What Is A Company For? Shaping Chaos Issue 5
What Is The Purpose of A Company?
Corporations are conceptual devices that we have decided are so massively useful that we should spend huge resources of time, energy and money to create, refine, and nurture them.
And yet, as Yuval Noah Harari cheerfully points out in Sapiens, they are fictions, a collection of stories.
“Corporations, money and nations exist only in our imagination. We invented them to serve us…”
And again:
“Corporations and currencies, they are also just stories we invented… if you push lawyers to the wall and ask them ‘what is it?’ they will tell you it’s a legal fiction”
A corporation is a nothing, a phantom we conjure out of rules and conventions. And yet we are manipulated by them, seduced by them, rely on them for our livelihood and dedicate an enormous part of our waking time on earth (the only true resource we all have) to them. They are enormously powerful — to us personally, and to society in general.
The act of starting a company, then, is to breathe life into one of these driven, hungry ghosts. We get to see the moment it begins to exist — a set of papers signed by a lawyer — then the first time it shows a little power — attracting a cofounder, or an investor — and the day it begins to really build itself, take on its own momentum.
No wonder starting a company can be so thrilling.
And, as always with an act of creation, the question arises: what are we building this thing, this shadowy machine, for? What is the purpose of this conceptual gadget we are shaping?
It's not theoretical: this question will come up over and over again in different forms: how much investment to take and from whom? Remote or local working? To accept an acquisition exit or not? How and when to do layoffs? Put it all on an uncertain hyper-growth path, or stay with what's working?
All of these, in the end, come down to: what is a corporation, our corporation, for? And the great thing about building a company is: we get to decide the answer.
So what is your company? What’s it for? Let’s look at some possibilities (a non-exhaustive list):
A Cold-Hearted Investment Multiplier
The easiest, and most common answer: a corporation is a device that returns value to shareholders. (I don’t know about you, but this makes me bored just typing it).
Interestingly, the hard-core version of this point of view is relatively recent, dating roughly to Milton Friedman in the 60s and 70s:
“There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game…” Milton Friedman – The Social Responsibility of Business Is To Increase Its Profits
This view has the value of apparent simplicity: a company can be understood by looking at spreadsheets, and decisions are, on the surface, easily made. It has the downside of ignoring all the other things a company is which, in the end, can cause the company to fail anyway.
(Silicon Valley has, of course, recently re-discovered some enthusiasm for this point of view, much like a person suddenly realizing they have been at a party wearing the wrong pair of pants).
A Community
Whatever else it is, a company is a group of interconnected people. It is a community, whether consciously intended or not. The values and norms of the community may be carefully constructed and explicit, or allowed to grow without guidance, but they will be there.
The company is a relationship engine, sustained and built by human connections. It provides a sense of belonging and some of the relationships humans need to live, however contingent (remember, the company is a ghost) and strained.
And the style of community matters. Careful design makes this web of temporary but meaningful relationships work. Clumsy design (“we a family”), or no design (“we’re just here to work”), quickly builds cynicism.
A Force For Societal Change
Our hungry ghosts change and mold the way our societies work. The flows of money (mostly upwards), the flows and styles of communication (wildly divergent and broad), the knowledge and beliefs in what truth means — all of these have been shaped entirely by corporations in the past thirty years. And before that, corporations shaped the three hundred year transformation from agriculture, to the factory, to the knowledge economy.
Often this appears accidental (Twitter anybody?). Sometimes it’s clear, obvious and very deliberate (Tesla, Google). Sometimes it sounds clear, but is conceptually murky, poorly understood (Facebook).
How much societal change are you going for? Why? What kind of society do you want to be part of creating? How do you balance the good you create against the externalities and the damage (where does the energy for your data centers come from?).
A Service To Employees
Much like a community, whether this is a designed purpose or not, the company provides services to its employees. At a crude level, it allows them to live. This is an agreed bargain, of course — I provide my labor, you provide a means for my existence.
And, much like a community, this bargain can be consciously designed, or not.
A hundred years or so ago, one of the most successful entrepreneurs of the age considered this carefully, and decided he would put his profits into hiring more people explicitly because he was providing a service:
“My ambition is to employ still more men, to spread the benefits of this industrial system to the greatest possible number, to help them build up their lives and their homes. To do this we are putting the greatest share of our profits back in the business” — Henry Ford, 1916.
He was challenged in court, and lost in Dodge vs Ford Motor Co. And yet...
You get to design the bargain (the fact that Henry Ford lost doesn’t mean that the primacy of shareholders is necessarily enshrined in law). Is it a cold tradeoff (we provide perks to get great engineers)? Or an acknowledgement that people spend hundreds of hours a year in the company and, maybe, making that time comfortable, rewarding, is just … the right thing to do?
A Creative Engine
Companies grow and thrive through almost constant creativity. Which means that however much we want to see them as machines, consistently clicking through a series of steps, mechanically converting raw materials (ideas, electricity, data) to value, somewhere in there has to a degree of chaos, uncertainty, and, yes, fun.
The investor wants stability, predictability, performance. The creator wants time, loose rules, understanding. Your company, the container, has to include both. You, the leader (founder, executive) have to understand when to tighten the structures, manage predictability, and when to blow things up, with the intention that the right New Thing will arrive.
How much of your company is a Creative Engine, able to move with the new currents? (And a hat tip to Mark Zuckerberg who, for all his faults, decided, bless him, to blow it all up and strike out for the horizon. Who knows if it’ll work?).
The Balance
All of these purposes for a company co-exist and balance each other. Too little community and cohesion suffers, which means productivity drops. Too much and maintaining relationships becomes more important than business growth. Too little creativity, the business stagnates. Too much, the business wanders. Choices are made. Basecamp is different from Oracle. Apple from Uber. Your company is your own.
These days, market forces are doing a good job of pressurizing companies to reveal what their purpose is, what they really value. Picking a random example, the recent Microsoft announcement of layoffs uses language absolutely appropriate for a shareholders meeting, much less so for communicating to humans about to lose their jobs. Satya Nadella is no dummy, so one has to assume the tone is deliberate, so we understand what he values.
“First, we will align our cost structure with our revenue and where we see customer demand. Today, we are making changes that will result in the reduction of our overall workforce by 10,000 jobs through the end of FY23 Q3” — Satya Nadella
So you get to choose. What’s the purpose of the company you’re building? What’s it for?
Notes
"When I get my exec team stable, I'll be able to relax" — Founder/CEO scaling startup
Hate to be the one to break the news, but there is rarely such a thing as a "stable exec team". You might get a six month period where everybody is on top of their function and the team coherence is working. But it'll change. So ... you've gotta be networking/recruiting all the time. Sorry.
"it's difficult to manage crazy" — CMO, scaling startup
This is true. Unless you are a bona fide saint or a reincarnated Old Soul who is on this earth to teach Deep Compassion, there will be some people who's behavior strikes you as so odd, so irrational, that they can't be managed. At least not by you. You gotta try. But there are limits. You have to be wise about the limits (if management was easy, everybody would do it).
"no pause, no transitions in the zoom world" — SVP Decacorn
All those moments of walking between conference rooms, saying hi to people, noticing the energy of the office—brief, apparently innocuous—are lost in Zoom world. We need them as transitions for ourselves, and as connections to others. We didn't notice them until they were gone!
Links
Measuring Engineering Organizations- a typically complete, wise and pragmatic guide from Will Larson.
Paul Graham on AI and writing - we still need to think, even if AI does the writing part.
Made me laugh - AI replacing thought leaders before truck drivers is ... ironic.