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The limited liability corporation (LLC) with its hierarchical organizational structure has become the standard for modern businesses. However, there are internal and external challenges with this model. Internally, there are issues of keeping employees motivated, preventing pilferage, or obtaining peak performance. Externally, the issue of Corporate Social Responsibility is raised, because there is a recognition that corporations aren’t responsive toward their communities.

So, what is the alternative? Consider the traditional Indian ways of doing business. Till the 18th century, India put out nearly 30 percent of the world’s industrial output—from textiles to steel and shipbuilding. We did extensive trade with Africa, Southeast Asia, Europe and the Middle East, and we ran an international merchant banking network. How was this industry managed if not in the form of mega-corporations? How did we build the Taj Mahal?

The answers lie in several layers. One organizing force was the jati-based kinship groups that specialized in particular knowledge domains. For the building of the Taj Mahal, one jati-group specialized in inlay work, another did foundations, a third handled project management, and so forth. Similarly, industrial output would be sourced from a wide net of small production facilities spread over many villages. Here, small entrepreneurs took the place of mega-corporations.

Unlike the big corporates of today, these networks of entrepreneurs were embedded in local communities and were naturally responsive to their needs. A contemporary model of a functioning network of entrepreneurs is that of the much-written about dabbawalas of Mumbai. Each of the over 5,000 dabbawalas are independent entrepreneurs. They contribute working capital in the form of bicycles, crates and uniforms, instead of following an employee-based model. The management/coordination structure is, at the most, three layers deep. Despite the scale of the operation, they are reported to have less than one error in 6 million transactions—a performance record that would dwarf the biggest corporations!

Jaipur Rugs is another example of this model—this time in manufacturing. It sources its products from over 40,000 contractors who own rug-making equipment. Work and investment is decentralized, and a strong social ethic creates loyalty. As weavers grow in affluence, they get loans to buy more looms and generate local employment. On the basis of this model, Jaipur Rugs has reported revenues of nearly Rs.100 crore.

While planning a startup, consider how it can be structured in the network-of-entrepreneurs model, rather than as a large, hierarchical chain of command. An entrepreneurial setup is self-managing. It does not require employee motivation. When decisions and responsibility happen locally, it is naturally more attuned to the local community—without lessons in corporate social responsibility.

SANKRANT SANU is the founder of Miloka Inc. (www.miloka.com). He lives in Gurgaon and Seattle. If you have an entrepreneurial story to tell, write to him at sankrant@msn.com.

Tags:
Corporate Social Responsibility, limited liability corporation, LLC, Sankrant Sanu