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The Entrepreneurial Free Agent and Dejobbed Small Business R&D Lab
Sohodojo, 'War College' for the Small Is Good Business Revolution
The Nanocorp, Atomic Theory and the Network Effect - Part 2
Organizing Principles and Scale in Small Is Good Business Webs...

[ Small Is Good Business Webs and the Network Effect ]

Related pages:  [ Part 1 - The Nanocorp and Atomic Theory ] [ The Nanocorp Vocabulary ]

Overview: This two-part article describes the BIG IDEAS for small business being explored at Sohodojo. In part one, we used an analogy to atomic theory and the composition of molecules to describe the network structure underlying Small Is Good Business Webs. Here in part two, we use a scenario-based case study to examine how the Network Effect can be harnessed by Small Is Good Business Webs, not only to compete with conventional businesses, but to open new markets based on the unique strengths of Small Is Good Business Webs.

Small Is Good Business Webs and the Network Effect

Business Webs Explained
Don Tapscott and company's 'Digital Capital' is a Sohodojo must-read.
Digital Capital, the best source on business web business models.

In the first part of this article we reflected on the unquestioned cultural belief that starting small and growing large is the absolute basis of the Law of Business Success. We suggested that entrepreneurs of the 21st Century must suspend their belief that Small Is Good Business Webs cannot achieve the results of conventional business ventures.

We described Small Is Good Business Webs as extended networks of collaborating 'atomic' individual entrepreneurs – called nanocorps – and 'molecular' groups of nanocorps – called dejobbed small businesses. We shared the belief that Small Is Good Business Webs will scale through aggregation and cooperation.

We concluded part one of this article by identifying an emerging new class of entrepreneurs for whom starting small and growing large is less important than making enough money for as many people as possible. These new kids on the Free Enterprise block will achieve their entrepreneurial vision by building businesses that serve the entrepreneurs' needs both to enjoy life and to make a contribution to solving social problems. These forward-thinking entrepreneurs carry the 'genes' of new organizing principles that will help shape the future of business in the 21st Century.

In part two, we continue to develop the ideas underlying the Small Is Good Business Revolution and to further explore questions including:

  • What about scale? Won't Small Is Good Business Webs fail because they won't have the production efficiencies required to be competitive?

  • Won't a conventional business always beat a Small Is Good Business Web in addressing increasingly ruthless and global Real World markets?

  • Won't conventional businesses do a better job than a Small Is Good Business Web filling high-volume orders from large customers?

  • Small Is Good Business Webs aim to tap into markets using story-driven, game-oriented e-commerce. Isn't this approach limited to one-to-one Internet sales?

  • Are Small Is Good Business Webs inherently limited to small-scale markets? If so, aren't they limited in wealth creation opportunities for their entrepreneurial participants?

Our answer to such concerns is "No. Small Is Good Business Webs can respond to scale issues and be competitive in the New/Network Economy." Let's turn to a hypothetical scenario case study to see how this will work.

More Than One Way to Feed a Squirrel

Dude Goldberb hearalds the forthcoming Business Web

Sohodojo is working to develop as a demonstration Small Is Good Business Web. Through our Open MBA Practicum Project we'll engage graduate business school students to help us envision this innovative business web, and through competitive small business development grants we will build its initial network of collaborating nanocorps. In The Nanocorp Primer #4, we've described our strategy for engaging U.S. Enterprise Communities and Empowerment Zones for showcasing this innovative approach to entrepreneurial self-employment.

Here we'll contrast the soon-to-be's Business Web to a hypothetical big business competitor, Mammoth Squirrel Feeders Incorporated. (Note: To the best of our knowledge, Mammoth is not a real company in the squirrel feeding industry.)

The Business Web is a decentralized, distributed value chain. It owns no factory or production equipment. Its means of production are (at the time of the hypothetical order) 200 independent nanocorps who build squirrel feeders as one (or all) of their business activities.

Each Builder is certified through the business web's self-organizing, mentor-based training program. Each Builder owns the means to participate in the business web's network; at a minimum, an Internet appliance such as WebTV, a portable workbench, product jigs and the basic tools to produce low-volume, high-quality items within the product line.

Other nanocorps and dejobbed small businesses also participate in the Business Web. Each non-builder web participant is a trusted member of's collaboration network, contributing to functions such as product design, jig-making, training, marketing, distribution and sales. The 'dot-com' core company of the Business Web – itself a dejobbed small business – creates and maintains the collaborative network's Internet-based value chain. It also creates and oversees the public web site that is among the coolest, most fun sites on the Internet.

Mammoth Squirrel Feeders Inc., on the other hand, has a 12,000 square-foot factory with $420,000 in high-speed, programmable woodworking machines and 18 employees, including foremen, managers, executives, etc. Its web site is typical 'electronic brochureware'. On the rare instances when Mammoth gets an on-line order, the order is considered more of a disruption to its business routine than it is a valued sale.

The Big Box Retailer 'Big Sale' Scenario

Let's look at how each of these businesses might respond to a large order from a typical Big Box retailer. Big Box retailers, such as WalMart and Home Depot, are often a source of erosion of the local small business base leading to job losses both in local retail and manufacturing. We've selected this scenario for two reasons. First, it lets us show how a Small Is Good Business Web can compete successfully against a conventional business. In addition, we show how Big Box retailers can become a valued outlet for the business web's locally-produced products.

THE SCENARIO: A salesperson calls on and lands an initial order for 10,000 squirrel nut-boxes for the BigBox Home Center chain. BigBox wants each of its 500 stores to stock 20 nut-boxes. The deal is non-exclusive and there is the potential for this to be a high-volume recurring revenue stream. It is estimated that this distribution channel could amount to a 75,000 unit per year account for an effectively marketed product line.

Let's look at how the Business Web and Mammoth Squirrelfeeders Inc. would each respond to this business opportunity.

Mammoth's Response to the 'Big Sale' Scenario

Mammoth's order response is 'business as usual' with its conventional approach to manufacturing and sales. For Mammoth, a production unit represents:

  • fulfillment of one unit of customer need/demand

  • return on costs of goods and fixed expenses as profit

The salesperson returns to the factory with the order. Mammoth's employees order the required raw materials then run the factory machines to produce the quantity of units needed to fulfill the order. These undifferentiated product-units are then packaged, 20 units for each of the 500 BigBox stores, and shipped.

Upon delivery, Mammoth's squirrel nut-boxes go on the shelves at BigBox along with two other squirrel nut-boxes the chain carries. At best, Mammoth's products are differentiated from its competitors based on price, physical attributes of the box and whether or not the box is in stock. Once the order is filled, Mammoth's account exec calls BigBox once a month to solicit restocking orders.

Yawn... (don't go investing your post-Enron 401K retirement funds in this one).'s Response to the 'Big Sale' Scenario

For, on the other hand, this order sparks a wave of dynamic activity. This order is not a single big order to be executed by a monolithic factory. Sure, product sales mean meeting customer needs and making profits. But for, products represent something qualitatively different than they do for Mammoth. For the Business Web, each product is:

  • a unique 'story delivery packet' in the story-driven dimension of the business web, initiating a customer relationship and drawing the customer into a role-based experience as an important part of the on-going life of the business web, and

  • a 'game chip' in the game-oriented dimension of the business web, engaging the customer to care as much, if not more, about their "team's" performance than the customer's initial desire for the product purchased.

Hypercapitalism Exposed
Jeremy Rifkin's 'The Age of Access' is a Sohodojo must-read.
Jeremy Rifkin's The Age of Access is a provocative look at the dynamics of hypercapitalism, the commodification of culture, as our daily lives become a pay-as-you-go world of experience. Scary in some ways, yes, but essential to 21st Century entrepreneurial strategy.

For the physical product is secondary to the customer relationship. The customer isn't buying a product to own as much as he or she is gaining access into an experience-based community. You'll see the story-driven and game-oriented dimensions of role-based business web participation in the order fulfillment description that follows.

Among the first threads of activity, the 200 certified Builders each have the option to participate in a builder-retailer matching task that associates one or more local builders with their local BigBox store. This starts the team-building which will contribute to the Network Effect of the business web's sales strategy. The business web's certified Builders begin building nut-boxes.

Next, the marketers swing into action. The company's web site announces the new retailer relationship and prepares for the 'games to begin'. Individual BigBox store managers each receive a "Welcome to the Business Web" orientation package. They learn about who will be building their boxes, where the materials come from, how the profits will be distributed, opportunities for in-store and community-based promotions, etc. Store-specific product displays are described and then prepared to be delivered along with the local BigBox store's squirrel boxes order.

The BigBox store folks feel that something different is happening here. They are being drawn into the experience/community of just as their customers soon will be too.

The local store-matched Builders produce and deliver the initial order units. Strict materials and construction quality standards ensure the brand. Each product has a serial number. This serial number is the key to the story-driven uniqueness of each feeder and to its 'playability' in the games of the experience/community.

Let the Storytelling and Games Begin...

Danish Futurist on Storytelling
The Dream Society tells all about storytelling in 21st Century business...
In The Dream Society, Rolf Jensen of the Copenhagen Institute for Futures Studies explores the dynamics of affluent economies of the 21st Century where markets shift from need-driven information to story-driven imagination. [ Nanocorps in the Dream Society ]

Product inserts, prepared and updated by the Builder, describe the 'Who, How and Why story' behind each feeder. Where did the wood come from? Who made the feeder? What are they doing with the profits from their participation in the Business Web? The answers to all these questions imbue each of the otherwise-identical products with a unique story that brings the product to life.

Customers drawn to the in-store display at BigBox outlets will have the option of buying a physical product off-the-shelf immediately, or of purchasing a serial number voucher to be redeemed through the mail or on-line at the web site. Using the voucher, the story-composing customer will custom order a unit with all its 'story attributes' individually selected. The product, through its attached story (whether off-the-shelf or custom ordered), becomes a connector of people to people. Contrast this product differentiation strategy with Mammoth's conventional offering.

Once the customer returns the mail-in registration, or better yet, goes on-line to the fun and fascinating web site, the product serial number allows the customer to participate in the 'scoring system' games of the business web. Dynamic data mining of the product sales history – a kind of 'open book management' of the marketplace – lets the customer become caught up in the friendly competition of the business web.

Great Game
Great Story
Jack Stack's 'Great Game of Business' is a great story... a Sohodojo classic.
The Dream Society came early to the employee-owners of Springfield Remanufacturing Corp. They learned to play the Great Game of Business by opening up their books and their minds. Read the book and visit the Great Game of Business web site to see a great business built on a great story!

The game dimensions of the Business Web revolve around such questions as: How well is North Carolina supporting its local solo and family-based entrepreneurs? How many squirel boxes is my local BigBox store selling in relation to other stores in the chain? How many boxes are BigBox stores selling versus arch-rival MegaBox? How many units has my favorite builder sold? How is my favorite charity doing raising funds for its mission while supporting local entrepreneurs by selling squirrel feeders?

Through story-driven, game-oriented marketing based on Who, How and Why rather than Mammoth's conventional How Much and Where approach, the Business Web will revolutionize the squirrel feeding industry. Customers will be active participants in an engaging experience/community. The Business Web, including its growing loyal customer base, will sell more squirrel feeders than anyone ever imagined possible.

The Network Effect and Wealth Creation

Network Effect Explained
Network Effects is a feature article in Issue 27, 21 Rules for the 21st Century, of Fast Company...
Network Effects is a feature article in 21 Rules for the 21st Century, Issue 27 of Fast Company.

Given these two distinct approaches to servicing the opportunity of the BigBox account, which business do you think will sell the most squirrel boxes over a sustained period of time? We believe the Business Web will blow Mammoth and similar conventional competitors out of the water. And this is the key to the entrepreneurial success for individual business web participants. Each nanocorp taps into the overall network effect of the Business Web, its brand, and its accumulated business and marketplace knowledge.

We believe that we can generate so much brand value in a well-designed and well-managed story-driven, game-oriented Small Is Good Business Web that members' sustained participation will be truly wealth-producing. Sure, each designer, builder and value-chain nanocorp in the business web will receive a sale-specific share of the per-unit transaction profit. But given the lightweight nature of the business web's flat organization, its property-lessness, etc., we expect to generate substantial retained earnings.

The business web's retained earnings will be distributed to the folks who made this success possible. The wealth generated won't go into the pockets of a few already wealthy folks who were lucky enough to have invested early in a 'sure thing'.

Each certified and active nanocorp in the business web will earn shares in the commonwealth of the business web above and beyond the unit transaction profit. Over an extended period of participation, these non-transferable shares will have significant value. Commonwealth share value will come from the network effect of the business web's experience/community.

We envision an entrepreneur who participates in the business web over a number of years to be able to cash out all or some of his/her nanocorp's share in the commonwealth to help pay for a college education, to provide a house down payment or to create supplemental retirement income. Nobody will become excessively rich, but we expect a lot of good people to gain significant personal advantage from creative and loyal business web participation.

From Vision to Implementation

Dude Goldberb challenges you to get involved in the Business Web

So, are nanocorps and their inherently small size associated with limited entrepreneurial return and inconsequential marketplace impact? No, we don't think so. Nanocorps are small but their aggregate behavior as measured by marketplace success and wealth creation can be anything but small. We've described some of how we see this working. It's time to make it real.

Sohodojo is the applied R&D lab envisioning and developing the Small Is Good Business Webs business model, its associated software platform to support the network of value-chain collaboration, the e-commerce engine, and the mentoring/apprenticeship programs necessary to build a Small Is Good Business Web. Our domains of social action are the rural and distressed communities where solo entrepreneurs and working families are seeking sustainable participation in the New/Network Economy.

Sohodojo is spreading the vision and marshalling the collaborators we need to build the initial Small Is Good Business Web businesses. Our committment to Open Content and Open Source licensing will ensure that the fruits of our R&D efforts are freely available and maintained for the common good of this new class of independent business.

To achieve our mission, Sohodojo has four interrelated change insurgency 'fronts' active in the Small Is Good Business Revolution. (See Change Insurgency in a Shamrock World in the Making Changes theme issue, #48 Aug/Sep 2002, of The Permaculture Activist.)

We are seeking involvement from:

  • future-thinking researchers – there is much to do and collaborators working in the same problem space can truly change the future
  • business schools – through open practicum projects and collaborative research to help develop the appropriate template business plans, business contracts, and marketing materials that Small is Good Business Webs will require
  • key technical developers and the Open Source community – to help build the Small Is Good Business Webs' Internet-based platform, that is the software infrastructure, necessary to support large, fine-grained distributed value chains and their associated story-driven, game-oriented marketplaces
  • interested future-thinking entrepreneurs and local communities – to participate in the field tests of demonstration Small Is Good Business Webs
  • providers of web-based project management services – to support our organizing efforts to bring together initial stakeholders and entrepreneurial participants for the field tests
  • and, equally important, we are seeking funding and research support – for our independent, applied research and education mission

As our Open MBA Practicum project gathers momentum, the Small Is Good Business Webs business plans and marketing tools will be prototyped. As our collaborators in the software development community come together, we'll extend the application frameworks we've been offered by the Argonne National Labs at the University of Chicago to develop the Small Is Good Business Webs software platform. And, the prototypes we've been developing at Sohodojo will blossom into the software platform for demonstration business deployment. The prototypical Small Is Good Business Web will move from vision to field test implementation.

The New Science of Networks
Barabási's 'Linked: The New Science of Networks' is a Sohodojo must-read.
Linked: The New Science of Networks reveals the emerging universal principles underlying Life – biological, cyber and social. As this book reveals, the ideas energizing Small Is Good Business Webs may not be rocket science... but it is science. And there are plenty of reasons to believe that Small Is Good Business Webs will be formidable competitors in 21st Century markets. You don't have to believe us, let Barabási explain it to you!

Sohodojo's TechSIG will build the story-driven, game-oriented e-commerce engine to stimulate the Network Effect, and our MentorSIG will create the education and apprenticeship programs needed to develop solo entrepreneurs into nanocorps and Small Is Good Business Web collaborators. To support these efforts, we'll create innovative extensions to available simulation technologies and creatively apply digital media.

We are currently involving simulation technology researchers at the U. of Central Florida's Institute for Simulation and Training and storytelling and communication researchers of the CREAT Digital Media program in our R&D vision. We are working to engage UCF students, faculty and researchers in funded research collaborations essential to prototyping the story-driven, game-oriented e-commerce infrastructure of Small Is Good Business Webs.

Our community-based collaborators have prime locations for testing Small Is Good Business ideas with local entrepreneurs. These collaborators include: the good folks of Havre, Montana and Montana State University-Northern and the North American Rural Futures Institute and the hard-working permaculture activists at Earthaven Ecovillage in Black Mountain, North Carolina. And through evolving collaboration with prominent grassroots community organizers, Rick Smyre and Andrew Cohill, Sohodojo has created community network platforms for the Center for Communities of the Future, The Global Rural Network Project, The Knowledge Economy Project, The Tartan Transformation Project and The Potter County Process Leadership Institute.

In the not too distant future, we hope to see innovative business schools, like Babson College, develop relevant curricula and research agendas recognizing and encouraging this new face of private enterprise that we call the Small Is Good Business Revolution. Internet and computer technologies will be essential to empowering this vision of future business. The innovative Babson/Olin partnership puts these institutions squarely in the domain of this emerging entrepreneurial future.

Expect to see Sohodojo banging on doors at forward-thinking hotbeds of teaching and research as we continue our quest to stoke the fires of the Small Is Good Business Revolution. It's not a question of if, but when... and sooner is better than later. Are you ready to join in? If so, drop us a note and enlist in the Revolution.

[ Previous page ]

--Jim Salmons and Timlynn Babitsky--
23 January 2002
Revised 20 August 2002
Raleigh, NC USA

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