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thedeadhaji
39489 Posts
Traditionally, the purpose of a corporation was defined as "to maximize shareholder returns". I used to not think twice about this, and had accepted it at face value. But recently, I've been trying to think more critically about these topics; I've made an effort to not blindly accept such "conventional facts" as real truths. As a result, I'm starting to doubt this accepted convention. I'm starting to feel that in our current world, it may be time for the role of a corporation to change to a more symbiotic and sustainable form. Over the years we have seen the these corporations conduct massive layoffs (ex: Cisco, or many of the mega-banks), squeeze suppliers (ex: Apple or Toyota), engage in ethical behavior (ex: TEPCO), cook the books (ex: Olympus), or abuse their own employees to the brink of mental collapse (ex: Foxconn, Samsung, etc). There seems to be an inherent lack of balance in their actions and behavior. Everything is taken to the extreme. Eventually things are bound to break... perhaps they already have. Are all companies motivated by maximizing shareholder returns, at all costs? I actually don't think so. Apple has thus far defied Wall Street's clamor for it to pay out dividends. If Apple were to pay out a significant divided, its stock price would be boosted even further, but at the cost of losing flexibility and buffer strength when it eventually and inevitably runs into financial difficulties some time in the future. It's possible to look at this situation as Apple choosing the long term security for itself and its employees over returns to its shareholders. In addition, Apple (at least publicly) states that its primary driver is to deliver great products to its customers. While I'm not sure if this is reflected in reality (they do seem to deliver high quality products, but they are also rather overpriced), the stated ideal is certainly an improvement from an investor-first model. Such "customer driven" business missions have permeated throughout the tech start-up scene (particularly in the web domain) as well. A less prominent but more significant example is Costco, the wholesaler that cheapskate families have grown to love. Costco has famously defied Wall Street's call for higher prices on its items and lower wages for its workers, along with less extensive benefits. There isn't a shred of doubt that Costco has sacrificed investor returns for the benefit of its customers and its employees. Couldn't we say that the world is better because Costco has chosen to go against the norm[1]. If I were to found a company, I would like to think that I would make it an "employee first" company, rather than a "customer first" or "investor first" organization. Such a company would most likely require monetary sacrifice from the founding team; but I think this is a reasonable sacrifice, if it can create a more stable, balanced, and equitable firm. In some incarnations, I could see such an organization being almost socialist in nature. The goal in growing the company would be to benefit all the employees and increase the number of such employees that it can take under its wing. Of course, given the fact that the larger world still operates on a proto-capitalistic style, such a company would by necessity be elitist in nature. Until the ecosystem itself changes, such a company would need all the advantages it can find in order to survive. It would most likely have no leeway to carry anyone but superstars[2]. One company that already seems to operate in this manner is Galois, a software contracting firm consisting of Haskell hackers. Such an employee-oriented company many not solve the problem at large, where people currently have difficultly finding work, or are in perpetual concern over their job security. At least at the onset, it would only help those who probably least need such help. But while it's not the complete solution, it would hopefully offer some respite to the employees. My belief is that change is most easily driven from the top[3]. If the so called "elites" start to change their ways, it would be a catalyst for others to consider following suit. Other will disagree, and if they do, they should consider and act upon alternative solutions; we each have beliefs about what is best-practice, and should individually follow them. There is no need to figure out some arbitrary universally best solution. I don't think such a thing even exists. Like the saying goes, to each his own. Some change would be better than no change. at least we give ourselves the chance to take a positive step forward.
[1] Though one could certainly argue that Costco's cheap prices lead to overconsumption, which is undesirable by any definition. [2] Come to think of it, this isn't so outlandish, since startups are already like this. [3] Or at the least, some subsection of the top.
Crossposted from my main blog
 
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I really like your blogs Haji, corporation has been for a long time, a dirty word in my vocabulary, but this always has been in part because of their unsustainability, and their mechanistic nature. I like thinking about the differences between small businesses (almost universally adored) and corporations (almost universally reviled).
I think the difference in perception comes down to, like you say, the shareholder focus.
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South Africa4316 Posts
Some comments:
1. The reason you pay investors first is because you need to reward them for investing in your firm. It's a responsibility similar to paying that bank interest on your loans. If you have no intention of rewarding the investors appropriately for the risks they are taking, you'll have difficulty finding investors which will severely hamper your company's potential for growth, and thus for having a positive impact.
2. Most businesses run in a tough competitive environment. The current dominance of cut-throat businesses is not so much because that's the only way to do things, but more because it's survival of the fittest. Over the long run, companies who are able to keep employee salaries low while maintaining the same levels of productivity will outlast those who pay employees more for little to no added increases in productivity. The same goes for putting the customer first. If you don't gain a more significant monetary advantage by doing so (through customer goodwill and loyalty, for example), companies who put the bottom line first will grow more quickly and ultimately be in a better situation to survive recessions.
3. Running your own business is insanely hard work. My parents have run their business on the principles you mention here (for example, keeping a hardworking employee on for two years even though she was losing money for them every month), and the only way they've managed to do that is by working incredibly hard. Without exaggeration, my parents work between 12 and 14 hours every business day, and 8 hours over weekends, and they're just about keeping the company afloat during the current recession. This is also not a short-term thing, they've been working like this for more than a decade now. Few people would willingly work this hard simply to allow their employees to have a more comfortable job, especially if you can't reap some kind of benefit from it. If you feel like you're the kind of person to do that, then I've got nothing but respect for that decision, but I won't do it.
To me at least, your ideas are too idealistic. You'd like to have a successful company (which is damn hard in itself) that pays for a reasonable living for you, even though it runs inefficiently from an economic perspective. The only real way to do this is to make up for the inefficiencies with your own labour, which becomes more and more difficult to do the larger the company gets. Personally, I think you can do more good by simply creating a highly successful company. Foxconn pays a much better salary than the average in China, and the suicide rate at it is lower than that in the rest of China. All in all, Foxconn has improved the lives of 135,000 employees and millions of first world inhabitants who can get their iPhones and iPads at slightly more affordable prices.
EDIT. Just to clarify, if you can make these changes in an economically sound way, then I have no problem with them. For example, if you can increase employee productivity by a proportional amount by paying them more, or get customers to buy more of your products by lowering your prices or improving your quality. However, those changes would still be to the benefit of your investors.
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I think the issue you're addressing ought to be examined with respect to the fundamentals at work in the current international business stratosphere, namely the reverence for practical self-interest above all else at work in the leadership of practically every major corporation on Earth and the increasingly unbalanced equation of capital and labor across the planet. Globalization has brought along with it's unparalleled potential for innovation and efficiency an unfortunate side effect; companies are encouraged to take advantage of international financial rule bending made possible by tax havens, 3rd-world production potential and foreign bond and equity diversification, and this leads to a disparity between the well-being of businesses entities and the populations of the people which surround them. Inevitably some will win, and some will lose, but if corporations end up outlasting countries we will most certainly know that something has gone wrong.
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The problem is, if you give someone a choice between making more money or 'making the world a better place', there are very few people who would opt for the latter; and these said few are rarely found in position of an investor. What makes it all the more sad is that there are thousands of people who see making more money as some sort of a game or competition - they are rich enough to be provided for the rest of their lives, alongside all their family members etc - but they still prefer making more money personally to improving the lifestyle of their employees or customers.
It's not necessarily 'evil' or anything, and you can't deny that corporations, regardless of the motives of those backing them, had a big positive impact on global economy and such, but it doesn't make the whole thing any less sad. :p
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It's possible for there to be a disconnect between what a public company does (i.e. what the executives put in motion) and who the company is beholden to because of how indirect control is. Shareholders -> Board -> Executives, but for many publicly traded companies, individual shareholders have very little say on how a company operates. (A little like democratic governments! Yay!) Of course, plenty of companies have compensation linked to share prices, and those executives will often pursue plans that aim to increase the share price, and sometimes "activist" institutions will acquire a substantial amount of shares and/or persuade others to join with their voting power to convince the executive team to act more in their interests, or replace the executive team altogether.
A private or closely held company serves its owners more directly, and could be geared to pursue something other than returns first and foremost. If a company has a strong edge, then it doesn't necessarily need to cut corners in order to survive.
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You guys are fuckin smart,.
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thedeadhaji
39489 Posts
On February 19 2012 12:36 SayaSP wrote:
You guys are fuckin smart,.
Rather be smart at fuckin.
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Yup i became an anarchist when i learned to question authority, just like how you are talking. Everything has to legitimize itself and if it fails to do that, i feel no need to obey it . this applies to all parts of life!
ANARCHISM
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thedeadhaji
39489 Posts
>Thenessman
I'm not knowledgeable about anarchism in particular, but I've come to feel (finally, after living 27 years) that questioning the unquestioned is the way we should be.
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thedeadhaji
39489 Posts
On February 19 2012 12:03 Zona wrote:
It's possible for there to be a disconnect between what a public company does (i.e. what the executives put in motion) and who the company is beholden to because of how indirect control is. Shareholders -> Board -> Executives, but for many publicly traded companies, individual shareholders have very little say on how a company operates. (A little like democratic governments! Yay!) Of course, plenty of companies have compensation linked to share prices, and those executives will often pursue plans that aim to increase the share price, and sometimes "activist" institutions will acquire a substantial amount of shares and/or persuade others to join with their voting power to convince the executive team to act more in their interests, or replace the executive team altogether.
A private or closely held company serves its owners more directly, and could be geared to pursue something other than returns first and foremost. If a company has a strong edge, then it doesn't necessarily need to cut corners in order to survive.
Spot on 
Partnerships I think are pretty close to what I'd envision.
Alternatively, even if you're publicly traded, you can simply limit the voting rights the those shareholders have. For instance, BRKB (Berkshire Hathaway Class B Shares) don't have any voting rights attached to them. The type of shares that Brin and Page of Google, as well as Pincus of Zynga possess, have many multiples of voting rights than the common share. I think it's possible to have a new type of company which says, "you can have some profit sharing, but if you're an outsider, you don't get to call the shots".
But like you said, said company would have to be in a position of great power over any investors to be able to act in this manner. (or alternatively, not take any investors at all)
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thedeadhaji
39489 Posts
On February 19 2012 07:59 Sethronu wrote:
The problem is, if you give someone a choice between making more money or 'making the world a better place', there are very few people who would opt for the latter; and these said few are rarely found in position of an investor. What makes it all the more sad is that there are thousands of people who see making more money as some sort of a game or competition - they are rich enough to be provided for the rest of their lives, alongside all their family members etc - but they still prefer making more money personally to improving the lifestyle of their employees or customers.
It's not necessarily 'evil' or anything, and you can't deny that corporations, regardless of the motives of those backing them, had a big positive impact on global economy and such, but it doesn't make the whole thing any less sad. :p
That's why I think that such an endeavor can only be made possible by a founding team with strong principles and a belief to put the employee first. At least in the modern day software/web company, you can create companies without needing outside investment at all. (37 signals, github, etc)
Imo, trying to change the ways of the already existing bigco.s is a waste of time. I'd much rather make a firm from scratch that is strong enough culturally and financially to pave a road of its own.
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thedeadhaji
39489 Posts
On February 19 2012 07:28 Daigomi wrote:
Some comments:
1. The reason you pay investors first is because you need to reward them for investing in your firm. It's a responsibility similar to paying that bank interest on your loans. If you have no intention of rewarding the investors appropriately for the risks they are taking, you'll have difficulty finding investors which will severely hamper your company's potential for growth, and thus for having a positive impact.
Solutions:
A. Get rid of the investors. Don't take outside capital. In modern software, many firms have proven that outside capital is not a prerequisite to success.
B. Don't give outside shareholders much voting power. Examples of companies with disproportionate voting power inside its own firm (or have disjointed ways of handing it out): Google, Zynga, Berkshire Hathaway, as previously mentioned in a comment above.
2. Most businesses run in a tough competitive environment. The current dominance of cut-throat businesses is not so much because that's the only way to do things, but more because it's survival of the fittest. Over the long run, companies who are able to keep employee salaries low while maintaining the same levels of productivity will outlast those who pay employees more for little to no added increases in productivity. The same goes for putting the customer first. If you don't gain a more significant monetary advantage by doing so (through customer goodwill and loyalty, for example), companies who put the bottom line first will grow more quickly and ultimately be in a better situation to survive recessions.
To me at least, your ideas are too idealistic. You'd like to have a successful company (which is damn hard in itself) that pays for a reasonable living for you, even though it runs inefficiently from an economic perspective. The only real way to do this is to make up for the inefficiencies with your own labour, which becomes more and more difficult to do the larger the company gets. Personally, I think you can do more good by simply creating a highly successful company. Foxconn pays a much better salary than the average in China, and the suicide rate at it is lower than that in the rest of China. All in all, Foxconn has improved the lives of 135,000 employees and millions of first world inhabitants who can get their iPhones and iPads at slightly more affordable prices.
Counter with the "unfair" competitive advantage of superior talent. Netflix is an example of a company that relentlessly weeds out the sub-A players and rewards its great performers handsomely, while avoiding the slave-like hours seen at ibanking houses. Software in particular, which seems to be an area I'm gravitating towards, is particularly conducive to this, as A players can be 10 times more productive as B players. Galois is a good example. They only have 40 or so employees but every single one of them, including their "IT guy" as my friend puts it (he works there) is a great hacker.
3. Running your own business is insanely hard work. My parents have run their business on the principles you mention here (for example, keeping a hardworking employee on for two years even though she was losing money for them every month), and the only way they've managed to do that is by working incredibly hard. Without exaggeration, my parents work between 12 and 14 hours every business day, and 8 hours over weekends, and they're just about keeping the company afloat during the current recession. This is also not a short-term thing, they've been working like this for more than a decade now. Few people would willingly work this hard simply to allow their employees to have a more comfortable job, especially if you can't reap some kind of benefit from it. If you feel like you're the kind of person to do that, then I've got nothing but respect for that decision, but I won't do it.
Sure, but ask them if it's been worth it or not. I bet you they'll say yes.
I have many peers, mentors, and family members who run or have run businesses. They range from the one-person muse to the billion dollar corporation. This has permeated my life since birth. It may sound trite, but there are not many people who have had the fortune that I have in this regard.
I'm not naive to its challenges but at the same time I'm very much aware of what power it can grant you, and what you can create and empower with that power.
Of course it's not "easy". If I wanted something that I'd get for sure, I'd have gone to Wall Street in 2007. I'd probably be making mid 6 figures by now. But if you don't do something because it's "too difficult" or "too unrealistic" or "too idealistic", then you'll have 0% chance for change.
EDIT. Just to clarify, if you can make these changes in an economically sound way, then I have no problem with them. For example, if you can increase employee productivity by a proportional amount by paying them more, or get customers to buy more of your products by lowering your prices or improving your quality. However, those changes would still be to the benefit of your investors.
If I do make such a firm, I envision it to be more like a partnership than anything else, where each employee will share the profits up to a certain point.
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South Africa4316 Posts
On February 19 2012 16:42 thedeadhaji wrote:Show nested quote +On February 19 2012 07:28 Daigomi wrote:
Some comments:
1. The reason you pay investors first is because you need to reward them for investing in your firm. It's a responsibility similar to paying that bank interest on your loans. If you have no intention of rewarding the investors appropriately for the risks they are taking, you'll have difficulty finding investors which will severely hamper your company's potential for growth, and thus for having a positive impact. Solutions: A. Get rid of the investors. Don't take outside capital. In modern software, many firms have proven that outside capital is not a prerequisite to success. B. Don't give outside shareholders much voting power. Examples of companies with disproportionate voting power inside its own firm (or have disjointed ways of handing it out): Google, Zynga, Berkshire Hathaway, as previously mentioned in a comment above. Show nested quote +2. Most businesses run in a tough competitive environment. The current dominance of cut-throat businesses is not so much because that's the only way to do things, but more because it's survival of the fittest. Over the long run, companies who are able to keep employee salaries low while maintaining the same levels of productivity will outlast those who pay employees more for little to no added increases in productivity. The same goes for putting the customer first. If you don't gain a more significant monetary advantage by doing so (through customer goodwill and loyalty, for example), companies who put the bottom line first will grow more quickly and ultimately be in a better situation to survive recessions. Show nested quote +To me at least, your ideas are too idealistic. You'd like to have a successful company (which is damn hard in itself) that pays for a reasonable living for you, even though it runs inefficiently from an economic perspective. The only real way to do this is to make up for the inefficiencies with your own labour, which becomes more and more difficult to do the larger the company gets. Personally, I think you can do more good by simply creating a highly successful company. Foxconn pays a much better salary than the average in China, and the suicide rate at it is lower than that in the rest of China. All in all, Foxconn has improved the lives of 135,000 employees and millions of first world inhabitants who can get their iPhones and iPads at slightly more affordable prices. Counter with the "unfair" competitive advantage of superior talent. Netflix is an example of a company that relentlessly weeds out the sub-A players and rewards its great performers handsomely, while avoiding the slave-like hours seen at ibanking houses. Software in particular, which seems to be an area I'm gravitating towards, is particularly conducive to this, as A players can be 10 times more productive as B players. Galois is a good example. They only have 40 or so employees but every single one of them, including their "IT guy" as my friend puts it (he works there) is a great hacker. Show nested quote +3. Running your own business is insanely hard work. My parents have run their business on the principles you mention here (for example, keeping a hardworking employee on for two years even though she was losing money for them every month), and the only way they've managed to do that is by working incredibly hard. Without exaggeration, my parents work between 12 and 14 hours every business day, and 8 hours over weekends, and they're just about keeping the company afloat during the current recession. This is also not a short-term thing, they've been working like this for more than a decade now. Few people would willingly work this hard simply to allow their employees to have a more comfortable job, especially if you can't reap some kind of benefit from it. If you feel like you're the kind of person to do that, then I've got nothing but respect for that decision, but I won't do it. Sure, but ask them if it's been worth it or not. I bet you they'll say yes. I have many peers, mentors, and family members who run or have run businesses. They range from the one-person muse to the billion dollar corporation. This has permeated my life since birth. It may sound trite, but there are not many people who have had the fortune that I have in this regard. I'm not naive to its challenges but at the same time I'm very much aware of what power it can grant you, and what you can create and empower with that power. Of course it's not "easy". If I wanted something that I'd get for sure, I'd have gone to Wall Street in 2007. I'd probably be making mid 6 figures by now. But if you don't do something because it's "too difficult" or "too unrealistic" or "too idealistic", then you'll have 0% chance for change. Show nested quote +EDIT. Just to clarify, if you can make these changes in an economically sound way, then I have no problem with them. For example, if you can increase employee productivity by a proportional amount by paying them more, or get customers to buy more of your products by lowering your prices or improving your quality. However, those changes would still be to the benefit of your investors. If I do make such a firm, I envision it to be more like a partnership than anything else, where each employee will share the profits up to a certain point.
Software is perhaps one of the areas where you can get away without too much capital, and even there most startups received venture capital at some point. Internet companies are almost impossible to grow without a big capital outlay, since they take so long to become profitable and monetizing it too early will almost always hamper your growth. The only software companies I can think of that seem to be succeeding with minimal capital investment right now is indie game creators.
Regarding the voting power, my point was not so much that these investors would force you to act in a way that benefits them. Rather, if they knew how you were planning to treat them, they wouldn't invest, and if they didn't, then you're betraying the investors which made your company possible. They take a big risk by investing in your company, most new companies go bankrupt, so after they take that risk you have an obligation to reward them by providing them with returns considerably above the risk free rate. Not doing that would be unethical in the first place (unless you tell them you don't intend to at the start), and secondly, if you do that, they might withdraw their funding.
Everyone wants an "unfair talent" advantage, including the corporations you are railing against. The question is why you'll get the unfair advantage while much bigger competitors don't. Google is supposed to have some of the best working conditions of any company in the world. The only reason they can do that, though, is because they make a shitload of money. In general, when you start out, you won't be able to pay employees great salaries. In fact, considering you don't want investors, you'll have a hard time paying employees even average salaries. You also can't let employee salaries grow more quickly than your business does, as that would interfere significantly with future company growth. Getting an "unfair talent" advantage in such a situation, when you're competing with Google, Amazon, Microsoft, and all the other major, investor backed firms, will be pretty damn hard. You pretty much have to hope you luck into someone with undiscovered potential.
Regarding whether it's been worth it, my parents vacillate a lot. In general they say yes. They love their jobs, and they've always been the kind of people to help others out in any way possible. However, with the recent depression, they've not been so positive. They've had to consider firing most of their staff multiple times and had they done that, things would have gone much better.
In the end, I'm not saying that what you are proposing is impossible. In fact, I said that in the previous post that it's possible as long as you're willing to make up for the inefficiencies with your own work. My argument is that you can't change the way modern corporations work. What you are proposing, a company that doesn't squeeze out every bit of profit it can, is inefficient, which means that companies who do this would, in the long run, be replaced by companies who are running at full efficiency. It's possible for a few companies to work like this, especially on a smaller scale, but suggesting that all corporations make these changes is idealistic and worse for society in the long run.
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thedeadhaji
39489 Posts
On February 20 2012 00:56 Daigomi wrote:
Software is perhaps one of the areas where you can get away without too much capital, and even there most startups received venture capital at some point. Internet companies are almost impossible to grow without a big capital outlay, since they take so long to become profitable and monetizing it too early will almost always hamper your growth. The only software companies I can think of that seem to be succeeding with minimal capital investment right now is indie game creators.
I know a few personally outside that space who are well into cash flow positive with only angel funding.
Regarding the voting power, my point was not so much that these investors would force you to act in a way that benefits them. Rather, if they knew how you were planning to treat them, they wouldn't invest, and if they didn't, then you're betraying the investors which made your company possible. They take a big risk by investing in your company, most new companies go bankrupt, so after they take that risk you have an obligation to reward them by providing them with returns considerably above the risk free rate. Not doing that would be unethical in the first place (unless you tell them you don't intend to at the start), and secondly, if you do that, they might withdraw their funding.
The term sheet would have all the voting rights laid out, so there's no room to deceive in the first place. This is a moot point imo.
Everyone wants an "unfair talent" advantage, including the corporations you are railing against. The question is why you'll get the unfair advantage while much bigger competitors don't. Google is supposed to have some of the best working conditions of any company in the world. The only reason they can do that, though, is because they make a shitload of money. In general, when you start out, you won't be able to pay employees great salaries. In fact, considering you don't want investors, you'll have a hard time paying employees even average salaries. You also can't let employee salaries grow more quickly than your business does, as that would interfere significantly with future company growth. Getting an "unfair talent" advantage in such a situation, when you're competing with Google, Amazon, Microsoft, and all the other major, investor backed firms, will be pretty damn hard. You pretty much have to hope you luck into someone with undiscovered potential.
Because with the exception of Google, all the companies you mentioned have shitty working conditions and engineering culture/bureaucracy. (Amazon's is so bad that many say that they'd rather work for MSFT for 20k less salary than work at AMZN).
Plenty of great engineers have chosen to take freedom over the highest status or highest compensation. Look at the guys in Mozilla Foundation, Github, or 37 Signals, like I have mentioned previously. These are small shops that are highly regarded in the industry, pay less than Google, but offer a culture and ethos that the traditional organizations cannot. And they have some of the best talent in the world. When you do something great and you offer things that larger companies cannot, talent flocks to you regardless.
Being in Silicon Valley, I actually personally know many people who are looking for more of a balance in their lives rather than the highest paycheck (which btw, if you're a software engineer, exists in Wall Street or the Tristate hedge funds)
I think the concern you have is attracting the initial team, which I'm not concerned at all about.
Regarding whether it's been worth it, my parents vacillate a lot. In general they say yes. They love their jobs, and they've always been the kind of people to help others out in any way possible. However, with the recent depression, they've not been so positive. They've had to consider firing most of their staff multiple times and had they done that, things would have gone much better.
In the end, I'm not saying that what you are proposing is impossible. In fact, I said that in the previous post that it's possible as long as you're willing to make up for the inefficiencies with your own work. My argument is that you can't change the way modern corporations work. What you are proposing, a company that doesn't squeeze out every bit of profit it can, is inefficient, which means that companies who do this would, in the long run, be replaced by companies who are running at full efficiency. It's possible for a few companies to work like this, especially on a smaller scale, but suggesting that all corporations make these changes is idealistic and worse for society in the long run.
I would definitely not even try changing the way already existing firms work. That's futile and a waste of time. Even the comparatively smaller effort of changing an Asian company's ways to become more western is damn near impossible.
Imo the key is leverage, with respect to how productive and capable your average employee is, and how much more he can produce relative to your average person. When the gap there is large, you can afford to have economic inefficiencies in order to attain other values. Not all industries are capable of doing this of course. There's only so much more that a traditional manufacturing company can produce relative to its "average competitor".
In the end, I'm not trying to change the rule of things right away. I'm trying to be the exception that proves the rule. And those exceptions already exist. They've already proven that it's possible to not take investor money, pay less than Google, offer more flexibility than competitors, and have some of the best talent in the world. It's not even like I'd have to invent some new paradigm. It's already been done.
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South Africa4316 Posts
On February 20 2012 03:45 thedeadhaji wrote:Show nested quote +On February 20 2012 00:56 Daigomi wrote:
Software is perhaps one of the areas where you can get away without too much capital, and even there most startups received venture capital at some point. Internet companies are almost impossible to grow without a big capital outlay, since they take so long to become profitable and monetizing it too early will almost always hamper your growth. The only software companies I can think of that seem to be succeeding with minimal capital investment right now is indie game creators. I know a few personally outside that space who are well into cash flow positive with only angel funding. Show nested quote +Regarding the voting power, my point was not so much that these investors would force you to act in a way that benefits them. Rather, if they knew how you were planning to treat them, they wouldn't invest, and if they didn't, then you're betraying the investors which made your company possible. They take a big risk by investing in your company, most new companies go bankrupt, so after they take that risk you have an obligation to reward them by providing them with returns considerably above the risk free rate. Not doing that would be unethical in the first place (unless you tell them you don't intend to at the start), and secondly, if you do that, they might withdraw their funding. The term sheet would have all the voting rights laid out, so there's no room to deceive in the first place. This is a moot point imo. Show nested quote +Everyone wants an "unfair talent" advantage, including the corporations you are railing against. The question is why you'll get the unfair advantage while much bigger competitors don't. Google is supposed to have some of the best working conditions of any company in the world. The only reason they can do that, though, is because they make a shitload of money. In general, when you start out, you won't be able to pay employees great salaries. In fact, considering you don't want investors, you'll have a hard time paying employees even average salaries. You also can't let employee salaries grow more quickly than your business does, as that would interfere significantly with future company growth. Getting an "unfair talent" advantage in such a situation, when you're competing with Google, Amazon, Microsoft, and all the other major, investor backed firms, will be pretty damn hard. You pretty much have to hope you luck into someone with undiscovered potential. Because with the exception of Google, all the companies you mentioned have shitty working conditions and engineering culture/bureaucracy. (Amazon's is so bad that many say that they'd rather work for MSFT for 20k less salary than work at AMZN). Plenty of great engineers have chosen to take freedom over the highest status or highest compensation. Look at the guys in Mozilla Foundation, Github, or 37 Signals, like I have mentioned previously. These are small shops that are highly regarded in the industry, pay less than Google, but offer a culture and ethos that the traditional organizations cannot. And they have some of the best talent in the world. When you do something great and you offer things that larger companies cannot, talent flocks to you regardless. Being in Silicon Valley, I actually personally know many people who are looking for more of a balance in their lives rather than the highest paycheck (which btw, if you're a software engineer, exists in Wall Street or the Tristate hedge funds) I think the concern you have is attracting the initial team, which I'm not concerned at all about. Show nested quote +Regarding whether it's been worth it, my parents vacillate a lot. In general they say yes. They love their jobs, and they've always been the kind of people to help others out in any way possible. However, with the recent depression, they've not been so positive. They've had to consider firing most of their staff multiple times and had they done that, things would have gone much better.
In the end, I'm not saying that what you are proposing is impossible. In fact, I said that in the previous post that it's possible as long as you're willing to make up for the inefficiencies with your own work. My argument is that you can't change the way modern corporations work. What you are proposing, a company that doesn't squeeze out every bit of profit it can, is inefficient, which means that companies who do this would, in the long run, be replaced by companies who are running at full efficiency. It's possible for a few companies to work like this, especially on a smaller scale, but suggesting that all corporations make these changes is idealistic and worse for society in the long run. I would definitely not even try changing the way already existing firms work. That's futile and a waste of time. Even the comparatively smaller effort of changing an Asian company's ways to become more western is damn near impossible. Imo the key is leverage, with respect to how productive and capable your average employee is, and how much more he can produce relative to your average person. When the gap there is large, you can afford to have economic inefficiencies in order to attain other values. Not all industries are capable of doing this of course. There's only so much more that a traditional manufacturing company can produce relative to its "average competitor". In the end, I'm not trying to change the rule of things right away. I'm trying to be the exception that proves the rule. And those exceptions already exist. They've already proven that it's possible to not take investor money, pay less than Google, offer more flexibility than competitors, and have some of the best talent in the world. It's not even like I'd have to invent some new paradigm. It's already been done.
I guess I shouldn't discuss the specifics since you would know more about how things work in your field than I would. To add to it, Silicon Valley still probably works differently from almost all the other industries in the world in that a good idea can give you a massive, and long-term sustainable advantage.
Also, as you say, exceptions that prove the rule already exist. However, I would put this down to the relative youth of the software industry, and perhaps to the way in which the software industry works in general. As you said earlier, one good worker can be as productive as ten poor workers (something which is not true in many other sectors). This gives you considerably more flexibility in how you will pay your workers. You could pay them more and get better talent, or you could pay them less and get more workers. In the end, the decision is still economically sound, since by paying more you could get an equivalent increase in productivity. This can't be said for a company like Foxconn, where increasing wages by 30% wouldn't lead to a 30% increase in productivity.
In the end, I think I just disagree with the idea that firstly, there is something wrong with the current corporation, and secondly, that the changes you would like to make could become the norm. To me, in the long run, rational investors won't invest in a company where they face the same risks but at less of a reward. Similarly, corporations won't be able to pay their workers above the absolute economic minimum, which is to say the point where the productivity to pay ratio is the highest. These inefficiencies might exist in the short-run, especially in an industry like software which is young and growing at a fantastic rate, but in the long run inefficiencies will need to be cut to a minimum for a company to survive. That is to say, I disagree with your premise on a theoretical level, but I agree that at the moment it is plausible in practice on a small scale in your specific sector.
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