Small Business

Keiretsu for Small Biz?


Big firms have found that cooperative business relationships can have big benefits. Small businesses can do the same

I've heard some encouraging things about the Japanese concept of keiretsu. Is it an idea that would be practical in a small-business context?

—D.L., Lexington, Ky.

Keiretsu describes a mutually supportive business relationship, typically between a group of corporations with broad power and reach or between manufacturers, suppliers, and investors. The term was used extensively in Japan after World War II, when strong banks invested in specific companies and encouraged them to supply discounted products and services to each other to promote mutual success.

Some U.S. firms, such as venture capital group Kleiner, Perkins, Caufield & Byers, and auto manufacturers including Chrysler (DCX), operate loosely on the keiretsu model. Michael Mann, chairman and founder of WashingtonVC, an investment fund that incubates early-stage companies, says he has set up his firm as a kind of keiretsu. "We promote the exchange of services such as search-engine optimization, Web design, and software programming, so that each small business has fewer expenses," he says.

WashingtonVC deliberately invests in companies that will complement the firms already in its holdings, Mann says. "We provide a variety of services to our small businesses from our in-house resources. Some of our CEOs and IT people might be on the advisory boards of other companies in our portfolio." For instance, one of WashingtonVC has invested in a graphic design studio that provides graphics, copyright work, and marketing copy to all the other companies. Another firm, which specializes in high-tech installations, has set up wireless networks and state-of-the-art Internet security systems for the entire group. A VoIP telecommunications firm provides that technology to all the companies in the venture capital portfolio.

Outside of the venture capital model, there are cooperative business associations in several industries where small companies band together to purchase in bulk and to provide education and training to their members. These are sometimes, but not always, geared more toward nonprofit than for-profit enterprises. For more information, check out the National Cooperative Business Association.

Additionally, International Monetary Systems, a barter association, promotes buying and selling within its network as one of the benefits of bartering—using "trade dollars" rather than cash to purchase goods and services from other group members. You might also investigate a local networking group, Chamber of Commerce or Leads Club. These groups typically focus on entrepreneurs who not only spread the word about each others' companies, helping with viral marketing, but also use each others' products and services, thus strengthening everyone's sales.

Karen E. Klein is a business journalist who covers small-business issues for several national publications. She writes her Smart Answers column twice a week.

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