Thursday, February 13, 2014

Capitalism vs. the Three Legged Stool

Wikipedia defines: "Capitalism is an economic system in which trade, industry and the means of production are controlled by private owners with the goal of making profits in a market economy."

This definition has always bothered me. I prefer a different model where there is equal recognition of the three primary drivers behind the success of a company:

  • Owners
  • Employees
  • Customers
I like to think of it as a three legged stool, where each leg is as important as the other.  One gets too large or small and the stool tips over.

The free market is supposed to take care of Employees and Customers.  Employees because the Owners will create so many jobs that due to supply and demand, employees will receive competitive pay.  Customers because if the owners are not building the right thing, then they can go elsewhere.

As someone who has helped to build about 10 startup companies now, I have seen the power in making these three stakeholders equal partners. 

Employees who are true stakeholders - both financially and in shaping the company - are much more valuable to the other two stakeholders since they have high motivation. In addition, employees who take true responsibility make better decisions and work harder.

Making customers true stakeholders is similarly productive. I have seen Customer Advisory Boards have real and meaningful impact on companies. Customers know their needs the best - employees still have to listen and interpret and make bets on where the customer will be in the future. Being able to have honest dialogs is important, because new ideas stem from these interactions when there is true collaboration. Companies need to charge a fair price to their customers and deliver true value for that price.

There is a requirement from all parties to share the power and have empathy for each other.  That means customers must understand an employee's need to earn a good living, and an owner's need to get a return on invested capital (and time).

As owners, employees and customers, we all share the individual responsibility to make the organizations more equal across these stakeholders. I like the recent commercial on TV about the employer who gives 20-30% of profits to employees

We work hard at RunSignUp to make this true, and it is certainly a competitive weapon that helps elevate our business above the typical pure capitalistic companies in our little market. Hopefully it is an approach more and more businesses take to heart.

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