Fast Company

The Wisdom of Crowds (Beta Version)

Open-source idea generation. Transparency. Democracy. Sounds great--but can it work in a business?

What's an Organization man to do? He has learned from five years of nastiness that big companies with Renoirs on the top floor are neither trustworthy nor very satisfying places to work. And dotcom startups were a kick, but they turned out to be not the most relevant or stable joints in the world.

So there he is, back in the corporate office park--employed, at least, and yet unable to see employment in the same old way. He has experienced the possibilities of meritocracy, of hatching an idea and growing it. Perhaps next time, with a real business plan, a startup could work out: He would get help from others with the same vision; information and decision making would be shared, as would the rewards. It would be a business by and for the people!

It might look like the striking, imperfect, evolving creation of Rob May, who has spent months fleshing out his vision of distributed work with a company (sort of) called the Business Experiment (TBE). It's a virtual incubator that both allows and requires stakeholders--anyone with interest and an Internet connection--to help conceive a venture idea, self-organize, and run the business. It's utopian and also, in concept, pretty profound.

The spark was James Surowiecki's book, The Wisdom of Crowds (Doubleday, 2004), which explores the possibilities of group intelligence in making decisions. May wondered: If he created the right conditions, could a crowd start a viable company? He launched TBE in July, announcing the plan on his popular blog, Business Pundit, and soliciting feedback. The response was mixed. "A lot of people were supportive," May says. "Some said the idea was ridiculous; a few said, 'Hope you have a good lawyer.' "

Using open-source software, May built a Web site to act as a virtual boardroom where individuals can register, vote on ideas, review updates, and engage in discussions. He created a compensation system that awards equity points for submitting winning ideas, voting, and assisting with business planning. The profits from every project would be split, with at least 60% to the crowd, based on each person's point total.

In just over a month, nearly 900 stakeholders had whittled down 60 proposals to half a dozen, including a capital-intensive MP3 retail kiosk business and a social-networking site for business travelers. The winner: an online service named, not coincidentally, the Wisdom of Us, scheduled to launch in early 2006, which would give small-business customers access to multiple consultants' advice. "I don't even like the idea we voted on," May confesses. Still, "I want to see if the experiment will work."

TBE is an example of "commons-based peer production," a nonhierarchical, fully transparent form of work usually referred to as peer to peer, or P2P. It's not a new concept--open-source software development has been out there for 15 years, with the Linux operating system its most celebrated success. But typically, P2P projects are "staffed" with uncompensated people who have more passion for the idea than for any resulting profit. And "since cooperative production for the market can fail and lose money, it's a serious proposition," says Michel Bauwens, a former information analyst with the U.S. Information Agency, who now writes extensively on the evolution of P2P.

How TBE fares could hold intriguing lessons for other businesses. Despite their messiness, P2P projects are attractive because they're designed to be transparent. In fact, P2P lending sites such as Zopa.com are premised on the ability of lenders to set their own terms and of borrowers to choose from rates set by lenders. P2P is also efficient. The online resource Wikipedia has amassed more than 770,000 voluntarily submitted articles on topics ranging from Aa (a village in Estonia) to ZZ Top in just four years, proving the technology's potential breadth. Even corporate elders like Procter & Gamble are experimenting with collaborative online communities as a way of leveraging their R&D investments.

So how is the Wisdom project actually doing? Just so-so. May now admits that the selection process should have been more rigorous: Participation dropped off after the business concept was chosen, indicating that many didn't like the idea. So rather than grow his crowd organically, out of sheer passion for the project, May finds himself now dealing with folks who are interested but not always very motivated.

"No one is stepping up to drive this thing," May complains.

May offered teams additional points for fleshing out a business model and a plan--but participation is still sporadic. "No one is stepping up to drive this thing," he says. Part of the reason may be the self-editing wiki software the teams use for communications, which isn't intuitive for most people yet. But there simply may be limits to the appeal of virtual participation--or really, of organizational democracy. "One of the biggest problems is silence," says TBE member Sean Clauson. Unless someone has a radical idea, or strongly opposes an idea, there's little discussion one way or the other. "In traditional organizations, you get a raised eyebrow or a nod of the head to tell you how an idea is going over. Here, we're in a world without feedback." Lacking cues to act on, the crowd falls into complacent groupthink.

Indeed, TBE yielded a telling result recently when May polled stakeholders about "microchunking," breaking down the project into small, discrete tasks and allowing contributors to take on only what they were good at. A cascade of comments followed--providing opinions on implementing the business--but no initial offers to actually do the work. The response revealed both the promise and the elusiveness of P2P: The crowd may be wise, but it's worthless if it won't act.

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