Now you know that we believe utterly in the rise of the free agent, that corporate culture is outdated, inflexible and culturally out of step with the world. A natural conclusion might be that we think ‘firms’ or companies as most people understand them are no longer necessary.
Given that we are such advocates of the free-agent workstyle, we’ve been interested to understand why do firms need to exist at all?
We’ve been doing our economics homework and getting to grips with the ‘Theory of the Firm’.
Coase and his ‘Theory of the Firm’
This theory was developed by Ronald Coase, Coase tries to explain why economies are populated by a number of business firms, instead of consisting exclusively of a multitude of independent freelancers who contract with one another. Given that ‘production could be carried on without any organization [i.e. firms] at all’, Coase asks, ‘why and under what conditions should we expect firms to emerge?’
So far, so good. Coase is speaking our language.
A business (or firm) only comes about when an entrepreneur with their start-up wants to hire people. Coase’s analysis looks at the conditions under which it makes sense for an entrepreneur to seek hired help instead of contracting out for some particular task.
In a nutshell, his theory back in the Thirties was that firms exist because going to the market all the time can impose heavy transaction costs. Apart from selling your product or service you need to hire workers, negotiate prices and enforce contracts. A firm is essentially a device for creating long-term contracts when short-term contracts are too cumbersome.
But hasn’t that all changed?
Anyone who has worked in a large organisation will be familiar with the Headquarters central planning role, often at odds with the outer reaches of the business and responsible for the inflexible nature of the firm. It is rarely that efficient. Yet most people spend their working lives in centrally planned bureaucracies called firms. They stick with the same employer for years, rather than regularly returning to the jobs market. They work to fulfil the ‘strategic plans’ of their corporate bosses. Not quite what the entrepreneur originally had in mind.
So, has the time arrived for a rethink? How can you harness the entrepreneurial spirit of the free-agent but organise for greater efficiencies and lower the costs of doing business – without giving up on independence?
Freelancers and independents in today’s world understand how this works instinctively and tend to draw on lower technology and marketing costs, organizing themselves into networks of associates who help one another, just like KindredHQ.
It is so refreshing to be able to have open conversations about your business with others, and know that by-and-large you are amongst friends. This happens all the time here at KHQ and we get very excited about the way business is changing; at least amongst the community of independents.
A friend of mine, a parent, was helping put together the school’s business directory recently. A very simple idea; connecting parent to parent to swop business services and skills. Everyone wins, including the local community around the school. It’s a great model for small businesses everywhere.
As freelancers and independents what most of us need is customers/clients. And the idea that we can grow through buying and selling services and products to other like minds rather than by taking a wodge of cash from venture capitalists is so much more appealing – not least because we retain control over our own destiny.
Spread the load
We could all do with all the help we can get, especially when we start out. Other small businesses and independents get that. They are probably struggling to do everything just like you are. Ah yes, the perennial issue of trying to do everything.
Listen carefully. You can’t do it all. Nor should you! Accept that although you may be incredibly talented, you need others with complementary skills and experience to help you really glow.
There are lots of things that we do as freelancers that have nothing to do with our core skills and that duplicate the experience of others. I can remember struggling to map my new web domain to a free google apps account when I started out – for three days! I do wish that I’d just picked up the phone and asked for some help.
Collaboration is key
Back in the day, the big firms could keep you hostage as an employee or, if you were an artist by providing you with an army of support on tap; publicists, tour managers, lawyers, project managers etc. Today, we can do much of this ourselves with free or cost effective tools available to us on the web. But we still miss out on the economies of scale that are available to the big purchasers.
We think that is changing, and that’s certainly our direction of travel here at KindredHQ.
The fact is that we’ve never been in a better position as independents to take advantage of the seismic shifts in the way business is done. Talented people are proving more and more difficult to recruit full time, technology connects us and brings down the cost of business, national borders are largely irrelevant and competition is strong.
We are nimble, connected and naturally collaborative.
Trust in the future
Well all of that sounds very nice and I’m sure that some of you are thinking, ‘that’s not always my experience’.
The reality is that old cultures and working practices are so baked in to business that it is hard for many established businesses to work this way or commission work along these lines.
The very concept of intellectual property restricts many businesses from opening up to collaboration. If we are in it together, then who owns it? You have to approach partnerships and collaboration with a different mindset.
That mindset has to be based on trust and the belief that you will create more opportunity all rounds than if you both did this alone. We suspect that this is easier to achieve between two freelance businesses than it is in the ‘David and Goliath’ situation of an established organisation partnering with a freelancer. Empathy on both sides is less likely.
But we are all competing and it’s only going to get harder. You know what? We’re prepared to give it a go.
Credit: Geoff Wedgwood for his crash courses in economics!