7 ms·

I think it's easy to look at this with an existing, successful business in mind - but things don't always work out that way. How would a business like this get

I think it's easy to look at this with an existing, successful business in mind - but things don't always work out that way. How would a business like this get started? Usually the owner is the one who invests a lot of their own time and/or money into the business to get it off the ground in the first place. Would we be asking workers to pony up in those early years when failure is likely? With Central States, the story picks up AFTER all that, when the business is already large and successful, and the owner just wants to retire. And what happens when the business struggles or fails later? In the case of Central States, the workers were asked to buy shares from the owner, probably using a portion of the salary they'd otherwise get. IOW, they're being underpaid relative to market, in exchange for ownership, expecting to get more later when they sell the shares. So far so good, but how does this look when the business has a rough patch, even one that's not their fault?

layer8overhere 2y ago
This.
hemantv 2y ago
Individuals have visions not committee. We build monuments for individuals not for committee. Having said that no man is island of itself. Current incentive structure works great to motivate individuals to start companies
- sidmitra 2y ago
  >We build monuments for individuals not for committee. That's the second time i'm hearing that quote today from completely unrelated sources. The quote is from David Ogilvy, in case anyone is wondering. "Search all the parks in all your cities; you'll find no statues of committees." https://x.com/The_AdProfessor/status/1705254246109651053 https://x.com/The_AdProfessor/status/1705254246109651053
  - binxbolling 2y ago
    Seems like it's deliberately using "committee" as a pejorative to make a political point. Flip it to "you'll find no statues of groups of people" and it's patently false.
  - deleted 2y ago
    [deleted]
- Apocryphon 2y ago
  Seems like confirmation bias. We often than not like to lionize successful individuals, but plenty of visions are false or otherwise fail. On the other hand, we tend not to remember group efforts because it's harder to remember multiple individuals at a time. But surely they do exist. Was there a single visionary behind Bell Labs? Xerox PARC? The traitorous eight? The Apollo program? The Manhattan Project?
  - nsonha 2y ago
    Groups are slower and less consistent in decision making than individuals, simple as that.
    - Apocryphon 2y ago
      There are different types of group governance and almost all of them having an individual decision-maker at the front. Oppenheimer directed the Manhattan Project but he wasn't a "visionary individual," he had plenty of talented geniuses working under him.
  - harhargange 2y ago
    I believe there would be a single polymath who has skills in multiple fields, such as Oppenheimer who was great at science and administration who can lead a group for successful execution. For Apollo moon mission, it was the US president vision at the foremost. Even for TSMC and other companies such people exist. I don't want to say that entire credit goes to an individual but leaders with multiple skills are necessary.
    - pineaux 2y ago
      Nah, this is not true. This is just the narrative because someone want to get the honors or the stacks of cash. Apple wasn't created by Steve Jobs. Not even created by Steve Jobs and the Woz. They did start something that eventually became Apple. They had a lot of sway, but without all the other people that worked there and created all the important details it would have just been a pipe dream.
- torontopizza 2y ago
  Of course, you are right. ---- Edit, I was mistaken in my earlier post, so I will just leave this here as a correction https://en.m.wikipedia.org/wiki/The_Burghers_of_Calais https://en.m.wikipedia.org/wiki/The_Burghers_of_Calais
- Draiken 2y ago
  I don't think this holds to scrutiny. This breaks down as soon as you get out of the idea phase. Everyone has visions, and most great achievements today are the results of an amalgamation of them. The really big achievements are almost always the result of groups, not individuals. People that idolize others have to turn a blind eye to everything surrounding that individual's achievement. It's simply easier to simplify big achievements as "this person was great". In reality though, it's a culmination of everything that came before that individual, the support around them, some of their decisions and much more. In other words: monuments are a bad argument to evaluate if something is good or not. Especially in today's individualistic society. It's a shallow Instagram motivational phrase.
  - Alupis 2y ago
    > This breaks down as soon as you get out of the idea phase. No, it does not. Most ideas fail, and a significant amount of "off the ground" projects fail. To be successful long term, it requires vision and commitment. You can find people to grind on your vision, but you cannot make them see what you see. The overwhelming majority of massive successful projects and companies have a key figure that drove them to success. I'd wager there are very few examples (if any) of a massive and successful companies that began life as a startup with a 30+ person board, for example.
    - bruce511 2y ago
      If you've got 30 people on a committee, or 30 people on your board, well, good luck with that (in any context.) My business has always had 3 or 4 people as owners, and hence as the "executive committee". I've found that to be helpful. If you can't convince your fellow owners then it's likely a bad idea. (We've also turned away good ideas, and executed on bad ideas, the group approach is not infallible.) But it really helps to develop a vision beyond just "my idea this morning" before diving into implementation.
    - Draiken 2y ago
      > You can find people to grind on your vision, but you cannot make them see what you see. I call bullshit. If you can't explain your vision you're a shitty leader. Good leaders can share their vision and get people to buy into them, adding their visions on top of it. This is an oversimplification of very complex human interactions. Humans seek the simple explanation, even when there isn't one. >The overwhelming majority of massive successful projects and companies have a key figure that drove them to success. s/a key figure/key figures/g Every project that is big enough has multiple people driving them to success. This idea that the person at the top is the only one driving it is insane. It's individualistic propaganda. No, you did not build your company/product/achievement alone. It's self-serving bias being projected onto someone else. >I'd wager there are very few examples (if any) of a massive and successful companies that began life as a startup with a 30+ person board, for example. That's moving the goalpost. Nobody's saying you need 30 people for things to happen. Anything greater than 1 is, by definition, no longer an individual effort. Take one of the most known examples: Apple. It took both Steve Jobs and Steve Wozniak to make it happen. After their initial success, it wouldn't have grown to today's behemoth without the thousands of others that came after and worked on each and every product to make them successful. It's always a group effort. We can simplify and say "Jobs did it" but it's absolutely inaccurate. I don't understand why smart people need idols. I get why the masses need their figures, but once you think about it for 5 seconds it's obvious they are mostly myths.
nostrademons 2y ago
The article is arguing for ESOPs, basically stock options for employees. The examples cited are actually quite tame by tech industry standards: "During Central States’ worst year, employees earned the equivalent of 6 percent of their pay in stock, during their best they earned 26 percent." By contrast, FANG employees routinely make >50% of their compensation in stock, and it can be up to 80% in good years. As for how these get started, it's the same as any tech startup. The founding team owns the whole company at formation, and then they progressively give it away to increase the overall valuation of the company. You can do that through giving away stock in exchange for funding from a VC that you can use to pay employees, or you can give away stock directly in exchange for services rendered. And yes, this looks bad during a down year. Tech companies have this problem all the time - employees are demotivated when the stock price goes down, which can have further negative effects on the stock price.
- jasode 2y ago
  >As for how these get started, it's the same as any tech startup. [...] To clarify, the gp was asking a rhetorical question that he already knew the answer to when he stated, "How would a business [that already looks attractive for ESOP] like this get started? [... his recap similar to your recap ...]" To put it differently, the scenario he's trying to explain is something like this given that ~9 out 10 businesses fail : - you can't look at just a single company's successful timeline to judge the ESOP for society; you also have to consider all the failed companies and how ESOPs would play out in those timelines as well. Since ~90% of businesses fail, you have to play out the financial dynamics of employees buying into ownership of all those failed companies. And in contradiction of employee-ownership, a lot of employees would prefer getting a bigger paycheck from a dying company rather than having money deducted to buy worthless equity shares. - e.g. of course employees would love to be significant workers-cooperative owners of Amazon Inc and Apple Inc. But the analysis also must include employees owning worthless shares of Pets.com (bankrupt 2000 and shutdown) and Commodore Computer (bankrupt 1994). Some workers got employee-ownership shares of Commodore Inc instead of Apple Inc?!? Well, it sucks to be those workers.
- victorbjorklund 2y ago
  Getting some of your salary in stock options isn't really an employee owned company. How many % of total Google shares are owned by employees (excluding the founding employees)? 0,0000000001%? At least 50% would be required for it to be viewed as an employee owned company.
dls2016 2y ago
> IOW, they're being underpaid relative to market, in exchange for ownership, expecting to get more later when they sell the shares. So far so good, but how does this look when the business has a rough patch, even one that's not their fault? Uhm, do you have a 401k?
RandomCitizen12 2y ago
> How would a business like this get started? Usually the owner is the one who invests a lot of their own time and/or money into the business to get it off the ground in the first place. Would we be asking workers to pony up in those early years when failure is likely? In Canada, there are 'Labour Sponsored Venture Capital Corporations' with union overseers to do this and special tax deductions for investing money through these. They are, of course, a giant failure that neither provides easier access to capital for entrepreneurs nor generates any notable return for investors.
- harhargange 2y ago
  Moreover, splitting the decision making is so conflict prone and unoptimised for competition. I had a look at some statistics that showed most successful startups take off when they have a single founder
  - esarbe 2y ago
    This is about ownership, not decision making. How you set up the decision making process is entirely up to the company. The same argument could be made for any other kind of shared ownership company.
deleted 2y ago
[deleted]
yibg 2y ago
This model also puts a lot of risk on the employees. It’s basically forcing investment in the same company that pays your salary. An investment that has less liquidity than standard investments. It’s like putting all your retirement fund into your company’s stock.
- W3cUYxYwmXb5c 2y ago
  This is a very good and understated point. One of the benefits we have as employers is being unattached. If things go bad, we can cut and run to some other company. On the other hand, the owners and primary investors are by definition more invested, and have to actual bear the burden of failure. I definitely didn't want that level of involvement in most of the companies I have worked for.
- whoknowsidont 2y ago
  >It’s like putting all your retirement fund into your company’s stock. As opposed to putting your retirement fund into other company's stocks, which everyone does at the same time, making those companies too big too fail without unraveling several threads of social fabric. I think your statement actually proves why employees should have stock in the company. If we really were worried about issues such as this we'd have universal (not attached to you employer) healthcare and a pretty robust (but minimal) retire fund for citizens. But we have the opposite of that with none of the upsides.
  - missedthecue 2y ago
    If I'm employed by Acme Corp, and have a 401k in index funds, but get laid off after the company goes bankrupt, I lose my income, but not my wealth. On the other hand, if my wealth is in Acme Corp and they go bankrupt, I lose my wealth and my income. The first model is less risky, yet profitable enough to be worth it. And everyone can still own the means of production.
    - whoknowsidont 2y ago
      You've not only missed the point, but additionally nothing is stopping you from investing your wealth elsewhere. I don't understand how your scenario is applicable; it's definitely constructed.
Scarblac 2y ago
> How would a business like this get started? The one I know, it just started out with some people who were all equal co-owners. When a new employee joins, they get the same share as everyone else. When someone leaves, they lose their share. Shares can't be sold, everyone has the same amount. It's a cooperative.
- skizm 2y ago
  This seems extremely good for late employees and extremely bad for early employees / founders? Late employees have no risk and the same reward.
  - Scarblac 2y ago
    It's originally a software agency that later decided to also develop some of their own products, so there's not that much risk. The primary reward for everyone is just their wages. They're organized at team level, teams have to write business plans that must be approved by people from other teams, teams decide whether to recruit an extra person, and so on. Large investments (they built a new hq) are voted on by the whole company.
  - missedthecue 2y ago
    Seems also like a perverse incentive to delay or avoid hiring as well. Every new employee makes everyone else poorer. Unless that one employee is so productive they single handedly make up for lost ownership with increased profit.
    - Scarblac 2y ago
      Well, is that a perverse incentive? Maybe it just means the company is better off without another employee right now. But the employees also have other things in mind besides profit, like their work load.
DaoVeles 2y ago
> IOW, they're being underpaid relative to market, in exchange for ownership, expecting to get more later when they sell the shares. Alas this would be a big issue. It is the deferred payment test writ large. Do you want $20 now or $30 next week. For a lot of humanity when times get difficult we will tend towards the immediate payoff rather than the long term. To eat the seed corn.
- Nifty3929 2y ago
  It's more like, do you want $20 now, or a chance at $30 later, as long as you don't leave the company? That's a critical difference. If you pay me what I'm worth in cash, right now, I can do with that cash what I like - which includes investing it into the business. If you pay me with future promises that impose additional constraints, then my money is held hostage to those constraints.
ellegriffin 2y ago
Usually businesses become an ESOP because the founder sells it to the employees. To even qualify to become an ESOP, the company has to be successful, so by default most ESOPS are. I advocate for incentivizing the model, not requiring it. But I have a follow up piece coming out soon with more detail.

layer8overhere 2y ago

This.

hemantv 2y ago

Individuals have visions not committee. We build monuments for individuals not for committee. Having said that no man is island of itself. Current incentive structure works great to motivate individuals to start companies

sidmitra 2y ago
>We build monuments for individuals not for committee. That's the second time i'm hearing that quote today from completely unrelated sources. The quote is from David Ogilvy, in case anyone is wondering. "Search all the parks in all your cities; you'll find no statues of committees." https://x.com/The_AdProfessor/status/1705254246109651053 https://x.com/The_AdProfessor/status/1705254246109651053
- binxbolling 2y ago
  Seems like it's deliberately using "committee" as a pejorative to make a political point. Flip it to "you'll find no statues of groups of people" and it's patently false.
- deleted 2y ago
  [deleted]
Apocryphon 2y ago
Seems like confirmation bias. We often than not like to lionize successful individuals, but plenty of visions are false or otherwise fail. On the other hand, we tend not to remember group efforts because it's harder to remember multiple individuals at a time. But surely they do exist. Was there a single visionary behind Bell Labs? Xerox PARC? The traitorous eight? The Apollo program? The Manhattan Project?
- nsonha 2y ago
  Groups are slower and less consistent in decision making than individuals, simple as that.
  - Apocryphon 2y ago
    There are different types of group governance and almost all of them having an individual decision-maker at the front. Oppenheimer directed the Manhattan Project but he wasn't a "visionary individual," he had plenty of talented geniuses working under him.
- harhargange 2y ago
  I believe there would be a single polymath who has skills in multiple fields, such as Oppenheimer who was great at science and administration who can lead a group for successful execution. For Apollo moon mission, it was the US president vision at the foremost. Even for TSMC and other companies such people exist. I don't want to say that entire credit goes to an individual but leaders with multiple skills are necessary.
  - pineaux 2y ago
    Nah, this is not true. This is just the narrative because someone want to get the honors or the stacks of cash. Apple wasn't created by Steve Jobs. Not even created by Steve Jobs and the Woz. They did start something that eventually became Apple. They had a lot of sway, but without all the other people that worked there and created all the important details it would have just been a pipe dream.
torontopizza 2y ago
Of course, you are right. ---- Edit, I was mistaken in my earlier post, so I will just leave this here as a correction https://en.m.wikipedia.org/wiki/The_Burghers_of_Calais https://en.m.wikipedia.org/wiki/The_Burghers_of_Calais
Draiken 2y ago
I don't think this holds to scrutiny. This breaks down as soon as you get out of the idea phase. Everyone has visions, and most great achievements today are the results of an amalgamation of them. The really big achievements are almost always the result of groups, not individuals. People that idolize others have to turn a blind eye to everything surrounding that individual's achievement. It's simply easier to simplify big achievements as "this person was great". In reality though, it's a culmination of everything that came before that individual, the support around them, some of their decisions and much more. In other words: monuments are a bad argument to evaluate if something is good or not. Especially in today's individualistic society. It's a shallow Instagram motivational phrase.
- Alupis 2y ago
  > This breaks down as soon as you get out of the idea phase. No, it does not. Most ideas fail, and a significant amount of "off the ground" projects fail. To be successful long term, it requires vision and commitment. You can find people to grind on your vision, but you cannot make them see what you see. The overwhelming majority of massive successful projects and companies have a key figure that drove them to success. I'd wager there are very few examples (if any) of a massive and successful companies that began life as a startup with a 30+ person board, for example.
  - bruce511 2y ago
    If you've got 30 people on a committee, or 30 people on your board, well, good luck with that (in any context.) My business has always had 3 or 4 people as owners, and hence as the "executive committee". I've found that to be helpful. If you can't convince your fellow owners then it's likely a bad idea. (We've also turned away good ideas, and executed on bad ideas, the group approach is not infallible.) But it really helps to develop a vision beyond just "my idea this morning" before diving into implementation.
  - Draiken 2y ago
    > You can find people to grind on your vision, but you cannot make them see what you see. I call bullshit. If you can't explain your vision you're a shitty leader. Good leaders can share their vision and get people to buy into them, adding their visions on top of it. This is an oversimplification of very complex human interactions. Humans seek the simple explanation, even when there isn't one. >The overwhelming majority of massive successful projects and companies have a key figure that drove them to success. s/a key figure/key figures/g Every project that is big enough has multiple people driving them to success. This idea that the person at the top is the only one driving it is insane. It's individualistic propaganda. No, you did not build your company/product/achievement alone. It's self-serving bias being projected onto someone else. >I'd wager there are very few examples (if any) of a massive and successful companies that began life as a startup with a 30+ person board, for example. That's moving the goalpost. Nobody's saying you need 30 people for things to happen. Anything greater than 1 is, by definition, no longer an individual effort. Take one of the most known examples: Apple. It took both Steve Jobs and Steve Wozniak to make it happen. After their initial success, it wouldn't have grown to today's behemoth without the thousands of others that came after and worked on each and every product to make them successful. It's always a group effort. We can simplify and say "Jobs did it" but it's absolutely inaccurate. I don't understand why smart people need idols. I get why the masses need their figures, but once you think about it for 5 seconds it's obvious they are mostly myths.

nostrademons 2y ago

The article is arguing for ESOPs, basically stock options for employees. The examples cited are actually quite tame by tech industry standards: "During Central States’ worst year, employees earned the equivalent of 6 percent of their pay in stock, during their best they earned 26 percent." By contrast, FANG employees routinely make >50% of their compensation in stock, and it can be up to 80% in good years. As for how these get started, it's the same as any tech startup. The founding team owns the whole company at formation, and then they progressively give it away to increase the overall valuation of the company. You can do that through giving away stock in exchange for funding from a VC that you can use to pay employees, or you can give away stock directly in exchange for services rendered. And yes, this looks bad during a down year. Tech companies have this problem all the time - employees are demotivated when the stock price goes down, which can have further negative effects on the stock price.

jasode 2y ago
>As for how these get started, it's the same as any tech startup. [...] To clarify, the gp was asking a rhetorical question that he already knew the answer to when he stated, "How would a business [that already looks attractive for ESOP] like this get started? [... his recap similar to your recap ...]" To put it differently, the scenario he's trying to explain is something like this given that ~9 out 10 businesses fail : - you can't look at just a single company's successful timeline to judge the ESOP for society; you also have to consider all the failed companies and how ESOPs would play out in those timelines as well. Since ~90% of businesses fail, you have to play out the financial dynamics of employees buying into ownership of all those failed companies. And in contradiction of employee-ownership, a lot of employees would prefer getting a bigger paycheck from a dying company rather than having money deducted to buy worthless equity shares. - e.g. of course employees would love to be significant workers-cooperative owners of Amazon Inc and Apple Inc. But the analysis also must include employees owning worthless shares of Pets.com (bankrupt 2000 and shutdown) and Commodore Computer (bankrupt 1994). Some workers got employee-ownership shares of Commodore Inc instead of Apple Inc?!? Well, it sucks to be those workers.
victorbjorklund 2y ago
Getting some of your salary in stock options isn't really an employee owned company. How many % of total Google shares are owned by employees (excluding the founding employees)? 0,0000000001%? At least 50% would be required for it to be viewed as an employee owned company.

dls2016 2y ago

> IOW, they're being underpaid relative to market, in exchange for ownership, expecting to get more later when they sell the shares. So far so good, but how does this look when the business has a rough patch, even one that's not their fault? Uhm, do you have a 401k?

RandomCitizen12 2y ago

> How would a business like this get started? Usually the owner is the one who invests a lot of their own time and/or money into the business to get it off the ground in the first place. Would we be asking workers to pony up in those early years when failure is likely? In Canada, there are 'Labour Sponsored Venture Capital Corporations' with union overseers to do this and special tax deductions for investing money through these. They are, of course, a giant failure that neither provides easier access to capital for entrepreneurs nor generates any notable return for investors.

harhargange 2y ago
Moreover, splitting the decision making is so conflict prone and unoptimised for competition. I had a look at some statistics that showed most successful startups take off when they have a single founder
- esarbe 2y ago
  This is about ownership, not decision making. How you set up the decision making process is entirely up to the company. The same argument could be made for any other kind of shared ownership company.

deleted 2y ago

[deleted]

yibg 2y ago

This model also puts a lot of risk on the employees. It’s basically forcing investment in the same company that pays your salary. An investment that has less liquidity than standard investments. It’s like putting all your retirement fund into your company’s stock.

W3cUYxYwmXb5c 2y ago
This is a very good and understated point. One of the benefits we have as employers is being unattached. If things go bad, we can cut and run to some other company. On the other hand, the owners and primary investors are by definition more invested, and have to actual bear the burden of failure. I definitely didn't want that level of involvement in most of the companies I have worked for.
whoknowsidont 2y ago
>It’s like putting all your retirement fund into your company’s stock. As opposed to putting your retirement fund into other company's stocks, which everyone does at the same time, making those companies too big too fail without unraveling several threads of social fabric. I think your statement actually proves why employees should have stock in the company. If we really were worried about issues such as this we'd have universal (not attached to you employer) healthcare and a pretty robust (but minimal) retire fund for citizens. But we have the opposite of that with none of the upsides.
- missedthecue 2y ago
  If I'm employed by Acme Corp, and have a 401k in index funds, but get laid off after the company goes bankrupt, I lose my income, but not my wealth. On the other hand, if my wealth is in Acme Corp and they go bankrupt, I lose my wealth and my income. The first model is less risky, yet profitable enough to be worth it. And everyone can still own the means of production.
  - whoknowsidont 2y ago
    You've not only missed the point, but additionally nothing is stopping you from investing your wealth elsewhere. I don't understand how your scenario is applicable; it's definitely constructed.

Scarblac 2y ago

> How would a business like this get started? The one I know, it just started out with some people who were all equal co-owners. When a new employee joins, they get the same share as everyone else. When someone leaves, they lose their share. Shares can't be sold, everyone has the same amount. It's a cooperative.

skizm 2y ago
This seems extremely good for late employees and extremely bad for early employees / founders? Late employees have no risk and the same reward.
- Scarblac 2y ago
  It's originally a software agency that later decided to also develop some of their own products, so there's not that much risk. The primary reward for everyone is just their wages. They're organized at team level, teams have to write business plans that must be approved by people from other teams, teams decide whether to recruit an extra person, and so on. Large investments (they built a new hq) are voted on by the whole company.
- missedthecue 2y ago
  Seems also like a perverse incentive to delay or avoid hiring as well. Every new employee makes everyone else poorer. Unless that one employee is so productive they single handedly make up for lost ownership with increased profit.
  - Scarblac 2y ago
    Well, is that a perverse incentive? Maybe it just means the company is better off without another employee right now. But the employees also have other things in mind besides profit, like their work load.

DaoVeles 2y ago

> IOW, they're being underpaid relative to market, in exchange for ownership, expecting to get more later when they sell the shares. Alas this would be a big issue. It is the deferred payment test writ large. Do you want $20 now or $30 next week. For a lot of humanity when times get difficult we will tend towards the immediate payoff rather than the long term. To eat the seed corn.

Nifty3929 2y ago
It's more like, do you want $20 now, or a chance at $30 later, as long as you don't leave the company? That's a critical difference. If you pay me what I'm worth in cash, right now, I can do with that cash what I like - which includes investing it into the business. If you pay me with future promises that impose additional constraints, then my money is held hostage to those constraints.

ellegriffin 2y ago

Usually businesses become an ESOP because the founder sells it to the employees. To even qualify to become an ESOP, the company has to be successful, so by default most ESOPS are. I advocate for incentivizing the model, not requiring it. But I have a follow up piece coming out soon with more detail.