Start-ups in the networked information economy

September 6, 2011

Corporations are the dominant mechanism by which economic activity is organized in developed countries. Whether there are opportunities for leaner and more agile approaches to value creation in the corporate context, is hence a key question for the prosperity and well-being in the society.

The big move we are in the midst of is towards an economy that is more centered on information products than physical products. Examples of this are financial services, professional services in general and software.

The second transformative change is global access to relatively cheap and relatively high quality communication networks.

New communication technologies have always had a strong impact on the production of information. But this time the societal changes are huge. The Internet is the first communication environment that decentralizes the financial capital requirements of producing information. Much of the capital is not only distributed but also largely owned by the end users. Network servers are not very different from the computers we have at home. This is a complete departure from the model of TV broadcast stations and televisions.

The characteristics of the new economy are different from what we are used to: the production of physical goods was (financial) capital-intensive, leading to centralized management structures and the shareholder capitalism we now experience. The production of information goods always requires more human capital than financial capital. It is much more about finding brains than finding money. But the good news is that you are not limited to the local supply. Work on information products does not need to be co-located. If the task at hand is inviting and compelling, human capital investments can come from any part of the network.

This is why decentralized action plays a much more important role today than ever before. The architecture of work is the network and the basic unit of work is not a process or a job role but a task.

Our management and organizational approaches are derived from the era of tangible goods production and high-cost/low-quality communications. These mindsets are not helpful in a world of widely distributed value creation and ubiquitous connectivity.

The opportunity is in new relational forms that don’t mimic the governance models of industrial, hierarchical firms. We are already witnessing the rise of very large-scale collaborative efforts that create tremendous value. Coordinated value in these cases is the result of uncoordinated actions by a large number of individuals with different goals, different values and different motivations to take part.

The financial capital constraints on action meant that having a great idea, or simply wanting to do something, was not enough to get one going and trying it out. In the networked economy, information products can now be created and co-created in a human-centric way, by interdependent individuals, interacting with each other by utilizing free or low cost social media.

Technology does not determine social and organizational change, but it does create new opportunity spaces for new social practices. Some things are becoming much easier than before and some things are becoming possible, perhaps for the first time.

Pitching in the world that is built on the centrality of information and radical decentralization of intelligence may be more about justifying human capital investments than justifying financial investments. Perhaps start-ups in the future won’t even seek to create jobs at all because of their industrial-era nature, but may see themselves as platforms for all kinds of contributions from all over the network they are an active part of.

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Thank you Margaret Blair and Yochai Benkler

More on the subject: The work of Yochai Benkler. The Atlantic on progress in life and job careers. A TED video on unintended consequences. Steve Blank´s great post on start-ups. Irving Wladawsky-Berger´s post on new style of working. Luis Suarez writing about the social enterprise. GigaOM: Do we need defined hours of work any more? The Atlantic: A Jobs Plan for the Post-Cubicle Economy. “From a container to a platform”; @Joi Ito’s blog post @ the MIT Media Lab. A very nice Cisco ad.

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