The world changes constantly. Changes to the world can be broad, narrow, economic, political, technical, where the combined effect is that Today is far different from Yesterday even though many changes are simply reactions to other changes. What exists today is largely a summation of what occurred yesterday and is on the cusp of becoming embedded in Society: the computer, AI, digital assets. These are changes in themselves but are likely to be the forerunners of even greater changes in the future.
Taken together, it is the changes in Society – including changes that have been accepted and exploited as well as those that are on society’s threshold – that form the context in which a company makes decisions, allocates resources, and cuts losses. This context, then, is not something standard and certain; the context in which a smaller company operates is itself an ongoing product of Change.
As a result, the Company is forced to think and act in general, overarching terms rather than the specific, modern ones that are currently used. It must continue to frame What it does in those generalized terms so that the description of How things are done can be limited to specific steps rather than to broader ones and described in language so common that adopting what is New is not limited by the language describing it.
Demand
Today’s world began with the Industrial Revolution. The low cost and technology of machinery replaced labor; no longer were goods obtained only by exercising power based on who the customer was. Suddenly Society had a wide range of goods available to all, regardless of who they were. The only constraint was that their cost had to be covered.
This need to cover costs created a chasm between what the seller wanted to produce and what the buyer wanted to use. How this difference was resolved - i.e., how Society’s resources were allocated - was determined by Pricing: Price determined Who got What. Pricing replaced power and “Economics” replaced Politics in allocating Society’s resources; the wars of the 20th century institutionalized this primacy of economics: Tariffs replaced treaties. Businessmen replaced kings.
Supply
The Industrial Revolution produced many products that had not existed before, solving problems that had previously been insoluble. The Demand for these products gave rise to the idea of “Supply” - providing citizens with what they wanted and needed rather than with what the ruling class chose for them.
Since each product served different buyers and different markets, Supply had to meet the specialized needs of each narrow niche, leading to individuals with the skills needed to supply a particular niche coming together to form a joint effort: “Companies” – groups of individuals that made and sold specific things to specific people. Without this specialization Supply would be inefficient and costly. As a result, Demand and Supply became parallel economic forces: Demand for specialized products led to specialized sources of Supply.
The Opportunity That Change Brings
Change may be a daunting bridge for a company to cross; it may affect one part of a company but not another. The size of an organization minimizes this effect of Change: a larger company is so institutionalized that it cannot change easily and therefore provides Society with the things that do not change; Today largely repeats Yesterday. But for the smaller company, with its narrow scope, small size, and dependency on a narrow product line, “Change” is the risk of loss or profit where none existed before. To compensate for this risk, it looks like a high price.
In short, Change in Society creates both gain and loss for the companies it affects. Both force uncertain readjustments that may be more penalties than costs, but in any case, will affect one part of a company but not another. Constant Change in Society will force constant change in the economics and politics of the companies that allocate their resources.
Society looks to the larger company to deliver what is needed Today, but a smaller company is not bound by the protocols, systems, and hierarchy of a larger one; it is free to exploit whatever “Change” the larger company overlooks. Society looks to the smaller company to look beyond Today, explore the unthinkable, welcome the unknown, and imagine what Tomorrow could be. Failures of the past will create opportunities of the present.
And there are opportunities. Change revamps the social contract that allocates society’s resources, thereby changing the relationship between what it produces and what it sells. Companies constantly find themselves in a new, unexpected, and unknown stage, where each stage incurs losses from using ‘Today what worked Yesterday,’ losses that must be cut. This is the role of the entrepreneur: he sees a need in society that must be met, a loss that must be cut, an opportunity that must be seized.
The Entrepreneur
Changes in the world produce an uncertainty where the odds of Change cannot be calculated, where the New can be neither defined nor quantified, perhaps not even imagined.
The entrepreneur is the engine that drives Change in Society. He is Society's dreamer. Like most dreamers, he is a fringe figure, notable chiefly because he is living proof that the future cannot be predicted by the past. He is the starting point: he sees opportunity where others see problems. His insight, tenacity, and willingness to take risks led him to respond to the incentives society offers to those who can bring predictability out of uncertainty. The discontinuities in modern life, the fissures caused by social upheaval, the change in customs, the new alignments created by technology – all fall outside the context in which existing institutions and businesses can operate.
The entrepreneur welcomes this uncertainty. He operates on the basis of unquestioning faith in his ability to succeed in a specific undertaking. With incorrigible optimism, he will attack a previously unexplored niche - even one that does not appear to be a problem, or presents no difficulties or harm at present. He will create a new product, a new process, new service that seems right and timely. He guarantees that social and technological changes will be integrated into the economy and thereby into society at large. And society rewards him for originating a Vision of a better world and for taking the risk that it will fail.
Society gives the entrepreneur the crucial task of replacing uncertainty with predictability. Society turns over its resources to the entrepreneur, trusting that he will reallocate them for the welfare of those beyond him. Should he fail Society will bankrupt him and turn those resources over to a more promising prospect. Should he succeed, he and he alone will reap Society’s reward.
The entrepreneur may appear as an exogenous force that brings change where none is needed, simply creating demand for its own sake. Various fads might fall into this category, but public acceptance of his product will verify that he has identified an unsatisfied need waiting only to be brought to the fore. He himself is frequently penniless, but no matter: His contribution is his insight, his Vision. His right idea at the right moment will be so compelling, so logical, so sure of success, that he will raise the capital and hire the employees he needs. He will give up some ownership of the company and give the first dollars of success to those who threw in their lot with him; he will take the last dollar. And he, not those he enlists to share his Vision, will bear the legacy of failure.
The entrepreneur’s opportunity comes as larger companies, rigid from internal consensus, cannot overcome the uncertainty paralyzing Society. The entrepreneur himself does not foster the predictability that Society needs - if anything, he thrives on chaos – but Society will transform his Vision into changes that bring predictability to daily life.
The entrepreneur is frequently an inspired Visionary far more interested in his Vision bearing fruit than in personally benefiting from it; he separates his own fortunes from those of his Vision.
But his Vision is his and its success depends on him alone. The outcome of his Vision is rarely predictable, and in any case, ends with him; he must see it through to the end. Avoiding the blight of self-seeking will endow him with a charisma that will transform his mundane daily world into a moral imperative, which will sustain him when, at the outset, that daily world has nothing to offer but discouragement. He offers the world something that goes beyond him, will outlive him and, to Society, will be him.
The entrepreneur’s vision can range from transformative to marginal; he can range from a knowledgeable person to a complete neophyte. Entrepreneurs have nothing in common; we use the word “Entrepreneur,” a term loosely defined but well understood, but we do not know how to train them, incentivize them, organize them. We depend on society to recognize them and reward them, but there is no standard for that; we do not know how to measure what they contribute to society. Yet change in society is driven by the Entrepreneur, by an idea we cannot measure, by someone we know nothing about.
The Founder, The Legacy
The entrepreneur will bring in others in order to institutionalize what he creates. He will be the Founder of an organization that is radically different from the typical understanding of a normal company. It does not seek to grow nor does it have a need to get larger; that is not its purpose. His company is a means to being a legacy, not an end in itself: it is employment for his son, a down payment for his daughter’s home, an internship for a nephew, tuition for a grandchild. The company is oriented towards low risk rather than growth; it will tailor what it offers to customers to what the company needs rather than to what customers want. Its products will drive the company rather than the company driving the products.
As a legacy, the company takes on many of the characteristics of a larger company: efficiency more than innovation, long term more than short term, profit more than growth, contributing to the Founder’s family rather than investment in the future – all of which require the fixed costs that come when innovation takes a back seat to immediate well-being and predictability.
Eventually, the Founder will age out. His interest will shift to his legacy, his skills will diminish, his energy will fade as he withdraws from daily effort. As his distance from the company grows, his intuition, which has predicted the future, will be replaced by an infrastructure based on consensus rather than imagination. Eventually, his Vision will become outdated; new hires will broaden it in ways unfamiliar to him.
The chief issue, of course, will be succession. Transition away from a Founder is difficult because offspring have an immutable place in the company. Growing up under the influence of both the Founder and the economic benefits he brings, the family is driven by the narrow need for the company to prosper, but only to the extent that they decide between investing in the company's growth versus dividends for themselves and their issue. Obviously, there is no clear answer since some of the family members need dividends, while others do not. Allocation of the company’s profitability can split the family apart.
After the Founder ages out, the company’s purpose will shift away from doing something New to variations of what has already been done, from high price to high volume, from growth to profit. Although the company he founded no longer depends upon him, it is still too small to exist without him. Until it develops beyond what he brought to it and his intuition is replaced with the management of an infrastructure, the company will remain in equilibrium: able to survive but unable to do more than that.
Once the Founder’s Vision has been adopted by Society, the company will have no role to play. It will become locked into Yesterday, perhaps into the Founder’s Vision, leaving behind only his legacy. The next change that Society faces will be inspired by a different Vision and brought to Society by a different company and a different Founder.
But it will still be the lengthened shadow of its Founder; long after he is gone; it will still be him writ large. His Vision. His legacy.