might be interested in Neuros Audio – They have embraced the open source model for the manufacturing of mp3/pv playersNeuros’ president, Joe Born, just posted an article on his blog – “How we got started with open source”Check it out here:http://open.neurosaudio.com/node/130
Evelyn Mitchell says:

October 6, 2005 at 13:01

Hi Dave,This article, about an open source programming contest, describes an environment for clear and rapid feedback on progress towards a goal which may be a useful thing to add to any open source business model:http://www.starchamber.com/gulley/pubs/tweaking/tweaking.html
medaille says:

October 6, 2005 at 13:26

I’m going to offer some “what if” questions. Before I do that I’m going to state that I disagree with the idea that people “don’t” change and that culture doesn’t change. I think you have it backwards when you make the statement that “since a culture is the collective beliefs and behaviours of its people, we cannot expect culture to change.” While that is true, I think culture is shaped much more by other factors such as the opinions of the dominant members of the society (the social elite). This is due to the fact that most humans operate under herd mentality and most people fail to put in enough thought and effort (or have enough knowledge) into defining their own ideas or even have enough time to put this into practice to influence others. The social elite have plenty of time and money and assistants that can be used to influence where the community is going culture wise. In our society (or all selfish westernized societies) this is clearly evident as the social elite live a luxurious lifestyle where money is not an object and goal for all people is then set to be to obtain the luxurious life achieved through the spending of money. The social elite also influence the population through other means. The social elite are capable of influencing both directly and indirectly through all forms of media. The social elite are far better equipped to influence changes in government than pure rational thought. The social elite are the only ones equipped to influence us through the culture of an organization (from the top down). Those factors (ideal lifestyle, control of the governmental promoted culture, control of media promoted culture, control of workforce promoted culture) are the influences that most people recieve on a daily basis. Other influences on culture are dramatic occurances on the world stage (or I should say the persons world, however big or small it is), changes in technology (how it influences our life), and I think way at the bottom of the list would be other people’s opinions (assuming that those people are in contrast to the more dominant forms of culture). In Dave’s thought process, this is because the brain receives those patterns constantly and it starts to define the world based on those patterns and it defines our actions and thoughts in terms of those patterns.I think it is clear that culture is one of the prime influences in ones life. I can tell because I can see it as time passes around me and it is clear that culture has changed over time and I can see that the people around me have changed in response to those changes in culture. I can even see the changes in people just after 9/11. I can see the changes based on having more conservative media available to the people. I can see how people have changed their opinions based on who’s the President at the time (not all people, but a good number of people none-the-less). I can see the changes in people after TV started to show only minorities as criminals in the news and only women and children as victims. I can see that masculinity as it applies to everyday life has been on the decline as people have stopped having to do masculine things (instead they are told what to do and submit never having to be proactive for themselves). I can see people that can only see the world from within their own current culture and can’t remember the past unless it is specifically pointed out to them.Now on to the “What ifs”What if this “company” is instead a community. Let’s say a decent sized community (city) of say 250,000 people. Let’s say that all the citizens of that community were the shareholders for the company and that all they wanted out of the company was to have a happy life for themselves and equally as important a happy life for everyone else. So what is different from what I described and what Dave has been describing as far as OSB and Natural enterprise? Almost nothing so far, the only difference is that the name was changed and the scale was changed. Instead of a company it became a community and instead of only people interested in the inner-workings of the business being the shareholders it became everyone (although that will be no different after a little more explaining).This company or community has a certain amount of resources available to it which is determined by the land it is in control of and by what it can import from other controllers of land. So by definition, all the shareholders are equally in control of the access to the resources. This assumes that all shareholders have an equal say based on the definition of their constitution or business model or whatever.Let’s say that in order to live a happy life you need at least two things. You need to have your necessities and you need to be able to live a fulfilling life. These are the two responsibilties of the community (company or government) to provide to its shareholders. This is a clear difference between our current culture (in terms of governments, communities, and companies) and it ties into the selfish/selfless culture differences that I’ve made in the past on comments to Daves posts. So this makes it clear that each person will have to do enough work towards the necessities of the community, although in the past Dave has posted that this would probably be limited to one day a week or some other relatively small amount of work. After that people would be allowed to work solely towards their own fulfillment. In order to do this they would need resources and since they are the minority holder in resources they would need approval in order to gain these resources. Most likely this would come under the responsibility of management, which is elected or given the position somehow by the shareholders, since not everyone is going to be voting for or against each individual request. Under this form of government/manangement there are only two ways to look at this. You can say this is good or bad with regards to me and you can say I want him/her to have or not have those resources. It doesn’t give people the option to be selfish, because the infrastructure will not allow it to happen. If people become selfish because they want more resources for themselves then everyone else will also prevent them from getting any resources and no one will have anything beyond necessities. This leads directly to the mindset that people will let other people have what they want as long as they aren’t taking too much or using it in a manner which negatively impacts them. This allows for both natural enterprise and open source business within the confines of the society.The other main thing is in how it interacts with others outside of the community. I will finish this off a little bit later though.
lavonne says:

October 10, 2005 at 02:44

Dave, I found this link on boingboing, and thought you’d be interested:http://openbusiness.cc/
Dave Pollard says:

October 15, 2005 at 16:28

Paul/Evelyn/Lavonne: Thanks for the links. OSB seems to have taken on a life of its own.Medaille: I think to the extent culture changes it is inter-generational. Each generation starts without many of the preconceptions that paralyze the last one, and it is in these spaces that change is possible, even though individuals’ beliefs and behaviours rarely do. Perhaps it is a good thing that each generation rebels against the last, making change possible. The only thing I quibble with in your model is its scalability. There is a reason why natural communities are small — because as any ‘organization’ gets larger it gets dysfunctional. No longer can all members have a say, so they have to appoint spokesmen (political or business leaders). Those spokesmen fall victim to their own biases and to the corruptibility that comes with their power. That’s why I believe that, while a community of 250,000 wouldn’t work, no matter how carefully constructed or how wise its members, a network of 10,000 communities of 25 people might work very well, and would be, I would argue, immune to all the temptations and dysfunctions that all of the large organizations in the modern world are prey to.