It's useful to hear your (not positive!) reaction to this idea and I appreciate the exchange.
The benefit to individuals participating in an organization like this would be that the org would be more likely to succeed because it faced lower overheads, less red tape and greater predictability. The individuals would have to evaluate for themselves how much compensation they're receiving and whether that's a better deal than open-market "managed employment" options. The structure allows for compensating much better and much worse than existing systems and it allows for more dimensions of negotiation because the contracts are private.
If the founders of this business offer only exploitative terms, then presumably no one would sign up. Or perhaps only people who they might not want would sign up. If, on the other hand, they offered similar comp levels but with a greater chance of success, then perhaps it could be a lot more attractive than current options.
The problem I perceive with the protections existing laws intend to deliver is their unintended consequences. For example, they can make employers slow or cautious in times when they need to be bold and decisive. Or they can sap exec bandwidth when it should be focused on the survival of the business. Because of its complexity, the system as it stands today requires lawyers and accountants and experts to interpret / research / analyze / opine, when a business generally needs clear and quick decisions.
As an individual worker, I've certainly benefited from employment protections, but I've also been constrained by them in many ways. On balance, I'd like to have the option to work within a "managed" employment system OR to try my luck in more open-ended system where I can (potentially) do better by thinking harder and taking more personal risk.
Unionization strikes me as an extreme of "managed" options, in which the individual elects to pay dues for some level of representation and then has to accept/reject whatever options are presented to them in an up/down vote with their cohort. In the system I'm envisioning, an individual can participate as an owner-capitalist, but without necessarily taking on the full risk of the enterprise on their shoulders as a traditional founder or co-founder.
(Preface: I'm still curious about this vision, and I'm asking about it to better understand it, even if I don't necessarily buy into it yet. But if this is tiring or boring, please don't feel like you have to continue replying! I appreciate the discussion so far, regardless.)
> It's useful to hear your (not positive!) reaction to this idea and I appreciate the exchange.
Sorry, it's not necessarily meant to be negative (although I can see that)... just... "skeptical", I think, in this post-Uber era, where the disposable, commoditized nature of labor is especially highlighted. Maybe "pessimistic" more than "negative"?
The org structure you're describe seems less like "all-owner" and more like "all gig work" -- the closest equivalent I could think of is if everyone simply worked under Ethereum smart contracts and got paid in various financial abstractions on top of that. Or like a web of peer-to-peer B2B sole proprietorships.
> If the founders of this business offer only exploitative terms, then presumably no one would sign up. Or perhaps only people who they might not want would sign up. If, on the other hand, they offered similar comp levels but with a greater chance of success, then perhaps it could be a lot more attractive than current options.
Actual co-ownership would mean the founders share the high-risk, high-reward situation. But in your setup, it sounds like it would distribute the risk across those who have less agency and financial/legal literacy, while simultaneously concentrating profit in the hands of those best able to manipulate the arrangement through a superior understanding of contract law, access to better lawyers or accountants, higher charisma, etc. It seems almost purpose-designed to disadvantage engineers who just want to contribute on the technical side instead of playing games with the shell companies. They're no longer "owners" in any meaningful sense of that word, just free agents who take on a lot of the risk with almost no guarantee of anything.
It's not clear to me who WOULD actually have ownership beyond that "holding company [at the center of] a web of entities"... all presumably with ties to some founder(s) but not others? That's not co-ownership, that's hiding the ownership and falsely representing employment status to the later joiners...
OK, but to be fair, let's say all of this is fully transparent upfront and people know exactly what they're signing up for. And let's also presuppose a healthy enough labor market where different kinds of companies and employment relationships all coexist (instead of them all converging towards the highest-profit model):
Let's say an individual worker could choose between:
-BureauCorp (unionized and a $100k salary, group negotiations, very low chance of unicorn-izing)
-Silicon, Inc. (non-unionized, $125k salary, 1% equity, fend for yourself, low chance of unicorn-izing)
-Code Co-op (worker-owned coop, $50k salary, 5-10% equity, shared governance, though not necessarily 1-person-1-vote, near-zero chance of unicorn-izing)
-Programmer Partnership (co-ownership of business and profits, $40k salary, 10-50% equity, defined governance, low chance of unicorn-izing)
-FreedomFirm (your hypothetical model, indentured servitude instead of a salary, X% equity, fend for yourself, low-medium chance of unicorn-izing)
What would FreedomFirm offer, especially over other high-risk models like Code Co-Op or the partnership? How would it entice workers, beyond "We're less regulated, so we will succeed" -- or is that the main offer? Do new worker-owners have to "buy in" to have a share of profits, or are they granted some equity upon joining the contract?
Is the idea that it would only draw in other people of similar financial/legal standing -- i.e., people who don't need a salary and have a high risk appetite, like former techies with significant savings -- who want a way to participate in a new org that offers basically nothing except a slightly higher chance of becoming a unicorn?
Like "invest $200k to buy shares in the shell company, fully vested upon 500k lines of code/delivery of feature X on the roadmap, no salary otherwise. If we succeed we all get rich, and if we don't, you get nothing"? How does ownership/equity relate to governance in this scenario, like what happens to their equity if they are "do-not-renewed"?
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I think mostly, my main skepticism is still "who would this appeal to". Is it only designed for people who think businesses primarily fail due to labor regulations? Or maybe there's some value proposition that I'm just not quite grasping yet?
understood - and glad to be discussing this. From the lack of other responses, it seems to be a niche interest topic :) Sorry for the length - please don't feel you have to respond to every aspect of the text below, I'm just trying to answer some of the questions you pose.
To answer your FreedomFirm vs rest: the primary goal I would have is to deliver all of the compensation of Silicon, Inc, in different packaging (ex: forgivable loans instead of salary, equity in the group, etc) but with better chance that the firm would succeed in the longer run and that the equity would be worth something one day. Plus, on the margin, a bunch of more negotiable items that are essentially impossible in ordinary employment relations:
- More moonlighting options in exchange for rougher RIF circumstances. Maybe instead of a RIF, the parent company stops funding one of the subsidiaries for a while but doesn't seek to shut it down or take away its license to certain IP. (more details below)
- More control in being able to market that subsidiary's IP or services to others (building businesses within businesses), within the bounds of the overall group's objectives/sensitivities. (say, maybe NetflixFreedomFirm would have a subsidiary that marketed its infra services, rather than give them all away as OSS for cachet or hiring lead-gen)
- More cash, say, in exchange for getting one's own health insurance on market terms rather than have the "company benefits" package - but with the option to get more equity instead.
- Less onerous "HR training" requirements in exchange for being directly responsible for one's corner of the enterprise etc. Groups could share materials about how to comply reasonably but not seek to have the total uniformity of current workplaces.
- Opportunities to invest more capital or buy-in, subject to qualifications for accredited investors and the like.
The key goal is reducing the drag on getting from startup to default-alive - the vast majority of businesses fail, so whatever one can do in the early stages to get them to default-alive, is probably worth it unless it gets too egregious (contract law being the more rough-and-tumble boundary). Existing labor laws try to some of this but they have poor proxies for default-alive like @wmf's example about of companies avoiding exceeding 50 employees. Perhaps once a company feels like it's at "default-alive" levels, it starts to roll things up into a more standard structure.
My belief is that this structure would appeal to:
(a) founders+employees who believe that with less intervention they can generate more value and who are frustrated with the tradeoffs of current labor arrangements - but who are willing to do some more private negotiating (ex moonlighting, side business, etc).
(b) former employees who are entrepreneurial, have enough knowledge to negotiate with founders/business partners (and value that aspect of work), and have appetite for more risk but without going all the way to starting their own fully stand-alone business.
(c) former employees who are interested in being/becoming independent actors - maybe building indy businesses in parallel or down the road, freelancing/consulting, etc.
Just to expand on an example I touched on previously: say the groupco co-founds a JV with a small set of engineers instead of hiring them directly. Maybe the engineers are the team who are going to build a new part of the groupco's product or will provide a broad service to the groupco (dev tools, say). When they form the newco with the engineers as founders, perhaps the groupco contributes some cash, some shares in the groupco, and some IP licenses to the groupco's existing systems; the engineers bring expertise. Over time, the engineers get more of the groupco shares as they deliver value. But then, groupco falls on bad times and would have laid off the newco team if they were traditionally employed. Instead, maybe they negotiate that newco can keep going, but doesn't get fresh cash from the groupco for some time. But - the shares in groupco that have been earned still belong and are apportioned to the founding team. newco engineers are a functioning team and can do projects for others to bring in cash, but groupco retains (say, limited-time) option to re-integrate them in exchange for granting them license to some of the base IP that they've been using to build some of the lowest layers of their dev tools. In time, groupco is able to re-integrate the team; maybe they've created independent value in that time that is acquired or negotiated over.
I hear your point that this path can create structures in which more sophisticated people could potentially take advantage of the less sophisticated. That's probably not easily fixable; similar to what happens if you get yourself into certain kinds of crypto or multilevel marketing. It could probably be mitigated to a degree with standardization, if the overall approach proves useful.
The flip side is: we don't really know at this point how much cost the current employment system imposes and how valuable the benefits it affords truly are, because we have no real counter-factual. If we gave looser structures an opportunity to develop, we might be surprised at how much real drag we're imposing at the early stages. FWIW, other countries do this regionally - they'll setup a "special economic" zone where the rules for commerce or business are just different, if you're operating in that area. Perhaps that would be one way of implementing something like this more narrowly.
PS: BTW (I am not a lawyer), but I do believe that even if you tried to pay everyone with Ethereum smart contracts, you might get drag-netted into de facto employment relationships. I think that's sort of what's being adjudicated with the Uber lawsuits in California and in other places.
The benefit to individuals participating in an organization like this would be that the org would be more likely to succeed because it faced lower overheads, less red tape and greater predictability. The individuals would have to evaluate for themselves how much compensation they're receiving and whether that's a better deal than open-market "managed employment" options. The structure allows for compensating much better and much worse than existing systems and it allows for more dimensions of negotiation because the contracts are private.
If the founders of this business offer only exploitative terms, then presumably no one would sign up. Or perhaps only people who they might not want would sign up. If, on the other hand, they offered similar comp levels but with a greater chance of success, then perhaps it could be a lot more attractive than current options.
The problem I perceive with the protections existing laws intend to deliver is their unintended consequences. For example, they can make employers slow or cautious in times when they need to be bold and decisive. Or they can sap exec bandwidth when it should be focused on the survival of the business. Because of its complexity, the system as it stands today requires lawyers and accountants and experts to interpret / research / analyze / opine, when a business generally needs clear and quick decisions.
As an individual worker, I've certainly benefited from employment protections, but I've also been constrained by them in many ways. On balance, I'd like to have the option to work within a "managed" employment system OR to try my luck in more open-ended system where I can (potentially) do better by thinking harder and taking more personal risk.
Unionization strikes me as an extreme of "managed" options, in which the individual elects to pay dues for some level of representation and then has to accept/reject whatever options are presented to them in an up/down vote with their cohort. In the system I'm envisioning, an individual can participate as an owner-capitalist, but without necessarily taking on the full risk of the enterprise on their shoulders as a traditional founder or co-founder.