In a free market, the products produced, at what quantity, by which firms, and through what means is determined by the price system. Prices emerge from the continuous feedback of customers purchasing the products and firms varying prices. It requires no top down planning or intervention (aside from rule of law). Attempts at top-down government planning of any of these (products, quantity, firms, means) often suffers from unintended consequences, inefficiencies, higher prices, and lower customer satisfaction. In these respects, the free market’s emergent nature tends toward more optimum results. In contrast to the price system, the firms producing the products most often find themselves forming a hierarchical top-down management structure. Management sets the objectives, divvies up and prioritizes tasks, sources workers, determines worker’s wages, and evaluates worker performance. This article contends that the hierarchical structure has many disadvantages, is not absolutely necessary to run a firm, and other more emergent firm structures may be more optimal. One model that I call a “crowdsource cooperative” is described and evaluated.

Before we start to pick apart the hierarchical top-down management structure, let’s list some of its more important and effective advantages. Indeed, it should not be easily dismissed as it has been the prevailing method to run complex organizations predating Sapiens (our primate cousins also use hierarchical systems to manage their societies).

Advantages of the Hierarchical Top-Down Management Structure (at least in theory)
1. Cohesive/consistent vision: One consistent person (or a few people) set the primary goals of the firm.
2. Quick decision making: One (or a few) have the power to make decisions quickly.
3. Clear responsibility: A chain of command has their own specific charter. Work is not duplicated, and resources are efficiently distributed. When underperforming, it can help to clarify where a problem exists, i.e., workers can be fired for poor performance.
4. Concentrated market analysis: the feedback given by the market is centrally analyzed, and the correct products, quantity of products, and means of production are efficiently calculated by the firm instead of by every individual worker.
5. Clear promotional pathway.
6. Management should have expertise in their segment of the firm which helps to achieve the company’s goals.
7. Some employees need to be pushed to perform. Managers can learn how and when to push employees to fulfill the firm’s tasks.

Disadvantages of the Hierarchical Top-Down Management Structure
1. The leader’s vision and business decisions may be detrimental to the firm’s health.
2. Bad management: Some firm’s chains of command may be punitive when not achieving goals. Managers might chastise, exploit, and abuse their workers if they see a personal benefit to do so. This can be bad for morale and be counter effective.
3. Inflexibility: firms are slow to change and may not keep up with the changes in the economy.
5. Inefficient employment: To keep workers on the payroll, there must be an excess of tasks to be performed to ensure their time is not wasted. Either excess product is created, not enough employees are hired, or employees are set to tasks outside of their area of specialization.
6. Roadblocks to career advancement: Firms tend to know very little about individual workers outside of what a manager attributes to them. It may not be in management’s interest to grade a worker fairly or support their career advancement.
7. Goals of employees do not always align with goals of the company. For instance, a firm would like to produce more with less resources while an employee wants continued work. Example: The employee may know how to automate/eliminate parts of their job, but that might risk putting themselves out of a job. “That’s alright. I’m paid by the hour” -in response to wasting one’s time at work.

Since emergent order can produce more optimal results than a top-down approach in our economy, we should question if there are any methods that could emerge to govern a firm with more optimal results than the traditional top-down method. Crowdsourcing is already an emergent method for groups to organize around a common goal and there are companies already applying crowdsourcing in some form in their business model: Kickstarter, Indiegogo, Task Rabbit, Uber, AirBnB. One example is the collaborative forum and code repository offered by Github (which was acquired by Microsoft in 2018 for $7.5 billion) which has made it possible for professional grade software to be open sourced. The problem is that many projects are unpaid, so they get little to no support. Also, in many cases, people should be paid for their hard work. What if there was a platform similar to Github where crowdsourcing was used in all aspects of a business: making business decisions, raising capital, marketing, product development, sales, manufacturing, etc.? I call such a platform a crowdsourced cooperative. This is similar to co-determination, which Elizabeth Warren has been advocating, where employees would make a large percentage of a business’s board of directors. Labor in the board room has been found to increase capital intensity and labor productivity. In the crowdsourced cooperative, the business is employee owned, the entire board is made up of the entire employee workforce, and there is no management structure.

What is a Crowdsourced Cooperative Business Platform? (As I see it)
1. Leadership and long term business decisions are voted on by the workers.
2. Workers are given “sweat equity” for their contributions. The amount of equity is commiserate with the level of contribution.
3. Workers are given voting power commiserate with the level of contribution they have provided.
4. The level of contribution is determined by votes from the workers.
5. Workers are not technically employees, but instead are co-owners of the company. A worker can leave the company and not necessarily lose all their equity.
6. Profits are shared with share holders commiserate with the amount of equity owned.
7. Workers can sell their stake in the firm if others are willing to buy their shares.
8. Shares of the company can be sold to non-workers as a method to gain capital and to allow divestment of workers.
9. The value of the task can be decided through various methods: A) a list of tasks can be created with workers bidding on the task – lowest bid wins; B) a list of tasks’ value are predetermined through the firm’s community voting their value; C) a list of tasks is presented, workers decide to contribute on the task, and the value of the resulting contribution is voted on by the firm’s community post hoc.
10. For a firm to be crowdsourced, disclosure of the firm’s business information to its workers is necessary for the crowd’s ability to make decisions for the firm. Disclosure of the firm’s business information to the public is not necessary. The individuals allowed to join the firm can be open to the general public or a select group.
11. Not all work needs to be paid in equity. Cash payments can be made for some services if the firm votes to do so.
12. Contributors have more voting power in areas where they have contributed and are therefore considered to have more expertise. For example: a contributing lawyer who has contributed to the legal aspects of the company does not have the same voting power when it comes to product design if they have never contributed to product design. For general business questions such as mergers and acquisitions, voting rights would be more equal across the board and commiserate with number of shares owned.

Advantages of a Crowdsourced Cooperative Business Platform
1. Efficient workers: You are not paid unless your contributions are deemed valuable. Workers compete with each other to provide a certain contribution. Workers will therefore contribute in their area of specialization and can cease working for the firm once they are no longer competitive or do not wish to compete.
2. Skin in the game: Since workers are paid in equity, they share in the gains and losses of the company. They have “skin in the game” to see that the company is successful. This incentivizes workers to contribute, innovate, promote, and stay involved with the company to some extent even if it means eliminating their job.
3. Freedom to move around in the workforce: Since workers are paid in equity, they can leave a firm but still be drawing a paycheck. Equity is a safety net in case they have trouble finding other work. Other firms might need their special skill, so the worker can contribute to multiple firms without being tied down to one firm. The freedom to move incentivizes firms to improve worker’s rights.
4. The crowd is intelligent: Knowledge of the crowd tends to outperform knowledge of the few through the crowd’s variety of backgrounds, skepticism, and insights. Further, workers at lower levels in the firm’s hierarchy may have local knowledge and insights that management does not have that can be useful. In a crowdsourced cooperative, all workers have power and an incentive to voice their opinion, and the best ideas get voted to the top of the firm’s priorities. For quick decisions, the crowd can vote for leadership, and they will have the temporary power to make those quick decisions.
5. Collaboration when capital is low: Startups may not be able to source the capital needed to pay workers to build their startup. Since workers in a crowdsourced cooperative are not employees, they can contribute as needed. This allows for a sophisticated product to be developed at a low up front cost, while still attracting contributors of high caliber.

Disadvantages of a Crowdsourced Cooperative Business Platform
1. More contributors coming and going makes securing IP and vetting contributors difficult. This could be mitigated by keeping the business affairs private, being selective in who is allowed to contribute, and requiring non-compete agreements.
2. Related to the previous point, a contributor might give the same contribution to competing companies hoping one of the companies does well. If this is a concern, the company may wish to use non-compete agreements.
3. If the bidding system is used to determine the value of the contribution, the worker that won the bid may not provide a suitable product in suitable time. In this case, you may be putting too much trust in a stranger. The preferred method would be to allow the entire crowd to work on the same contribution. In this case, the work may be duplicated by many people all expecting to earn the prescribed equity, but this could also mean a better product. A second negative to voting on the value of a contribution is that the firm’s community may incorrectly value the contribution, and give too much equity.
4. It may be difficult to determine who made the contribution. Workers may be wary to communicate with others their ideas in fear that the ideas will be stolen.
5. There may be too many decisions (some of little significance) that need to be made daily. It would be inefficient to query the crowd for every little detail. In that case, someone could be voted to make the decisions, so that not every decision needs to be voted on.
6. Delayed gratification: Since payment is made in the form of equity, conversion into cash may take considerable time. Especially for firms that are not profitable, workers are taking a risk that their stock may never have monetary value. This may deter potential workers from contributing.
7. If a company has a concentration of equity amongst a small group of people (especially in new companies where the founder owns most of the company), that group can unfairly vote their contributions higher to maintain control and equity. To mitigate these occurrences, an outside entity, such as a separate private company or a separate crowd community should be employed as arbitrators to veto unfair votes if not all parties are satisfied.

Closing Remarks
There are many advantages/disadvantages to both the traditional hierarchical management-company ownership model and the crowdsourced cooperative. One model may be better for a certain type of business, especially when intellectual property is a major concern. One disadvantage that both models share is workers becoming dispassionate laborers. Some people will purposely work inefficiently or not look for efficiency opportunities because the extra work for them working inefficiently might mean more pay, and/or they don’t want to risk making their job obsolete. This is the same reason why a large company that doesn’t have many competitors will not be as innovative. What is the incentive to innovate if you are not at risk of losing your customers? This is also why many industries are ripe for disruption. At least in the crowdsourced cooperative model, the ability of workers to provide input and insights into improving the business and products empowers the workers to make improvements. At the same time, shared ownership that is ideally equal to the improvement made, incentivizes the workers to make such a contribution. Of course, the devil is in the details. The likelihood of the crowdsourced cooperative succeeding will rely on how well it is implemented, and the ability of the crowd to cooperate. If this became a mainstream business model, more people would feel comfortable collaborating in this way, and the model would become more easily sustained.

The concept of the crowdsourced cooperative came about while attempting to build some of my inventions. Many required too much technical knowledge that I don’t have, and I didn’t know if they were good enough ideas to invest in. Beyond the building the inventions, it takes a lot of other knowledge to run a successful business: marketing, accounting, legal, distribution, etc. I could provide equity and control could substitute for cash payment, but what are those parts of the business worth? Giving equity to early contributors is not a new concept, but how do you determine how much equity each person has earned? Many entrepreneurs end up doing it all instead of focusing on their area of expertise. How do you find all of these people needed to run a successful business? A platform to connect people willing to build something together, that democratizes the business, and pays out to contributors equitably is needed. My next article found here, will explore why businesses don’t currently run this way.