Stabilizing and developing a society II

Lower the bar

Just in case you have missed why I’m interested in entrepreneurship, it all starts with passion, the first article in this series.

To lower my bar on this post I will start by citing David Graeber work “A Practical Utopian’s Guide to the Coming Collapse” :

“The first reaction you are likely to get is a demand for a detailed architectural blueprint of how an alternative system would work, down to the nature of its financial instruments, energy supplies, and policies of sewer maintenance. Next, you are likely to be asked for a detailed program of how this system will be brought into existence. Historically, this is ridiculous. When has social change ever happened according to someone’s blueprint?”

It is hard, next to impossible, to even start sketching a practical guide on how to help entrepreneurship. I’m just trying to articulate a few ideas on how to lower the bar for somebody wanting to transform a hobby into a small business that might someday pay for his lunch. It’s not about creating financial empires, just to afford one the freedom of working what he/she wants, when he/she wants and still be able to put bread on the table. It’s not about getting to be “the boss”, the owner, the “administrator”, just enable creative, lucrative collaboration between people.

When investigating the legal denomination of a small business (limited liability company) in different European countries we find out that, in many cases, it is containing the word “society” inside:

• United Kingdom: LLP — Limited Liability Partnership;
• Germany, Switzerland: GmbH — Gesellschaft mit beschränkter Haftung;
• Romania, Italy, Spain, Portugal, France, Switzerland: SRL — Societate cu Răspundere Limitată; Società a Responsabilità Limitata; Sociedad de Responsabilidad Limitada; Sociedades de Responsabilidade Limitada; Société à responsabilité limitée;
• Czech, Slovakia: S.R.O. — společnost s ručením omezeným; spoločnosť s ručením obmedzením;
• Croatia, Macedonia, Serbia, Slovenia, Bosnia and Herzegovina, Bulgaria: d.o.o. — društvo s ograničenom odgovornošću; Drushtvo so Ogranicena Odgovornost; društvo sa ograničenom odgovornošću; družba z omejeno odgovornostjo; društvo s ograničenom odgovornošću; Druzhestvo s ogranichena otgovornost;
• Latvia: SIA — Sabiedrība ar Ierobežotu Atbildību.
• Rusia: OOO — Общество с ограниченной ответственностью

The word “company” is replaced in many European legal denominations by the word “society”. It is stating that the “company” is actually a group of people, a “society”, working together in order to provide the larger society with products or services. Every member of the “society” is working on accomplishing that, be it by doing the actual work, promoting it on the market, administrating the workload, supervising financial flows, thinking on improvements or new products/ services. Everybody is part of it, the success of the undertaking depends on every member and on how well people collaborate in this “society”.

In reality, the founder will assume the role of the legal administrator of the company and by doing that he/ she will become “the boss” of that “society”. In this role he/ she will assume responsibility and control. This way of organizing a company is best described as command and control management. By doing that, the founder becomes the dictator in the small society he/she leads and the company becomes his/hers dominion. Later on, when the founder sells or retires, the organization will be kept with another dictator at the head of it. I often heard people saying “this is a company not a democracy, we don’t have a vote”. The common wisdom of the moment is that democracy cannot work inside a company. It is the best system we know that works for society at large but it fails miserably when applied in a company (small society). Why?

There are other, less common, alternatives to command and control like the upside-down pyramid Joel Spolsky talks about. In this model the administrator will take on pure administrative tasks and will not assume the decision maker role. Decisions are taken individually or collectively by knowledge workers who best understand their purposes and needs. Joel speaks about empowering employees in the know to make educated decisions. The interesting point here is that decision making is as much related to knowledge as to responsibility, and knowledge is not accumulating on the organization pyramid culminating with the CEO. Joel talks about IT companies having highly educated university graduates as employees.

I will go on a limb here and say that the upside-down pyramid model can fit a retail store too. Who else that the cashier has more knowledge about what products sell well, or the warehouse worker that knows what product is in short supply or out of stock. We invent complicated IT systems that capture and analyze this kind of information, we do not trust these employees to handle this knowledge and take decisions based on it. But we fail to capture the discussion between a customer and the cashier about a missing product, an improvement suggestion or a wish for a different service. Why don’t we trust them handling the information and making decisions? Because they are not responsible for it and do not take care to notice this kind of information.

There are ways to organize a company so all employees share responsibility. This is not a new idea. There are many forms of worker cooperatives. And it looks like others think about it as a way to help promote entrepreneurship and jump-start the economy as you can read in the article To jumpstart US job market, turn workers into owners by Melissa Hoover and Beadsie Woo. Being responsible for the well-being of the company and taking part in sharing the gains will also increase the interest of employees in acquiring information and learning new way to help the business. I’m not talking here about stock options or other diluted forms of ownership but real ownership, co-founder style.

Now don’t get me wrong, I’m not promoting Participatory economics. There is no central redistribution of resources. Every society is independent in the way they organize inside, cooperate with providers, create partnerships with other societies or address their customers. There is competition. I do not propose a unique model, democratically organized companies can coexist on the market side by side with classical companies. They can establish partnerships, supplier-provider relations, compete with each other.

This model of organization has its issues. The members of the society (company) need to establish rules on how to take decisions, how to prevent undemocratic power takeovers, how to share the gains, how to avoid free-loaders, etc. This model might not scale well since it’s based on personal knowledge and mutual trust. I don’t see big enterprises organized this way, but a network of many such small companies working with each other in order to produce a bigger outcome. Here is a list of America's Largest Majority Employee-Owned Companies.

How can all that lower the bar on becoming an entrepreneur? Well for starters maybe you don’t need to found a start-up yourself. Just find such a democratically organized company that shares your interests and apply to join it. Becoming an employee and owner in such a company will grant you the possibility to promote your idea, get help from others in implementing it and rip part of the gains from it. If you cannot find such a company, create one together with your friends but make sure the rules are agreed upon upfront and you state them clearly in the articles of association. You also need to fight your ego and greed for money to define clear rules to prevent seizure of power by any involved party and fair distribution of gains. Such a society will attract talented independent people, will exempt you from paying salaries on the first day of work and your co-founders might even bring resources to help start the company.

Don’t get involved into something like this if you hope to make loads of money or if you are after world domination or any kind of domination for that matter. I have already said that it does not scale well. The network can scale but not a single company. It will never grow into a big enterprise. If you’re after the freedom to promote and implement your projects while putting bread on the table for you and your family it’s the way to go.

If you seek to join such a society study their articles of association carefully, check their history, discuss with them or with former associates. Find out how and on what terms you can leave the organization if you choose so. If not handled correctly and carefully, this type of organization can turn rogue in a hurry, things can get hairy and you might loose more than you are prepared for. Remember, as a part owner you are also responsible in the face of the law for actions undertaken by the society you are part of.

It would be great to have generic articles of associations that can be used as a template or even use per-se. Something composed by good lawyers after careful deliberation. Something famous so you know what it is just by hearing its name. Something that has a history of successful implementations. The equivalent of GPL of the software world but for the articles of associations defining a democratic company. Having something like this would lower the risk of getting involved into a scam or the risk of getting your society transformed into a scam.

The company you work for and own should not take over your life. The employees/ owners should not be starved by always reinvesting profit and never taking anything home. The undertaking should be driven by interest not peer pressure or other cult techniques. Be aware of your co-owners ambitions and try to avoid getting too much pressure on you through different techniques. How to work responsibly, get constant progress and avoid getting burned out, neglecting your family or other aspects of your life?