Source: Facebook

FROM ELSEWHERE: BUILDING A LIBERTARIAN COMPANY

(Saved here for future reference on my timeline.)

As someone who built a sizeable company specifically with the intent of experimenting with libertarian management principles, I can argue that not only does it lead to a high growth company because of transparency and meritocracy, but it’s also a more pleasant place to work because people are empowered – they feel sovereign.

HOWEVER HERE ARE SOME OBSERVATIONS

1) CLASS

libertarianism is a meritocratic, and therefore middle and upper middle class philosophy. If you want to have day laborers, it’s going to be less successful than if you have engineers because the former are less comfortable problem solving than the latter because the former are more open to cheating then the latter (this isn’t necessary that’s just how it works out due to class sorting and peer association).

While we libertarians feel that liberty is the desire of all, it is not. It is the desire of those of us who have an intellectual advantage. The vast majority of people want only enough liberty to choose who directs them. They do not want to master the information necessary to be fully directed.

In that sense, liberty is classically defined as consisting of multiple levels:

1) Freedom of life, property and relationships (liberty)

2) Freedom to form organizations (association)

3) Freedom to choose leadership (corporation)

4) Freedom to ostracize (nationalism)

5) Freedom to convert or expand (imperialism)

We libertarians agree with the first three, conservatives and some conservative libertarians with the first four, and neo-conservatives with all five.

So one cannot easily create a libertarian organization across class lines, unless the majority of control is in the hands of those who wish to preserve that libertarian ordere, and its constant state of variation, meritocracy and competition.

2) EXPOSE EVERYONE TO PRICES AND PROFIT

Libertarianism and meritocracy require all people are exposed to the pricing system and its affects. Prices and profit are truths. Opinions are not. Bureaucracy is a synonym for insulation from the pricing system. Engineering this into many companies is extremely difficult. This is because many administrative disciplines are security rather than merit oriented (accounting for example).

3) ELIMINATE ALL DEDICATED MANAGEMENT

Middle management provides little if any value in almost all organizations. Knowledge exists at the bottom, and the knowledge to concentrate scarce capital at the top. Design your company to have no pure management. Everyone is responsible for profit. If they are not then you do not need them, and should organize your people differently. Usually it is better to compensate someone very dedicated to produce less profit and split time between leadership/mentoring and productivity/profitability. But if they are not themselves materially productive it is just a countdown before they become valueless. This is counter to human behavior because we all seek to avoid work and subsist upon rents. Management that does not either sell something or produce something is rent seeking.

4) REORGANIZE YOUR COMPANY FREQUENTLY – EVERY SIX MONTHS

Try to get your top talent to know more of the business by rotating them through different positions in the company. This will prevent your organization from calcifying in an attempt to be ‘efficient’ at delivering a fixed business model rather than ‘responsive’ and therefore efficient at delivering whatever business model is necessary to satisfy the needs of the market. (Note that it is possible to be a market follower and emphasize efficiency, but libertarianism is an effort to spur innovation. Leave it to liberals to live under the illusion that any commercial model represents a steady state.) Liberty is the source of innovation through competition. But competition creates multiple opportunity for loss.

5) TALENT

Marginally competitive companies possess superior talent in key roles. I devote at least a third of my time to recruiting talent.

7) PROCESSES

Processes calcify and compensate for stupidity and ignorance. Processes attempt to be efficient in order to minimize the need for interpersonal problem solving. However, this also means that processes are inhibitors to innovation and collaboration. Therefore all processes in your organization may be overridden if a) increase profitability without negative externalities. b) increase customer customer loyalty. (loyalty is meaningful. satisfaction is not. know the difference. satisfaction is only expressed meaningfully as loyalty.) c) increase the chance of opportunity generation without increasing the cost of opportunity generation. You must instill this culture in people so that the understand. Economics is the study, largely, of externalities, since internal exchanges are trivial, and externalities are complicated.

8) SALES

My experience is that companies under-invest in sales, and over-invest in fear. The people who generate sales are the most valuable people in your company. There are no exceptions. However, people who can generate sales are contextually dependent. Second, the good ones will only come to places where they are adequately rewarded. So when you are small you cannot generally hire talent that is worth what you pay them. Expect a 60-60% failure rate.

9) EVERYONE IS A POTENTIAL CUSTOMER

Every single person you meed is a potential customer. Just like actors and politicians lose their freedom because some paparazzi might catch them at an inopportune moment, an entrepreneur loses the freedom of self expression. (I chose expressly to break this rule because of my intellectual interests, but largely this worked to my advantage as self brand promotion. It turns out that if you will say really controversial things in public and try to defend them, then customers will assume you will give them the same unfiltered advice. It worked for me. In general though, I do not recommend it.)

10) MANAGEMENT STRATEGY

As a CEO, you can act as an investor, accountant, operator, salesman or craftsman. Or some combination. Because of personality differences it is unlikely that you will be even moderately successful at more than two. Know your strengths and hire the people who compensate for your weaknesses, but possess your strengths in some minor capacity. (I am a salesman, investor, and craftsman. I hire people who are operators and accountants to actually run the details of the business. Jack Welsh is different, Steve Jobs was different, Bill Gates is different, and Warren Buffett is different. And the guys who turnaround companies that are in trouble are different still. If you are entrepreneurial you are best off being sales and craftsman, because this means you master your industry and its customers. if you are a talented executive in a larger bureaucracy it is better to be operational and financial.

11) PEER REVIEWS

Conduct stack ranking peer reviews, with written comments at least once per year and exit the bottom ten percent of the company. (I usually was only able to exit the bottom 4% because the community building within the company was so strong that people would fight hard for underperformers if they thought that they could help them improve. This then creates passionate employees out of both the mentors and those people who were given help in succeeding.

12) PITCHING AND DESIGNING

Create some venue where employees suggest new uses for products, or new products, or new services, or pitches for customers. WE were always suprised at how many quiet people from the bottom of the company turned out to be our best idea poeople. It also makes it impossible for others to take credit for someone’s idea.

13) CREATE PARTIES AND AFTER-PARTIES

If you can find an excuse to spend a few hundred dollars taking people to a club, restaurant or entertainment venue where they can play, then do it. Every possible time. Have a big event at least once a year that requires formal dress, and is not in competition with some other holiday, just to celebrate each other. Terminate people who do not participate in social events.

14) HIRE FAMILY AND FRIENDS IF THEY HAVE THE TALENT – NEPOTISM IS THE BEST LOYALTY YOU CAN BUY

Loyalty is the willingness to absorb losses of opportunity for one’s self in order to create opportunity for the group to whom you are a member. Families do this by nature. Never hire ANY family member who cannot perform, or any friend, and never sacrifice your hiring process. But never discount a friend or family. They will work much harder at group cohesion than outsiders.

EXPENSIVE?

If any of this sounds either inefficient or expensive then you should do something other than go into business. People are tribal animals. they calculate all sorts of things with and against one another every day, every hour, every second.

Make sure that they are calculating something that binds them together to create products and services for your company, in the service of customers, that can be delivered to them at a profit. Because profit is our only way of knowing that we have made use of the world’s resources to serve others, in a manner that they demonstrate by their dear actions rather than their cheap words.

CLOSING

I have spent too much time on this post already, but perhaps it will do one person some good. And if so, then I’ve passed it on, and done the moral thing. 🙂

Cheers