The Nature of the Firm (1937)

Just rode through a startup and acquisition in a space I’d never thought much about (way underserved but all kinds of money sliding around) until I worked there with a smaller than I would have thought possible team.

All of that being said, SaaS and remote work tools should reduce the cost of transactions in the firm, which means expanded control of capital and more productive monitoring systems. In effect this means that the company can coordinate restrictions on output, monitor agents, and curb the costs imposed by the agents on the firm.

Theory is ambiguous when it comes to markups, what the company charges versus the price that consumers pay. This might go up or go down. There is a lot of current debate on this. But the theory does suggest that markets should get more monopolized.

Let me know if you need more. This is one of my research foci.

Like fuck me for wanting more information and to base my beliefs on sound conclusions.

It’s a nothing rhetorical gambit and a pretty bald one at that.

CEO of Shell Oil: What? Why? What is wrong with fossil fuel? Why are you attacking me? What evidence do you have that lets you use words like "catastrophic"? And, uh, what about the economy? The workers?

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Moral of the story: sometimes very high status people get defensive.

I work with a lot of startups. I was recently working with PairEyewear.com, founded by 2 people who were 26 years old, and who are now 28 years old. They go to the office 4 days a week. I do not see a generational shift, I see leaders of all ages going to the office.

If we were partners, we'd basically have to have some sort of salary or profit-sharing agreement which would likely require all manner of careful management of expectations. So, for example, say we split profit 1/3, 1/3, 1/3. Well, how do you handle the situation where one partner is not putting out? What if they become less efficient for several months because of personal issues? What if one wants to just go travel for a month? What if one partner wants to be more lenient on their tax write-offs than others are comfortable with? Rather than hash out some complicated agreement with lawyers and all that, we just operate internally as independent companies.

This way, problems are much more contained. If one partner starts fucking off, the others just stop sharing work. There is no "milking their hours" situation because that is reflected in the pre-work price negotiations. There's no unfairness in expectations, because we treat each other as separate entities and let the 'market' figure it out.

Also, everyone has complete skin in the game on their own projects and own clients.

I wouldn't say there are any inherent tax advantages except that you have complete flexibility to make it work for your own person.

We've used a mix of ALL of the above. Right now, it's two s-corps and an LLC. That's the nice thing, there's flexibility in how YOU want to structure YOUR stuff and do so optimally. UNFORTUNATELY, we're all California based, so sole proprietorships are probably out now.

>Are there any tax benefits/costs to this arrangement?

Yeah, so you lose out on economies of scale that would come by having ONE set of books, ONE accountant, an HR department, etc. However, that gets offset a bit by having total control and flexibility in how you structure your tax write-offs. On balance, I think I come out ahead this way, but it's a bit more unbillable work.

>Has the government hassled you regarding the arrangement? (It sounds like it has, but…how exactly and how did you respond?)

Yes, the CA EDD was kind of a nightmare to deal with over this issue during an audit which was for the year or two BEFORE the ABC test came into affect. It all mostly worked out but they just could NOT get it. We kind of lucked out there.

>Have counterparties hassled you or been scared off? Do they even “know” of the arrangement?

Basically, no, but they don't really know the arrangement. We have a sort of sub-contractor agreement that spells out who carries insurance liability for a particular job, and some other details. (I'm fuzzy on the details, it's been a while).

>Are there significant legal/transaction costs between the three of you? If not, is that simply because you have strong trust in each other?

Transaction costs are very minimal. We have contracts specifying the nature of payment and negotiations, and a clearly defined structure for who "owns" particular clients. That said, trust is paradoxically very high despite what I'd say is in some ways a very low-trust structure. The essence of the idea was to take all the stuff that would normally have to involve an army of lawyers and whatnot and convert it to something that can be managed as a free market.

Beyond our core team, we have several people that form a loose coalition of professionals we occasionally rope in on projects as well. This lets us grow or shrink out team in a really quick-to-adapt way without really making anyone feel responsible for anyone else's livelihood. Since we're regular partners on projects, typical transaction costs and negotiations are very minimal.

I think #1 is in the process of being unbundled. We _just_ need a coordination platform which brings lead plaintiffs, backers and lawyers together on a platform. Perhaps you mean something else by it?

Abolishing old laws already happens in some states but it needs to be lower transaction cost event. This would be a fun platform to build and something that can bring manifold benefit to society. Changing laws is a special and more complex case of creating new laws and has too much complexity maybe 10x harder than repealing old laws.

The last two evoke too many beliefs about ideology, moralism and nativist beliefs so I won't go there.

Can you extrapolate on land speculation?