Modern capitalism raises the flag of the free market while pitting centrally planned organizations against each other
It’s quite a journey from being born on a commune to raising more than $87m in funding at a software company. This journey forced me to wrestle with existential questions about my true beliefs, and how they intersected my life as an entrepreneur. One’s work is rarely a pure reflection of ideology, but companies need a clear and authentic strategy, which requires a tight alignment between company operations and the founder’s philosophy. I have discovered more about those differences between what I believe and the best ways to grow a corporation while studying economics - that is, how money is made and exchanged - than any other area.
A worldwide conflict between communism and capitalism defined the latter half of the twentieth century. The United States’ ideological battle was the central drama of my childhood, and it was with a combination of glee, pride, and “told you so!” that my fellow Americans watched the wall fall in Berlin, and the USSR dissolve shortly thereafter. I expect few would deny that the US is the standard bearer for capitalism.
Yet, there’s a flaw at the heart of this claim. While the United States operates as a free market economy, the key agent within modern capitalism - the corporation - works more like an authoritarian state. Given how much of our world is built around corporations, this truth and its impacts are critical.
I grew up apart from America’s passion for capitalism. In the era of Reagan, I was living on a commune. My parents did not earn money for their labor, and we didn’t have personal property. My family left the Farm when I was 8, and as I matured, my ideological roots were in conflict with the US’s nonstop pro-capitalism message. As I joined the workforce and eventually started my own company, I found myself attached to neither the communal roots of my childhood nor the Wolf of Wall Street world I moved into. I grew slowly in convictions, as I encountered problems in the course of scaling a company.
The first real conflict came when it was time to hire managers. I founded a company primarily because I did not thrive as someone else’s employee, so what led me to think others would? More importantly, anyone who has ever operated at the front line is aware of the severe costs imposed by the separation between the people who do the work and the people who make the decisions in hierarchies. Hiring managers was just going to make the company do worse, not better, right? Right?
I expect three of you are gleefully shouting, “Yay, holacracy!” right now, while the rest are confused and either offended or think I’m an idiot. I did consider a manager-less world, but a little research provided only examples of disaster, because the only available options just replace an explicit power structure with an implicit one. In other words, it’s still hierarchical with the founder on top, but now decision making is opaque and the system is easy to exploit because of the lack of controls (which looks surprisingly like the cult/commune I grew up in).
Those who are confused or offended by the idea that managers make performance worse would be informed by a deep dip in economics. One of the core principles of the free market is that central planning committees can never be as efficient or as effective as the people doing the work. By definition a free market economy lacks a decision-making hierarchy; the ‘free’ means every agent (individual or corporation) can decide for themselves, without needing permission from a manager above.
While there are many aspects of modern American capitalism I reject, this one I wholeheartedly support1. The downsides of a strong central executive were taught to me early.
Like many other communes, the one I grew up on routinely failed to feed its people - my parents speak with horror of the ‘wheat berry winter’, when we lived on little else. While his people were short on food, the founder of the Farm was off touring Europe as the 3rd drummer in a band, “bringing our message to the world”.
Thankfully none of us starved to death, but the failing was similar to what most communist countries experienced: The central organization could not feed everyone. For years, I assumed this was just incompetence, whether at the scale of the Farm or China. The truth was far more structural. Millions starved during the Great Leap Forward because the central organization was trying something impossible: Managing the productive output of an entire country. The Planet Money podcast tells a great story of how this central planning was walked back in China, but the general point here is that these communist countries did not just nationalize the means of production, they tried to centrally control all of it from within a small group.2
When people talk about communist countries not being a free market, this is what they mean: They tell the farms what crops to produce and in what quantity, rather than letting them decide for themselves. China even went so far as to dictate what hours a farmer should start and stop working, and then directed managers to ring a bell for transition times to control every little group of farmers. Anyone who’s ever had to punch a clock into a rigid, dysfunctional hierarchy is likely getting painful flashbacks about now.
It should be immediately obvious why this fails miserably: The distance between the central planning committee and the farmer is so great that good decisions are nearly impossible. It’s nearly impossible for critical feedback to make it from the edge, where the farmers are working, to the central planning committee in time to affect decisions, and then for those decisions to make it back to the edge in time to be useful. The podcast linked above also points out how unmotivated the farmers were under this regime, cutting productivity even further. Those who have studied lean manufacturing, agile development, and DevOps are likely seeing parallels here.
The result was catastrophe. When a corporation is painfully inefficient it loses money and might have to do layoffs, but when a country fails at growing food, its people starve to death. I don’t mean to imply that central planning was the only cause of famine under communist rule - there were political operations that led to mass starvation, just like in the West - but learning more about these helped crystallize what I do truly prefer about capitalist models. It also converted the phrase ’the free market’ from a catchy slogan into something meaningful to me.3
The most important feature of free market economies is that each person within them is able to make independent decisions in their own best interests4. If you’re a farmer, you can decide what to grow, how much to grow, and when to work to develop your crop. Heck, you can even choose not to be a farmer any more. Success is merely dependent on your finding a buyer for your work at a price you can tolerate. Any given year might not be perfect, but your decision making gets better over time as you learn to respond to customer demand.
This pattern is easy to understand in any system where the people doing the work make the decisions. If you’re a jeweler, you can decide what to make, how much to sell it for, and what to spend your time on. Same if you run a small restaurant, lead local tours, or are a one-person shop doing house remodeling. It’s a free market, where you can charge what the market will bear, and you can quickly and efficiently respond to its whims, ensuring that you are getting the best use of your time.
This was a powerful organizing principle for a long time. The history of human commerce developed largely this way: One person, or as many people as could fit in one shop, would turn labor into a product, then find a buyer for it. Most large-scale efforts were organized by the state of the time: Monarchs and the landed gentry, who were the only ones capable of marshaling enough resources to build palaces, roads, and other large construction projects.
This began to change in the 17th century when corporations like the Dutch East India Company were able to deliver massive windfalls to investors by pooling money and using it to extract resources from colonies. There was a step change in the 19th century, as corporations went from generating wealth to building and owning infrastructure. It’s one thing to outfit a single ship for a year-long voyage, yet another to maintain railroad schedules across the United Kingdom, or run a telegraph network around the whole US. These aren’t just short-term money-making exercises, they’re long-term commitments with big capital outlays and large returns over years and years.
We still live in a free market economy, but it’s not one Adam Smith would recognize. Instead of individual or small operators, ours is composed almost entirely of corporations. Really big corporations. And these companies, they use the same kind of central planning that we so despise in communist systems. I know. I’ve done it.
By the time my company got near 500 people, we had a multi-week planning process, where the leadership (i.e., me and my lieutenants) set out top-level goals, built a top-down plan to accomplish them, then drew information from the front line to see where it needed change. We called this a bottom-up plan, but it was only bottom-up from the perspective of numbers - how much money we’d have, what our costs were, etc. - rather than from the bottom of the organization. We could see no way to have a system where the people doing the work built a plan for the organization. Even thinking about it now, my reaction is, “How would they know what my goals are?”
That’s the kind of question you can only ask in an authoritarian state, not in a free market economy. My goals became my company’s goals, and the only real way to ensure people worked toward them was providing a plan. You might argue that a corporation should focus on shareholder value, but that doesn’t help make decisions about what the company should actually do.
Great leaders find a way to listen to everyone in the company, but in the end, leadership is about making decisions. That’s essentially the definition of the word. And we all know leaders who did not bother to listen, or just did not need to in order to be great; today’s most vaunted tech leader, Steve Jobs, was famously disrespectful of the opinions of others, yet made a lot of world-changing decisions (not all for the better).
This is exactly why working in a big corporation is so stifling. If you’re in a small company, the executives are close enough to the front line that it’s more like working in a tribe, but in a big company, the leadership is so removed from whose who do the work that executive teams operate like the politburo we so decry in communist countries. Certainly the bureaucracies are no more enjoyable or forgiving.
I find it both ironic and painful that my inability to work for someone else resulted in my creating a company that involved a lot of smart, capable people working for someone else.
I wish I had a solution. If this were an easy problem, its solution would already be pervasive, because the benefits are massive. Just in terms of efficiency, we’ve seen how much better the free market is than planned economies, but it also has a hugely positive impact on quality of life. People are happier when they’re in control.
I know the solution is not more freelancing and contract work, which America’s corporations are addicted to. That’s the worst of both worlds: The exploitative nature of capitalism with the inefficient bureaucracies of communism. Transactions on the free market work because they’re good for both sides, but most people only accept part-time contract relationships today when they have no other real choices.
Holacracy certainly isn’t the answer. It’s fundamentally flawed because of its implicit power structure - Tony Hsieh still runs Zappos, even if he does not use a central planning committee to do it - but the biggest problem is it makes no mention of economics. Without a clear system for scoring the transactions (i.e., money) it’s impossible to build a free market.
This problem of how to handle economics within a non-hierarchical company might lead some to think of using blockchain tokens as an internal currency. This is impossible today, beyond the fact that the world of blockchain is mostly about fraud and black market sales. The biggest problem is that we have no idea how to value most of the work people do. I mean, we might know that what a developer should get paid for a year’s work, but how much is that work worth? The majority of the work done in modern corporations is incredibly hard to value, which is partially why companies are so inefficient and make so many bad decisions.
That brings up an even bigger problem - companies today hire workers to make money from their labor. In other words, they generate profit because they pay their employees less than they’re worth. If everyone could trade their labor for exactly the amount of money it was worth, the corporations that employ them would have a much harder time making money. Instead, in modern corporations the shareholders and the executive team - again, the central planning committee we so despise - make the majority of the money, while the front line does all the work and makes very little. This is true even at the big tech firms; software developers might be well paid relative to hotel workers, but they’re paid a pittance compared to the founders and executives. This might speak to why we have no solution yet - free market corporations would tend to reduce concentrations of wealth, which would be terribly disruptive to the current system.
Like I said, I don’t have a solution. But at least now I know what makes the current system so painful, and it gives me some hope that we actually can come up with a better answer. I know I’ll be working harder in the future to manage the downsides of what we have today.
Although I might stress the “well regulated” part more than most modern economists. ↩
Kanban is an incredibly useful productivity tool, initially developed in Japan on automobile manufacturing lines. It has since become a widely adopted practice, including in software development and project management. Or has it?
That cute, simple tool you have that uses post-its, or skeuomorphic representations of them, to keep track of the state of some task or project? It’s not Kanban. To paraphrase Bill Hicks: No no no, I know you think it is. But it’s not.
What you have is a useful means of task and project management. It might be awesome. It might be saving you effort, time, and stress, and actively making your life better. I’m sure it’s a good tool, Brent. But it likely has nothing to do with Kanban.
To be clear, that’s fine. There’s no rule that says Kanban is useful to solving your problem, or that you ever need to use it. It’s just, you know, words have meanings. And the meaning of Kanban is all about inventory management. It’s true that you totally could be using post-its on a whiteboard to track inventory. But you’re probably not.
In both your task tracker and in Kanban, the card represents something. That is, the card itself is not relevant, but it represents a thing that you care about. In your tool, it’s representing some task that someone needs to do and the state that the task is in. This helps you to understand and communicate key information across all of your tasks, projects, and teams. I can see why you find this useful. Heck, I find it useful. I’m using it to track the state of this article, for instance.
In Kanban, the card represents something completely different: The need to refill inventory. At its simplest, you use cards to denote the minimum allowable inventory in a system, such as car doors sitting at an installation station. You do so by literally placing a card on the door at the minimum level. You pair these cards with separate rules about the maximum allowable inventory. Now each of your inventory pools (doors, engines, seats, etc.) have maximum and minimum levels - if the inventory gets low enough, the installer encounters the card and orders a refill, which itself is never above the maximum allowed. As you operate the system you tune it over time to make sure your min and max levels are right.
For most of your work, you can ignore the card and focus on what’s in front of you, but as soon as you encounter it, you must take action. This gives you two features that are otherwise lacking: You get to ignore the card and focus on your work for the majority of the time, which is incredibly important for productivity, and you also get to explicitly separate the process of optimizing the inventory pools from how you consume them. You can always be in the moment when you do the work.
On first blush, you might think to yourself that this doesn’t sound very useful. I mean, how much of your life is really affected by inventory problems? Pffft. Literally all of it. You deal with this constantly in your car, for example; its maker decides on your maximum fuel level (the tank is fixed in size), and you never want to run out of gas, but instead of a card you have a light on your dash when it gets too low. Obviously every grocery store and restaurant has to think about this, but so do banks (envelopes, paper, checks), mechanics (parts, tools), and coffee shops (coffee, chairs - yes, chairs).
You have personal inventory problems, too. We keep hearing about these magical fridges that will order milk for us automatically (but are more likely to be used in a DDoS); Amazon has released one-touch buttons that enable us to trivially order new inventory; and most of us have experienced the ignominy of running out of a key supply at just the wrong time, such as when using the toilet. To see these problems for what they really are, you need to step into a different mental model, a new world.
You need to step into the world of inventory. Rather than seeing everything around you in terms of work to be done, see it in terms of pools of inventory to be shifted, consumed, and refilled. It’s not necessarily “better”, but it is often enlightening. Kanban got created as a tool specifically for increasing the efficiency of such a world, and only makes sense when you’re in it. In fact, the cards themselves aren’t important at all - there are plenty of different triggers available.
It might shock you to realize just how much of your life would be improved by viewing the world this way. Suddenly all of those latent tasks that are sudden emergencies when you run out of something become simple efficiency problems that are easy to model and solve. In my last few years of experimenting with this in my personal life, I’ve built many triggers into many of our inventory pools. None of them are cards, but they are all closer to Kanban than your Trello board.
For example, we go through a lot of granola in my house. Our means of ensuring we never run out is to have two containers, about the same size. We always pour breakfast from one and refill from the other, and the emptying of our refill container is the trigger that causes us to buy more granola.
We keep one in-use and one unused toilet paper roll in each bathroom, plus a cache in a closet. Emptying the in-use triggers using the extra roll, which triggers pulling another roll from the cache. If that is the last roll there, pulling it triggers buying more.
In each of these cases, we’ve set up inventory pools that match how long it takes to refresh them. For example, our granola containers are sized that so that we don’t go through a whole container faster than it takes us to buy more. We never run out of toilet paper, but we don’t have to dedicate a room to storing it.
This perspective also allows us to recognize when we are missing a trigger to refill inventory, allowing us to shift the conversation from personal blame to process improvements. For example, in a bid to teach our kids to self-regulate their sugar intake, we’ve started making our own fruit yogurt and letting them add sugar, rather than buying pre-made fruit+sugar yogurt. We kept running out, though, because it took a day to thaw frozen fruit. We didn’t have an appropriate trigger to start this task at the right time. Having recognized this problem, we created one (I get frozen fruit out to thaw when we have about one meal left of pre-mixed yogurt), and on first blush, it seems to be working. We haven’t yet integrated it with one that buys more yogurt on the right cycle, though, so it’s not yet a complete system.
These are examples of using non-card triggers for Kanban-style inventory management. It’s the triggers that matter, not using cards to represent them. If we tended to have larger collections of unit inventory, cards might be appropriate. E.g., I usually buy razor blades in bulk, and it might be appropriate to label one of those blades with a card to trigger repurchase when I reach it in my stack. Here I’d have to find the right optimization between managing a large inventory, finding the right trigger, and getting the lowest cost per blade (which requires buying in bulk). Combine that with the fact that I usually use an electric razor (which means I rarely assess the state of my blade inventory) and the likelihood of making an inventory mistake goes up, thus increasing the value of a trigger-based system.
For all that I love tools like Trello, and systems like Kanban, I’m not sure they can ever actually be used together. That is, I think we have a whole industry of tools built to model a specific kind of problem, which are instead useful for many things but specifically not the problem they’re meant to exemplify.
The beauty of Kanban is that it’s out in the world, where your work is. (Don’t be confused into thinking that that board or those cards are your work; they just represent it.) I’ve been trying for years to build a Trello board, or some equivalent, that enables an inventory-oriented view on what I’m trying to do, but I’ve not yet succeeded. For instance, [WIP limits] mean something completely different when they represent tasks instead of inventory. That doesn’t mean they’re useless, just not useful for the same reasons.
My recommendation is that you enjoy your task management system, and continue to get what you can out of it. Maybe just stop calling it Kanban. At the same time, though, ask yourself: Where are the inventory pools in my life? What do I run out of, and how can I build triggers at the right point to prevent that? How does my world change when viewed this way?
Most of all, get out into the world. That’s where the work is.
You probably believe, like so many people I’ve talked to, that you learn more from failure from success. Unfortunately, that’s total bullshit - in general, the only thing you learn from failure is, of all the ways you could have failed, you have discovered one of them. As a result, you’re wasting your time, making yourself and the people around you less happy, and losing the opportunity to be better, faster.
I used to believe this, too, but I’ve since learned that success is dramatically more important than failure, which has made me a better leader, friend, and father. In fact, I’ll show that you agree with me, even if you don’t realize it. If you can briefly invert what you’ve likely heard and said so much, this essay might just help you achieve more success, and be happier while on the path.
You Don’t Believe It
I’ve got a simple proposition that makes this really clear, but I also want to go deep in a couple of areas to explain why this belief is not just wrong, it’s dangerous.
Let’s say you’re building a garage (which, it turns out, I currently am), and you have two contractors to choose from: Someone who has attempted to build ten garages, and has successfully built ten garages; or someone who has tried to build ten garages, and has successfully built zero.
Obviously, you and everyone you know would hire the person who has experienced more (or rather, any) success building garages, and you’d ignore as a quack the person who couldn’t even build a single garage. But I thought you learned more from failure than from success?!
There are a bunch of other obvious examples. Do you want to learn basketball from Kobe Bryant or a basketball player who got dropped in college, you go for the one with success? Does your restaurant belong on a popular street with other successful restaurants and lots of reasons for people to visit, or a desolate strip where no restaurant has succeeded? Even, do you fight to take control of a busy drug corner, or try to convince users to go to a different corner? (Yes, I’m watching The Wire.) Should you emulate someone who has started 5 companies and never made any money, or someone who’s started one and built to a billion dollar company? There’s a reason we lionize the founders of Google et al, but can’t remember who started Webvan, much less any of the thousands of people whose companies never even got off the ground.
Why is it so alluring to think we learn more from failure than from success? A lot of it comes from the value of studying failures, both your own and others. The fact that you learn more from success doesn’t mean you can’t learn from failure; often, the only way to succeed is to study the failures, because, funny thing, in the beginning failure is all we usually have.
But don’t let that confuse you into thinking failure is somehow more worthwhile than success. When you fail, you often get stuck - you can’t move forward until you’ve fixed it. You lose time, momentum, and more. When you succeed, you can move on to the next step in your project, but more importantly, you have a single thing that you know works. There’s always a chance something else works better, and you might conclude at some point it’s important to improve what works (I’m always worried about local maxima), but if you’re failing, you can’t even start to worry about that.
Not Just Wrong; Dangerous
Think about your behaviors if you’re focusing on the failures instead of the successes. You’ve got a big sales team, a broad customer base, or even your own child. There’s always a wide variety of success and failure across your team, or even within an individual. If you focus on learning from failure, you’ll spend all your time with the failing salespeople, the pissed off customers, or the part of your kid’s life where they’re struggling.
Contrast that with focusing on success, on what works. You spend all your time with your best salespeople, ensuring they’re closing better deals even more quickly, and you learn from them what helps them outperform, so you can bring it back to the rest of the team. You work most closely with your happiest customers, figuring out what they love about your product and how you can find and create more customers like them. You’ve also spent a ton of time with your kid in the areas where they’re strong and awesome. They get to build life skills, and enough self-confidence they can more easily tackle the problems they’re not as good at.
In all of these areas, the individuals who are most important to you know you care about them, because you’re spending time with them, and they know you respect and appreciate their success because you’re focused on what they’re great at.
Think how your best people feel if you show up and instead of talking about the great deals, successful usage, or artistic talent, you only ever discuss their failures - “Because you’re focused on learning from failure.” Really?
Yet this is exactly the naive behavior of many managers, product managers, and parents. You ignore your best people, you ignore the things that are working well, and you force successful people to wallow in the misery of their failures.
Route Around the Failure
It’s not just that you should be more focused on the things that are working than those that aren’t; it’s that, in general, you should just literally ignore the failures.. You’re standing at a golf tee and you hit 20 balls. Most of them go wild and do stupid things, but one connects cleanly and lands on the fairway. Who cares about the other 19? Just figure out how to copy that 20th shot every day!
Obviously it’s not possible to ignore all failures, but when you can, it makes a ton more sense to just keep iterating until something works, without really making any attempt to understand those things that aren’t working. You try something 20 times, and only one works? Awesome! You found something that worked! Run with it.
Nature fully understands this. Nature cares nothing for failures. All those animals that failed to pass on their genes to viable offspring? Nature’s too worried about letting the successes run things to worry about the missing genes of the failures. Yes, I’m inappropriately ascribing intent to a natural process, but you get the idea. And yes, Nature generally operates on a longer time scale than the average startup, but you never get to viable offspring by spending all your time with animals that can’t have kids, and you’ll never get to a great product by worrying about the customers who think your product is stupid (unless that’s the only kind of customer you have).
Focusing on Failure is Depressing
I’ve never been accused of having too sunny a disposition, but this shift in perspective has dramatically improved my own outlook on life and how I work with everyone around me. The shift was heavily inspired by reading Switch by the Heath brothers; its subtitle is, “How to make change when change is hard”, and it really hammers home that focusing on the successes, no matter how small, is what allows progress. It’s not just that this works, though - it’s a lot more enjoyable.
Everyone hates spending all their time talking about the things they suck at, the projects that aren’t working, the customers that don’t renew, the classes you’re failing. Yes, you do have to do some of that, but it turns out, you don’t have to do nearly as much as you think. In fact, you should spend the majority of your time on the things that really are working. It’s not being a Pollyana - it’s following success, and it makes you and everyone around you happier and healthier.
One of the implications of this practice is that you rightfully give up more quickly on the failures than you might otherwise. You focus on the paths that are working well, and tend to quickly abandon approaches that aren’t working. All of your efforts and experience naturally concentrate on the areas most likely to lead to successful outcomes. .
Use It On Yourself, Too
This isn’t just about how you work with other people or stuff; it’s also about you. I’m not a big believer in following your passion, but I do believe strongly that nearly everyone has a different collection of strengths and weaknesses, and that most people have at least one or two strengths that they can form into truly valuable assets.
You have a choice in your life between spending all of your time on those things that you can be truly great at, or spending it trying to turn the things you suck at into things that you are merely bad at.
I’m personally strong on product, brand, and culture, but I’m never going to be great at operations or sales. I could work my whole life, and probably go from being a 2/10 in operations to being a 4/10, which still couldn’t get me a job. However, if I work enough, maybe I could turn my natural strength in product design from a 8/10 to a 9/10 or even 10/10. Which of these is a bigger asset to me personally, and to the people around me? Even better, which do you think is going to be more fun for me?
Yes, there are some areas where you have true liabilities, and you sometimes have to invest enough focused practice in these so they’re not holding you back, but even in those areas, you’re better off working hard to be part of a team that complements your weaknesses, rather than trying to make sure you’re good at all of it.
Yes, Failure Does Actually Matter
It’s true, this article is a touch hyperbolic, and I suppose some readings of it could cause one to conclude I think failure is irrelevant and you should always ignore it (even though I explicitly say above that failure is sometimes critical to understand).
Of course, I don’t actually believe that. I get a huge amount of utility from failure. I’ve studied crash logs with the best of them, I am a big fan of postmortems, and I prefer never to experience the same failure twice, which usually means I need to invest in understanding it well enough to prevent its reoccurrence.
What I want you to learn, though, is that you need to seek success. If you’ve got a product that isn’t quite doing what you want but has some happy customers doing some weird thing you don’t understand, go study their success and learn how to build on it. If you’ve got one programmer who ships more high quality software faster and more frequently than anyone else, shouldn’t you deeply invest in knowing what makes her special and how to spread that skillset around your organization? Your kid doesn’t fit in, and isn’t going to become the doctor you always dreamed of, but might accidentally be a music prodigy or a professional athlete; shouldn’t you dive deep into that, rather than wringing your hands about them not fulfilling your dreams for them?
Water flows downhill, routing around blockages, and everyone’s path to greatness involves developing that same ability to put all the weight behind the things that are working, and not get too fussed about the things that aren’t. If you can do that, you’ll be happier, more successful, and actually enjoy the time you spend helping the people around you achieve meaningful success in life and in work.
I’m a tech founder and recovering SysAdmin. I helped found DevOps and grew up in open source. These days I am convalescing from a decade of physical and mental neglect while running Puppet.
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