Aug

12

As Chaos Manor finishes reassembling itself here in North Carolina (2 months after packing up and driving cross country from California with the cat), I find myself thinking about "capitalism". It seems to me the perfect term for what a committee would come up if it were attempting to define political economic liberty. Enterprise used to be defined quite simply by people taking money and hiring people to do things. That still seems the only true definition of an entrepreneur: can he/she write a check and hire/fire people without getting anyone else's approval.

What is remarkable about Sloan's General Motors, Rockefeller's Standard Oil and Morgan's Bank is that the enterprise was stuffed full of entrepreneurs — "lowly" parts managers/depot heads/clerks all had the ability to spend money and to hire and fire people without having to check with the home office. What is even more remarkable is that there is often no one left inside modern organizations who, as an individual, has such political economic liberty. No wonder the most that can expected is a defense of "capitalism"; defending absolute liberty would be an insult to everyone with assigned parking privileges.

David Lilienfeld comments: 

I think you're confusing managers who were empowered to manage (Rockefeller was a master at this) and in so doing, manages risk in the course of producing, as opposed to entrepreneurs, who identify an opportunity and use risk to address that opportunity, and in the process creating something new. If that something new creates wealth, it's a for-profit enterprise (non-profit means untaxed, nothing more), and if it doesn't, it's a charity. In high performing organizations, the two will overlap, the higher performing, the more the overlap.

In Sloan's GM, Rockefeller's SONJ, and Morgan's bank, there was sufficient distance from HQ that if managers were empowered to manage, then the enterprise would come to a halt as orders from HQ were awaited and then received through the mail. With the rise of communication technologies, first the telephone, now cellphones, and the net, HQ thinks nothing of maintaining control. That's true in the corporate world, it's true in the military world as well. It used to be that the individual service chiefs were accountable to their respective secretaries (SecNav, SecArm, etc). After the 1979 aborted hostage rescue, the Congress changed that system to one in which all operational command was vested in the Chairman of the Joint Chiefs and the individual service chiefs ran their respective staffs and were consulted but they did not have an operational role. At least that's my understanding of the changes that were put in place. There have been few CJC who haven't exerted direct control over operations, and if't not infrequent that POSTUS hasn't taken control from the CJC. Not surprisingly, military commanders don't like to be second guessed any more than corporate ones, and after a few years, those commanders stop trying to manage risk.

One of my observations having lived in Silicon Valley is that the thing that differentiates it from other places is that it accepts risk and thrives on it. At least it did. And that was why failure in an enterprise wasn't something that destroyed your career–if you learned from the experience and understood how to avoid a repetition. Unfortunately, since the late 1990s, with the dot-com boom and bust, the VCs in the Valley decided to minimize risk. VCs focus on finding an enterprise that can produce a product within 18 months, 24 months at the latest, and allow them to IPO the company so they can earn their fees. And it's become rare that they've tried doing things that are really innovative, as the internet browser was with Netscape or the development of tPA at Genentech. By the way, this is a big reason why the last major American pharmaceutical companies were founded in the mid-1990s. Since then, the goal has been to sell the company as quickly as possible to some big pharma so the VCs can get their fees. After all, if you get out in 18-24 months, at least in pharmaceuticals, there isn't much risk. The risk is in Phase 3, and there are few start-ups that get that far these days. For more than decade, there isn't a pharmaceutical company I can think of which has revenues north of $500 million a year which didn't exist prior to 2000. You might argue that that's because of the FDA, but the FDA hasn't really changed that much. (The issue isn't just with the VCs being unwilling to embrace risk–entrepreneurial style–as those running the R&D groups at most of the major pharmas are similarly risk averse.)

I don't think it's a function of what capitalism is as much as the increasing tendency of HQ to micromanage. Unfortunately, that mentality is creeping at an alarming rate into Silicon Valley. A decade plus ago, it was very different than it is now.


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