3 ms·

>Maybe have/work on multiple companies, have companies interact better with other ones so they can accomplish more, Ronald Coase[1] explains why an integrated

by jasode 10y ago

>Maybe have/work on multiple companies, have companies interact better with other ones so they can accomplish more, Ronald Coase[1] explains why an integrated large company can be more productive and efficient than interacting individuals (or interacting small companies). Basically, internal transactions (departments) cost less than external transactions (contracts). E.g. there is no way for Apple to sell an iPhone for $500 or Amazon AWS to offer EC2 compute for 1 penny per hour if those 100,000+ employees were split up into thousands of smaller 5-person companies. It seems reasonable that many entrepreneurs have ideas that require more than 5 people to execute. [1] https://en.wikipedia.org/wiki/The_Nature_of_the_Firm https://en.wikipedia.org/wiki/The_Nature_of_the_Firm

bediger4000 10y ago
Basically, internal transactions (departments) cost less than external transactions (contracts). It occurs to me that if we believe this, the USA as a country could make our entire economy more productive by making contracts less expensive. 5 seconds thought leads me to believe that "less expensive" might have a number of things involved, from simpler legal language that doesn't require a lawyer to understand, to a legal system that isn't set up to benefit lawyers, to less intellectual property restrictions, to a less adversarial legal system. Clearly much of this is impossible to implement.
- daveguy 10y ago
  It's not the cost of the contracts themselves that are so expensive it's the overhead of profit taking by the recipients of each contract. When you hire a contractor you avoid taking on capital expense and internal complexity overhead, but you are generally going to pay 15% or more above what it would cost you to do it in house. You accept this tradeoff with the understanding that people you contract with have to make some profit too. When you are small the complexity overhead can easily draw you off course. Month to month and on demand contracts can be paused rather easily to adjust to cash flows. It's not the cost of drawing up the contract that adds a significant part of the cost. The contract work itself that adds overhead.
  - fiatjaf 10y ago
    > You accept this tradeoff with the understanding that people you contract with have to make some profit too. Of course not. You accept the tradeoff because it is in your interest to abstract away risks. Part of the costs involved in this risk taking comes from how the contracts are set up. For example, your employee doesn't have an actual contractual obligation to fulfill such and such goals every month, while an external contracted firm may have.
    - daveguy 10y ago
      Ok. It is still not the contract that is the major cost. I didn't say the tradeoff is that other people make profit. The tradeoff is the overhead cost. Sure, that can be another tradeoff -- obliged fulfillment. Either way you're paying the contractee a little more for that. It's not the contract itself (the legal expense) that is the major cost in a contract. Yes it is some overhead, but is it really a significant part compared to the excess you are paying to have it contracted vs in house? The point is. It's still going to cost you more, even if the legal cost is zero.
unabridged 10y ago
I agree with you for companies that require physical presence. But services like Amazon AWS allows you to effectively contract 1000s of employees. A company like Netflix could be ran by 5 people.
fiatjaf 10y ago
How costly were contracts 2000 years ago? Read again, I suggested that companies start getting better interactions with others, that means innovation on contracts to make them more viable than hiring a new employee. I wasn't trying to say that it is viable to do EVERYTHING with a 5-people company. I was trying to say it is viable to do a lot, and that it is maybe possible to make it more viable to do more.

by jasode 10y ago

bediger4000 10y ago

Basically, internal transactions (departments) cost less than external transactions (contracts). It occurs to me that if we believe this, the USA as a country could make our entire economy more productive by making contracts less expensive. 5 seconds thought leads me to believe that "less expensive" might have a number of things involved, from simpler legal language that doesn't require a lawyer to understand, to a legal system that isn't set up to benefit lawyers, to less intellectual property restrictions, to a less adversarial legal system. Clearly much of this is impossible to implement.

daveguy 10y ago
It's not the cost of the contracts themselves that are so expensive it's the overhead of profit taking by the recipients of each contract. When you hire a contractor you avoid taking on capital expense and internal complexity overhead, but you are generally going to pay 15% or more above what it would cost you to do it in house. You accept this tradeoff with the understanding that people you contract with have to make some profit too. When you are small the complexity overhead can easily draw you off course. Month to month and on demand contracts can be paused rather easily to adjust to cash flows. It's not the cost of drawing up the contract that adds a significant part of the cost. The contract work itself that adds overhead.
- fiatjaf 10y ago
  > You accept this tradeoff with the understanding that people you contract with have to make some profit too. Of course not. You accept the tradeoff because it is in your interest to abstract away risks. Part of the costs involved in this risk taking comes from how the contracts are set up. For example, your employee doesn't have an actual contractual obligation to fulfill such and such goals every month, while an external contracted firm may have.
  - daveguy 10y ago
    Ok. It is still not the contract that is the major cost. I didn't say the tradeoff is that other people make profit. The tradeoff is the overhead cost. Sure, that can be another tradeoff -- obliged fulfillment. Either way you're paying the contractee a little more for that. It's not the contract itself (the legal expense) that is the major cost in a contract. Yes it is some overhead, but is it really a significant part compared to the excess you are paying to have it contracted vs in house? The point is. It's still going to cost you more, even if the legal cost is zero.

unabridged 10y ago

I agree with you for companies that require physical presence. But services like Amazon AWS allows you to effectively contract 1000s of employees. A company like Netflix could be ran by 5 people.

fiatjaf 10y ago

How costly were contracts 2000 years ago? Read again, I suggested that companies start getting better interactions with others, that means innovation on contracts to make them more viable than hiring a new employee. I wasn't trying to say that it is viable to do EVERYTHING with a 5-people company. I was trying to say it is viable to do a lot, and that it is maybe possible to make it more viable to do more.