Month: February 2016

There are, no doubt, plenty of capitalists who would disagree with me about why we should do business. I’m good with that.

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In The People’s Tycoon, Steven Watts spends a fair bit of time discussing Henry Ford’s Five-Dollar Day. For those of you who are unfamiliar, the Five-Dollar Day was how Henry Ford described his decision to double the minimum wage of every employee working for him, so that they made at least $5 every day.

I was surprised to learn that it was James Couzens, Henry’s “hard-driving business manager,” who urged Henry to make the change and became his strongest ally after its introduction.

Couzens came into his support of the Five-Dollar Day gradually but once he was convinced he was vocal in his advocacy, with Henry and with the American people. He argued that paying high wages, and being concerned with the personal needs of your employees, was good business. “If you are going to get the best possible service from a wage worker you must remember that he is a man and treat him as a man.”¹ He also came to feel strongly that the money being generated by the company was “a trust . . . . a responsibility, and a tough one.”

Not everyone agreed with Ford’s decision. No less an authority than The Wall Street Journal declared that “[t]o inject ten millions into a company’s factory, and to double the minimum wage, without regard to length of service, is to apply Biblical or spiritual principles into a field where they do not belong.”²

As a believer in free markets, the Wall Street Journal‘s response makes no sense to me. As long as the decision is not coerced, it’s absolutely beyond me how any personal religious, moral, or ethical principles could be inappropriate criteria for such a decision in a free market.

Quite the contrary; since the market is the (sometimes imaginary) place where we bargain with other people for the things we want, where we offer them the best reasons and justifications we can, there’s no better place for the introduction of Biblical or spiritual principles.

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I talked last week about a statement Jeb Bush made while stumping out here in Utah. He said conservatives will “win when our message is hopeful and optimistic; when we apply conservative principles to help everybody rise up, not just those that have already made it.”

As a conservative millennial and an adherent of free markets, I’m concerned by how many of my peers voice their support for socialism.³ But I’m not surprised by it.

What the Republicans and the big-C Capitalists apparently fail to realize is that not every complaint about conservatism and capitalism is the whining of spoiled kids with a liberal-entitlement mindset. Looking around myself, I have to admit that at least some of the complaints about conservatism and capitalism stem from the real frustration—the inability to effect a meaningful change in their situation—that many people feel.

Having accepted that there is a real issue there, however deep it’s buried, I also have to believe that we should try to fix it if we can.

The argument between the Republicans and the Democrats, the capitalists and the socialists, centers on how to run an economy. It’s an argument that runs deep and hot. And frankly, the capitalists are losing it.

But they’re not losing the argument because capitalism is an inferior system to socialism. Even China, the last real holdout of institutionalized socialism in the modern world, has moved strongly toward open markets.

No, capitalists are not losing because of their views on how to run an economy. They’re losing the argument because of their views about why we should run our economy. I’m a bit surprised that Jeb Bush is the only presidential candidate who seems to have grasped this idea.

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This is at the core of my ideas about why we should do business.  Conservatives will only start winning again when we start addressing those real concerns that keep driving people to Bernie Sanders and socialism. Capitalists and businessmen will only shake the reputation for overweening greed when our decision-making flatly rejects the possibility of making an extra 0.5% profit at the expense of our employee’s interests.

There’s no need to abandon the free market in order to accomplish what I’m proposing. Socialism won’t work; it doesn’t allow for sufficient personal direction. But capitalism, as an ideal, is too laden with baggage to be an effective vehicle either. What we need is something better than capitalism.

When I figure out what to call it, I’ll let you know.

I really struggled last week to express the point I was trying to make. Eventually, because I ran out of time, I had to hit the “Publish” button even though I hadn’t been able to say what I really meant.

In the professional world where I live, founders frequently introduce their approach to business by explaining that they’re not building “lifestyle companies.” The suggestion seems to be that lifestyle companies are content to schlep along with waste and inefficiency but that this company will win by being lean, mean, and agile. I suppose the explanation comes out of the impulse to convince investors that the founders will spend money wisely instead of blowing millions on narcissistic indulgences, and to that extent it’s probably a good thing.

In any event, this perspective about lifestyle companies isn’t uncommon. In my experience, it’s pretty much de rigueur for a startup founder.

So as I spent time thinking last week about not building a lifestyle company, I wondered how framing the concept like that affects the choices that startup founders make. In other words, I wonder whether the determination not to build a lifestyle company is a conclusion founders reach or an assumption that they make.

It’s an important distinction.

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My first attempt at writing last week was to resurrect an old draft I had written and then abandoned around this time last year. One of the first people to comment on this blog—maybe the first person to comment about this blog—advised his social circles to “try to ignore some of the politically charged phrasing” in my first few posts. I was simultaneously amused, frustrated, and left in a bit of a pique by his comment because I was deliberately trying not to strike a political tone, partly because I’m writing a blog about otherishness and business, not politics, but also because I don’t want to be pigeonholed. I’ve thought about his comment every time I’ve sat down to write.

I’m a conservative guy. I am a Mormon kid from Idaho after all. A lot of what I write is influenced by my understanding of what my scriptures teach. I’ve spent more time reading and thinking about uber-conservative thinking by guys like Adam Smith, Milton Friedman, and Friedrich Hayek than anyone I personally know. But I also survived law school and I read plenty of excellent writing and thinking by people who are as different from me politically as it’s possible to be. What I’m sharing here is a distillation of a theme that runs through all of their writing.

As I thought about how I would address last week’s post tonight, I realized that worrying about how some readers might pigeonhole me is silly. Mostly it’s silly because there are like 12 of you and most of you already know me well enough that pigeonholing is the least of my problems. But it’s also silly because worrying about what you’ll think (or whether you’ll agree) makes it harder to say what I’m here to say. In the end, I realized I’m here to share the insights I’ve had that I’ve never seen anyone else express. No surprise that they might not be appreciated by everyone.

So my worry about being pigeonholed was an assumption I made, not a conclusion I reached.

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A few days ago I was listening to the radio on the way to work. I typically flip between ’90s alt-rock, conservative talk radio, NPR, and classical music because I can only take any one of them for a few minutes at a time.

As one of the local talk shows started up, the host ran a quote from some guy I didn’t recognize. The speaker said, “We win when our message is hopeful and optimistic; when we apply conservative principles to help everybody rise up, not just those that have already made it.”¹

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Now to tie it all together:

The assumptions that we make about life, about business, about our economy, our politics, and pretty much everything else we do, shape the way we construct our world. They do this because they are intimately connected with, and ultimately give definition to, the way we perceive the world around us.

Because our assumptions are so powerful, they have two consequences. First, they’re a useful, rational sort of shorthand for understanding the world. We’re bombarded with information and we need a way to sort through it quickly. Our assumptions give us an effective tool to do that.

The second consequence is related. Because assumptions sort in a binary sort of way—think square peg in a round hole—they also often lead us to discard ideas that aren’t familiar before we’ve had a chance to think about them carefully. We don’t have time to file down the edges or try another hole because we’ve already discarded the idea that wasn’t what we expected. This rapid process of comparing and discarding reinforces our assumptions because it feels like progress; we can look around and say “I considered 1,472 different ideas, discarded 1,471 and kept one that worked.”

That’s the same sort of shorthand founders use when they explain they’re not building a lifestyle business. They’re trying to persuade their investors to invest by giving them something that fits the assumption that the opposite of a lean, efficient organization is “just” a lifestyle business.

But using the shorthand also determines how the founders will interact with their business. Every time they face a decision, part of the calculus will be “Is this what lifestyle businesses do?” If the answer to that question is yes, that option will usually join the 1,470 other discarded ideas on the floor without further question.

But if you do that, do you know what your alternatives actually are? Do you really need to become the next unicorn? Are you sure you can’t build a lean, efficient business that will reach your goals and be a lifestyle business at the same time?

Making such a decision without considering these and other alternatives will prevent founders from ever becoming truly otherish in business, to the detriment of those founders and the system.

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I’m writing this blog to explain (and explore) how to apply free-market principles in a way that will help everybody rise up, not just those who’ve already made it. That has implications for my politics, for my economic outlook, and simply for the way I view the world. The beauty of the free market is that if I’m right (and if I’m good enough at explaining it to you) maybe I’ll convince a few of you along the way.

 

I ran across an article on VentureHacks this week that neatly encapsulated one of the core principles of managing employees in an otherish business:

“we don’t pay you to work here–we pay you so you can work here.”

This principle was tied to another important insight:

“The problem isn’t that money is a weak motivator. The problem is that money is a terribly strong motivator. By itself, money motivates the wrong people to do the wrong things in the quest for more money.”

If both of those things are true, it means there are some pretty perverse incentives in the way most businesses approach hiring and compensation. Most employers of which I am aware approach hiring as if the the exchange is a simple market transaction. In this model, the company is interested in buying the employee’s time and skill at the lowest possible price. The employee’s interest, on the other hand, is to sell his particular services at the highest price he can. The result is a transaction that fits neatly onto the traditional demand/supply curve we remember from Econ 101.

What we miss, and what the post on VentureHacks accurately perceives, is that paying an employee to work for you focuses the transaction on how much money the employee can make. If he can make more, he goes somewhere else. If not, he’ll bluff and try to get as much out of us as he can.

So much for trust.

 

I’ve been reading about attachment theory lately. It’s a really complex, fascinating subject. As I understand it now, I’d summarize its basic principle this way: people have a basic need to trust that those with whom they most closely associate understand and value them. Psychologists have applied the theory to both the parent-child relationship and to the relationships between lovers. They posit that many of the long-term impairments to these relationships arise because one or both of the people in the relationships feel misunderstood or undervalued by the other person.

I wonder if attachment theory might help us understand how better to do business.

One of the key aspects of a business is trust. Sometimes leaders ask employees simply to trust their judgment on faith. The idea that employees should trust their managers is so commonly accepted that it’s almost axiomatic.

How often does it go the other way?

One of the most critical skills a leader can develop is to trust her team. Another is the ability to develop trust in others. I think it’s really important to understand that concept: trusting and developing trust are skills, not merely feelings. While trust is reinforced by positive experiences, it grows only when it is successfully extended beyond its demonstrated range.

To put it another way: we cannot trust without a bit of hope. We hope that our employees will do the right thing and we then give them the freedom to go and try. They hope that we’ve got their interests at the front of our minds as they put their livelihood in our hands.

Success in business depends as much on whether we’ve properly prepared our employees as it does on whether they’ve properly prepared themselves. But trust doesn’t exist in the preparation. It comes into being when we choose to hope for an outcome enough to take a step into the dark. It grows when our feet hit solid ground.