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I think this depends on the industry (as PG speculated). It works in software and other industries with healthy margins. But in industries with slim margins, yo

I think this depends on the industry (as PG speculated). It works in software and other industries with healthy margins. But in industries with slim margins, you see more cutthroat behavior. I don't think it's a coincidence that Amazon (for ex) has poor working conditions. Retail has always been a slim-margin business, and most of the companies in it are accused of very similar poor behavior. (I don't mean to pick on Amazon, but it's a recent example. And I know some will say AWS is ok.. but AWS likely has much higher margins than the retail side.. so it does't really change my point.) Take any industry.. and the chances are the profit margin is a good indicator of the working conditions. This isn't to mean that those who start retail (or similar low margin) business are mean people.. but I think the lack of profits necessitates cost control and a focus on efficiency... which leads to poor working conditions (since good working conditions cost money) and decisions people will interpret as mean.

api 11y ago
I recently read Zero to One, the Blake Masters / Peter Thiel manifesto (of sorts). One of the interesting points he makes there is to come down on the side of monopoly. I interpreted it as a one-sided position, but I think they were putting forward this one-sided position to stand in contrast to the typical one-sided view of monopoly you often hear -- namely the other side. Most people are anti-monopoly. Competition s good! But low-margin businesses are like starved animals that will eat your face off to survive. A low-margin business chases out "nice" founders and executives -- they simply don't make it in that environment. You really do have to be an asshole to extract margin from nothing, because part of the way you do that is by squeezing people including your employees. In tight low-margin industries nice people finish last. Monopolies -- or at least companies in industries with margins and pricing power like software -- can afford to be nice. They can afford to pay higher salaries, be more tolerant of mistakes, give better benefits, have looser schedules, etc. Obviously there are exceptions as people will be people, but on average these industries tend to be nicer places. Nicer founders and executives can also make it in these industries, and in fact might have an advantage. People want to work with them. Monopoly like most other things in economics and ecology is a paradox. You (economically speaking) want your employer or company to be a monopoly, but not others. That's because for others you are a customer, so you want them to be subject to brutal competition. But there's a dark side to monopolies too, namely that they get lazy. The ideal is probably to have some monopoly and pricing power around, but not too much. Like most things in living systems the optimum is somewhere in between and the edges are both pathological.
- JoeAltmaier 11y ago
  Hm. A monopoly doesn't have to worry about losing business nor employees to the competition. They can squeeze both for the last drop of blood. ATT was a monopoly for years. They underpaid, charged for pathetic service, and were inefficient to the nth power. Maybe there was cash to be milked by individuals somewhere in all that. Probably executives. But I'm not sure the rank and file had it cushy.
  - TeMPOraL 11y ago
    > Hm. A monopoly doesn't have to worry about losing business nor employees to the competition. They can squeeze both for the last drop of blood. But then again, they also don't have to worry about competition undercutting them. So it's more likely that they'll stop exploiting their employees at some point, if only because the CEO has conscience. But add in some fierce competition, and silly things like conscience have to go out of the window.
    - lhc- 11y ago
      Except the stockholders never gain a conscience, and the CEO is beholden to them, so there's no incentive to stop behaving like a sociopath and stop exploiting employees. Time and again evidence has shown that rich companies are never satisfied with being rich; they always want more.
      - ethbro 11y ago
        Exactly, but only for publicly listed companies. Private investors still want profit, but hopefully they'd be more interested (because of their larger stakes on average) in less rapacious approaches. Although, now that I think about it, the key metric here is probably growth. As long as a company is growing, if growth >> margin to be reclaimed by being an ass, growth wins. But when growth =< that margin... there's always going to be pressure (aka Google).
    - JoeAltmaier 11y ago
      Right, sure, the competition part. But we have no real conclusion we can make about the monopoly part. They may be kind. They may not. And there's definitely still pressure on them to profit. So I'm thinking, not.
larrys 11y ago
"But in industries with slim margins, you see more cutthroat behavior." Absolutely. Not to mention in business and industries which are being operated by typically older people who have families and are in fear of losing their job or their business or their house (which is often collateral for loans). It's easy to be a relaxed nice guy if you are a tenured University prof with an office of dusty books. Or a startup guy who has multiple plan b's. [1] A bit harder if you've got outstanding accounts receivable as well as aggravating customers and cutthroat competitors. And the type of run of the mill mediocre people that you typically get to work for you if you are not a "startup". [1] And let's just put it right on the table here. Anyone who gets a large amount of funding and fails gets their ticket punched and gets another try either working for another startup or perhaps raising for another idea. And actually the larger the failure (and visibility) it's typically good for the next thing someone will do. Edit: Failure in traditional business is failure. It's a negative plain and simple. You end up working for someone in their lackluster business and since you may have lost some of your assets you can't even typically start a new business (and your friends and family are not going to give you an additional money, nor will you be able to get bank loans..)
- hessenwolf 11y ago
  Multiple plan b's, sadly with a correlation of their go-bust probability of 1 in a scenario of economic stress, unless they are really diversified.
dominotw 11y ago
What about Zappos? Isn't that a counterexample ?
- deleted 11y ago
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- deleted 11y ago
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- rgbrenner 11y ago
  Companies choose their profit margin. Amazon, at one point, had to decide to become like Nordstrom or like Walmart. They chose the Walmart route.. which is a focus on lowering prices (and therefore low margin). Zappos may be in retail, but they are not low margin. Their gross margins (revenue - cogs) are roughly 35%. Compare that to Nordstrom - 37.5%. And coincidentally, Nordstrom also has a reputation for good working conditions.
  - bjterry 11y ago
    Costco has a gross margin of ~13%, and is reputed to have very good working conditions.
    - imcqueen 11y ago
      The paid membership component makes that tough to compare, but I've also heard they take good care of employees
    - lacker 11y ago
      Would you rather work at Costco, or at Amazon?
      - bjterry 11y ago
        I would rather work as a retail employee at Costco than as a warehouse employee at Amazon. But I'd probably rather work at the job I'm most qualified for at Amazon than at Costco, because it would be better for my resume and presumably have more interesting technical work.
SomeCallMeTim 11y ago
>I don't think it's a coincidence that Amazon (for ex) has poor working conditions. I just spent a year and a half working for Amazon, and the recent reports about working conditions were, as far as I could tell, either fabrications, or things that hadn't happened for years. Working there was great. Yes, I was in the AWS tree, but I also had contact with people in the Retail tree, and didn't perceive any differences there. Low-wage jobs like fulfillment...I don't know. I'm a developer. Oh, and did I mention the pay was great? Hard to complain, really.
- tomtang0514 11y ago
  Pay was great? Really? Maybe it's true for Seattle. I've done an internship at AWS couple years back and I chose not to return for fulltime, while two of my colleagues did. We're all in california and they both left Amazon before this summer. Why? Maybe because they're paid 20% less than I do? And one of them told me most people in his office only got 3% raise in salary each year.
  - Alupis 11y ago
    Cost of living is substantially higher in Silicon Valley/CA than in WA state (maybe not Seattle itself, but in general). So it's natural to have differences in pay. In reality, you and your friends probably made around the same amount after all living expenses were paid, etc... Basically $60K (or whatever salary) isn't $60K everywhere, it's relative. It's a reason why some "put their time in" working in SV, then move to Nebraska or something for a comfortable living.
    - tomtang0514 11y ago
      Are you carefully reading my comment? I said we are all in California, one of them is in Amazon Irvine while the other is in Amazon Palo Alto. And before you make any further guess, I'm in Redwood City not San Francisco. So there's no reason they should be paid 20% less. In addition, this is just one year after we all graduated, if we keep the same growth rate for 5 years they're going to make 40% less than me. It's just not competitive at all.
gmarx 11y ago
In fact if you look at the history of once hot new industries (automobiles, airlines) you tend to see early cutthroat but fun to work for beginnings, followed by periods of fewer competitors, glamour and even more (if different) fun (think airline pilot/stewardess in the 1960s) followed by more competition, decreasing margins and the jobs kind of sucking. I've done no research on this whatsoever so will likely be shown counterexamples shortly.
- cpr 11y ago
  Airlines may be a bad example, because they were operating for decades under price control, and most of the airlines never recovered from that mindset. The Amtrak syndrome...
  - gmarx 11y ago
    Not just price control, regulation protected them from competitors in multiple ways until the late 1970s. I still think its' a good example. The point is you go through a golden age when everything is easy, competition is minimal to gentlemanly, for whatever combination of reasons
analog31 11y ago
Was Amazon in a low-margin industry when they were a startup? I don't even remember what their initial market was -- selling old books or something like that. Did they even foresee what they would become?
- rgbrenner 11y ago
  Yes. Amazon was low margin from the beginning. They started as a book retailer. Here's their annual report from '97: http://www.slideshare.net/matthbrody/amazon-annual-report-1997 http://www.slideshare.net/matthbrody/amazon-annual-report-19... Their gross profit margin (sales - cogs) was 19%. For comparison, Walmart is 20-25%
tinbad 11y ago
Totally. For businesses that scale well (= tech startups) it's safe to be nice without jeopardizing much. It's a lot easier to give software away for free in hope of a future return than it is, lets say, a car. The easier it is to give away your product, the nicer you can probably afford to be and possibly, the more scalable your business is? More traditional businesses, who depend on production facilities, supply chains, etc. have higher overhead costs and will not be in the position as often to give stuff away for free.
alain94040 11y ago
Margins are probably not the main factor. Even in spaces with large margins, if the market is winner-take-all, then bad behavior from founders can make the difference. Think Uber playing dirty tricks on Lyft. It's not about margins, it's about building a monopoly and eliminating the competition.
- deleted 11y ago
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mynegation 11y ago
Also known as Sayre's Law (https://en.wikipedia.org/wiki/Sayre%27s_law https://en.wikipedia.org/wiki/Sayre%27s_law)
puranjay 11y ago
I've always said that if I was in another industry, I'd be out of business a long, long time back. The traditional brick and mortar business people I know have to be ruthless. They negotiate like they'll run out of money tomorrow and never leave cash on the table. And they can't understand why I won't haggle or force my employees to work longer hours. The tech industry is heavily insulated from what passes for 'normal practice' in most businesses.
- abalashov 11y ago
  Or, heavily insulated from the threadbare margins and intense competition in most lines of trade. :-)
  - sillygeese 11y ago
    The tech industry certainly has competition, but the juicy margins make it much less of an "issue".
    - abalashov 11y ago
      That was precisely my point. :)
      - sillygeese 11y ago
        It looked like you thought the tech industry is insulated both from thin margins and intense competition. I wanted to point out that we do have competition (and that it's sometimes certainly intense too).
ThomPete 11y ago
Although on the surface this sounds plausible and I definitely think it explains why some companies have poor working conditions or psychopathic bosses. I don't think it necessarily explains why some have good. At least not in the context that pg is talking about. Many startups don't have any margins at all. They might have growth but they are fundamentally unprofitable. Instead I believe it's more to do with the fact that they are funded and don't have to worry about margins to begin with. (They might have to worry about growth though)

api 11y ago

I recently read Zero to One, the Blake Masters / Peter Thiel manifesto (of sorts). One of the interesting points he makes there is to come down on the side of monopoly. I interpreted it as a one-sided position, but I think they were putting forward this one-sided position to stand in contrast to the typical one-sided view of monopoly you often hear -- namely the other side. Most people are anti-monopoly. Competition s good! But low-margin businesses are like starved animals that will eat your face off to survive. A low-margin business chases out "nice" founders and executives -- they simply don't make it in that environment. You really do have to be an asshole to extract margin from nothing, because part of the way you do that is by squeezing people including your employees. In tight low-margin industries nice people finish last. Monopolies -- or at least companies in industries with margins and pricing power like software -- can afford to be nice. They can afford to pay higher salaries, be more tolerant of mistakes, give better benefits, have looser schedules, etc. Obviously there are exceptions as people will be people, but on average these industries tend to be nicer places. Nicer founders and executives can also make it in these industries, and in fact might have an advantage. People want to work with them. Monopoly like most other things in economics and ecology is a paradox. You (economically speaking) want your employer or company to be a monopoly, but not others. That's because for others you are a customer, so you want them to be subject to brutal competition. But there's a dark side to monopolies too, namely that they get lazy. The ideal is probably to have some monopoly and pricing power around, but not too much. Like most things in living systems the optimum is somewhere in between and the edges are both pathological.

JoeAltmaier 11y ago
Hm. A monopoly doesn't have to worry about losing business nor employees to the competition. They can squeeze both for the last drop of blood. ATT was a monopoly for years. They underpaid, charged for pathetic service, and were inefficient to the nth power. Maybe there was cash to be milked by individuals somewhere in all that. Probably executives. But I'm not sure the rank and file had it cushy.
- TeMPOraL 11y ago
  > Hm. A monopoly doesn't have to worry about losing business nor employees to the competition. They can squeeze both for the last drop of blood. But then again, they also don't have to worry about competition undercutting them. So it's more likely that they'll stop exploiting their employees at some point, if only because the CEO has conscience. But add in some fierce competition, and silly things like conscience have to go out of the window.
  - lhc- 11y ago
    Except the stockholders never gain a conscience, and the CEO is beholden to them, so there's no incentive to stop behaving like a sociopath and stop exploiting employees. Time and again evidence has shown that rich companies are never satisfied with being rich; they always want more.
    - ethbro 11y ago
      Exactly, but only for publicly listed companies. Private investors still want profit, but hopefully they'd be more interested (because of their larger stakes on average) in less rapacious approaches. Although, now that I think about it, the key metric here is probably growth. As long as a company is growing, if growth >> margin to be reclaimed by being an ass, growth wins. But when growth =< that margin... there's always going to be pressure (aka Google).
  - JoeAltmaier 11y ago
    Right, sure, the competition part. But we have no real conclusion we can make about the monopoly part. They may be kind. They may not. And there's definitely still pressure on them to profit. So I'm thinking, not.

larrys 11y ago

"But in industries with slim margins, you see more cutthroat behavior." Absolutely. Not to mention in business and industries which are being operated by typically older people who have families and are in fear of losing their job or their business or their house (which is often collateral for loans). It's easy to be a relaxed nice guy if you are a tenured University prof with an office of dusty books. Or a startup guy who has multiple plan b's. [1] A bit harder if you've got outstanding accounts receivable as well as aggravating customers and cutthroat competitors. And the type of run of the mill mediocre people that you typically get to work for you if you are not a "startup". [1] And let's just put it right on the table here. Anyone who gets a large amount of funding and fails gets their ticket punched and gets another try either working for another startup or perhaps raising for another idea. And actually the larger the failure (and visibility) it's typically good for the next thing someone will do. Edit: Failure in traditional business is failure. It's a negative plain and simple. You end up working for someone in their lackluster business and since you may have lost some of your assets you can't even typically start a new business (and your friends and family are not going to give you an additional money, nor will you be able to get bank loans..)

hessenwolf 11y ago
Multiple plan b's, sadly with a correlation of their go-bust probability of 1 in a scenario of economic stress, unless they are really diversified.

dominotw 11y ago

What about Zappos? Isn't that a counterexample ?

deleted 11y ago
[deleted]
deleted 11y ago
[deleted]
rgbrenner 11y ago
Companies choose their profit margin. Amazon, at one point, had to decide to become like Nordstrom or like Walmart. They chose the Walmart route.. which is a focus on lowering prices (and therefore low margin). Zappos may be in retail, but they are not low margin. Their gross margins (revenue - cogs) are roughly 35%. Compare that to Nordstrom - 37.5%. And coincidentally, Nordstrom also has a reputation for good working conditions.
- bjterry 11y ago
  Costco has a gross margin of ~13%, and is reputed to have very good working conditions.
  - imcqueen 11y ago
    The paid membership component makes that tough to compare, but I've also heard they take good care of employees
  - lacker 11y ago
    Would you rather work at Costco, or at Amazon?
    - bjterry 11y ago
      I would rather work as a retail employee at Costco than as a warehouse employee at Amazon. But I'd probably rather work at the job I'm most qualified for at Amazon than at Costco, because it would be better for my resume and presumably have more interesting technical work.

SomeCallMeTim 11y ago

>I don't think it's a coincidence that Amazon (for ex) has poor working conditions. I just spent a year and a half working for Amazon, and the recent reports about working conditions were, as far as I could tell, either fabrications, or things that hadn't happened for years. Working there was great. Yes, I was in the AWS tree, but I also had contact with people in the Retail tree, and didn't perceive any differences there. Low-wage jobs like fulfillment...I don't know. I'm a developer. Oh, and did I mention the pay was great? Hard to complain, really.

tomtang0514 11y ago
Pay was great? Really? Maybe it's true for Seattle. I've done an internship at AWS couple years back and I chose not to return for fulltime, while two of my colleagues did. We're all in california and they both left Amazon before this summer. Why? Maybe because they're paid 20% less than I do? And one of them told me most people in his office only got 3% raise in salary each year.
- Alupis 11y ago
  Cost of living is substantially higher in Silicon Valley/CA than in WA state (maybe not Seattle itself, but in general). So it's natural to have differences in pay. In reality, you and your friends probably made around the same amount after all living expenses were paid, etc... Basically $60K (or whatever salary) isn't $60K everywhere, it's relative. It's a reason why some "put their time in" working in SV, then move to Nebraska or something for a comfortable living.
  - tomtang0514 11y ago
    Are you carefully reading my comment? I said we are all in California, one of them is in Amazon Irvine while the other is in Amazon Palo Alto. And before you make any further guess, I'm in Redwood City not San Francisco. So there's no reason they should be paid 20% less. In addition, this is just one year after we all graduated, if we keep the same growth rate for 5 years they're going to make 40% less than me. It's just not competitive at all.

gmarx 11y ago

In fact if you look at the history of once hot new industries (automobiles, airlines) you tend to see early cutthroat but fun to work for beginnings, followed by periods of fewer competitors, glamour and even more (if different) fun (think airline pilot/stewardess in the 1960s) followed by more competition, decreasing margins and the jobs kind of sucking. I've done no research on this whatsoever so will likely be shown counterexamples shortly.

cpr 11y ago
Airlines may be a bad example, because they were operating for decades under price control, and most of the airlines never recovered from that mindset. The Amtrak syndrome...
- gmarx 11y ago
  Not just price control, regulation protected them from competitors in multiple ways until the late 1970s. I still think its' a good example. The point is you go through a golden age when everything is easy, competition is minimal to gentlemanly, for whatever combination of reasons

analog31 11y ago

Was Amazon in a low-margin industry when they were a startup? I don't even remember what their initial market was -- selling old books or something like that. Did they even foresee what they would become?

rgbrenner 11y ago
Yes. Amazon was low margin from the beginning. They started as a book retailer. Here's their annual report from '97: http://www.slideshare.net/matthbrody/amazon-annual-report-1997 http://www.slideshare.net/matthbrody/amazon-annual-report-19... Their gross profit margin (sales - cogs) was 19%. For comparison, Walmart is 20-25%

tinbad 11y ago

Totally. For businesses that scale well (= tech startups) it's safe to be nice without jeopardizing much. It's a lot easier to give software away for free in hope of a future return than it is, lets say, a car. The easier it is to give away your product, the nicer you can probably afford to be and possibly, the more scalable your business is? More traditional businesses, who depend on production facilities, supply chains, etc. have higher overhead costs and will not be in the position as often to give stuff away for free.

alain94040 11y ago

Margins are probably not the main factor. Even in spaces with large margins, if the market is winner-take-all, then bad behavior from founders can make the difference. Think Uber playing dirty tricks on Lyft. It's not about margins, it's about building a monopoly and eliminating the competition.

deleted 11y ago
[deleted]

mynegation 11y ago

Also known as Sayre's Law (https://en.wikipedia.org/wiki/Sayre%27s_law https://en.wikipedia.org/wiki/Sayre%27s_law)

puranjay 11y ago

I've always said that if I was in another industry, I'd be out of business a long, long time back. The traditional brick and mortar business people I know have to be ruthless. They negotiate like they'll run out of money tomorrow and never leave cash on the table. And they can't understand why I won't haggle or force my employees to work longer hours. The tech industry is heavily insulated from what passes for 'normal practice' in most businesses.

abalashov 11y ago
Or, heavily insulated from the threadbare margins and intense competition in most lines of trade. :-)
- sillygeese 11y ago
  The tech industry certainly has competition, but the juicy margins make it much less of an "issue".
  - abalashov 11y ago
    That was precisely my point. :)
    - sillygeese 11y ago
      It looked like you thought the tech industry is insulated both from thin margins and intense competition. I wanted to point out that we do have competition (and that it's sometimes certainly intense too).

ThomPete 11y ago

Although on the surface this sounds plausible and I definitely think it explains why some companies have poor working conditions or psychopathic bosses. I don't think it necessarily explains why some have good. At least not in the context that pg is talking about. Many startups don't have any margins at all. They might have growth but they are fundamentally unprofitable. Instead I believe it's more to do with the fact that they are funded and don't have to worry about margins to begin with. (They might have to worry about growth though)