The Conscious Decoupling of the Corporation
We can think of a company as a way to bundle a set people and assets for a journey together to a particular destination. It’s a legal entity that enables, in a Coasean sense, repeated low-cost transactions. These repeated “transactions”, or relationships, create the culture and processes that propel a company forward.
But today’s construct of a company was designed for an earlier time when geography limited the supply and demand of opportunity, when it took decades and significant capital to create value, and when employers had the upper hand. Here are some of the vestiges of that earlier era:
- Employer-based insurance and retirement savings
- 4+ year vesting schedules
- The resume
- Centralized corporate governance in the form of a “board”
Critically, high growth companies also have distinct phases but today’s vehicles assume structural continuity. As described in this Harvard Business Review article from 1999, high growth companies go through three very different phases: 1) product innovation (small team, employees are most valuable, focus on product-market-fit) 2) customer relationship management (customers are king, building sales channels) and 3) infrastructure management (resource optimization). In each of these phases, the skills, talents, and functions needed are quite different.
In a company today, a board oversees a CEO, who oversees executives, who oversee team members, who complete tasks. Each of these relationships is imbued with the illusion of permanence when we know none at all exists.
How might company a be organized differently in order to be optimized for the reality of today’s opportunities, capital, and talent? It might look a bit more like a movie: an agreement to get something done together and then disband. Or maybe a TV series. Each season doesn’t need exactly the same cast but does require continuity.
Taking this perspective allows you re-consider each of the relationships a company creates within itself, that are in fact, what make the company. This might imply a few different kinds of new relationships:
- Boards aren’t an efficient mechanism of corporate governance. Instead, CEO’s should 1) collect deep and shallow advisors who advise on strategic and tactical issues 2) design effective reporting metrics that give shareholders true transparency of CEO performance. An external, trusted company (e.g., a Moody’s for privately held companies) could vouch for the relevance and reliability of the metric design, that could go far beyond GAAP accounting.
- Companies take too long to hire key executives that fit their stage of growth. What if companies worked with the best executives on a rotational advisory basis, calibrated to stage, to build in key learnings and processes into the organization at the inflection point? This is something that Silicon Valley has had a recent advantage in: the cultural expectation that person to build your marketing function from zero to one isn’t necessarily the right person to scale it. But what if a better marketplace and work practices shortened the cultural and transaction costs to enable six month tours of duty instead of two year tours?
- Outsource far more than is conventionally done today. Focus is worth more than pure financial cost, and non-differentiators aren’t worth your time. We continue to see software enabling execution decoupling in everything from Scout to Envoy to Managed by Q.
Information technology is reducing the transaction cost of decoupling expertise, while the opportunity cost of slower, unoptimized creation is growing. If we could assemble, re-assemble, and disassemble companies as quickly as movies what would be created? What companies don’t exist because they weren’t able to apply micro-expertise quickly enough? And what will happen next?
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