Why Build a Company


57 million people are working as freelancers in the U.S. right now. 10 million more people worked as freelancers in 2019 than in 2014.# Flexibility is among the top reasons why people choose to go the freelance route. Within that umbrella, the ability to work from anywhere is critical for many.

Some freelancing is accidental or non voluntary. An increase in independent work is also inversely proportional to the job market and the economy contraction. In addition to freelancing, entrepreneurship is a viable path. You can now productize what you know (or yourself) and design your playing field.

Most people start a company for similar reason as those of freelancers—to be their own boss. Your odds of success improve if you align with market demand, can bootstrap or have access to finance and skilled workers. We overlook the role companies and corporations play in society. But we also misunderstand why it works.


An entity for sustaining work

Conversation came first in human history. We pile conversation on conversation to make culture. Work came later. British physicist Freeman Dyson says that we invented work when we became civilized. But at some point, work turned into the idea of business. You can see how it had a branding problem from day 1:

business (n.) Old English bisignes (Northumbrian) "care, anxiety, occupation," from bisig "careful, anxious, busy, occupied, diligent" (see busy (adj.)) + -ness.

“It's just business” is an expression that captures its heritage to this day as it's used to justify binary choices when more options could be available.

Work at its best is a sustained and lifelong conversation, says Dyson. Science, research, and most development work is enjoyable because it stimulates conversation and interaction. Because conversation is a way to further work and expand capacity, lack of interaction or conversation with a community of peers is a challenge when you're on your own.

Exploration is a natural activity for human beings. Study the history of innovation and you find the work of many explorers who were in conversation with each other across miles, but also across decades and centuries. We take ideas from others, and build on them. But then you need a model to trade them.

The destiny of our species depends on our ability to survive on different time scales. Fast fixes that helps individuals make a living, like freelancing, seem to get a lot of our attention, but slow enterprises like building a company that evolves over time have all the power. An entire economy of freelancers would not be sustainable.

Hence why companies have a long history. Roman law recognized a range of corporate entities. The word “corporation” derives from corpus, the Latin word for body, or a “body of people.” Conversation is useful to draw out the model to trade. Pooling assets (including the brand) is useful to build relationships.


Companies were made for this

Corporations are entities that can transform and dissipate socially useful energy throughout society, says Peter Tunjic. His work in corporate law and science theory defines value as “energy available to do socially useful work.” This wording is in line with the ancient idea of body of people who pool together.

The problem again is with using the right words. Asset represents value of ownership that can be converted into cash. It implies that converting everything into cash is the most desirable state. But can cash do socially useful work? In the same ways the word company evokes a more useful image than “business,” which is at best an abstraction, perhaps it's useful to think of capital instead of “asset.”

Words do matter. The etymology of capital provides some useful historical grounding: that part of the produce of industry which is available for further production.# Capitals include: social capital, natural capital, human capital, intellectual capital, and financial capital.

As Tunjic explains, “Value is created or destroyed when one store of value or capital is transformed into another.” Thus, “if value is energy in its social form, the modern corporations is the peak prime moveran incorporeal engine.” The role of the corporation is to facilitate the creation of value.

The Catholic Church was the first entity to figure out that having an artificial legal persona was useful. Think about putting property into a collective pot that would not be tied to the lifespan of a person. Further, if the work that lasts carries forward beyond the individual, you need a vehicle to further it across generations.

Companies were made for this.


From access to value

Dutch business executive and business theorist Arie de Geus says, “the modern company developed when capital became available for the wealth-creating process of the medieval tradesperson.” In The Living Company, he says that, “In the age of capital, wealth passed from those who controlled the land to those who controlled access to capital.”

de Geus was the head of Royal Dutch Shell's Strategic Planning Group. Access to financing was critical to survival. As the old crafts guilds evolved into companies, financial capital was more scarce than labor. Except for when plagues decimated entire populations throughout Europe in the 14th century. Then, labor went from commodity to asset once again.

But something happened between the historical period we call Middle Ages and modern time. Without this movement that recast the role of all capitals, not just financial, into the making of culture—and work as an important part of our lives—we could hardly understand the real reason for the role of companies in societies.

And that is the passage from old world where labor was a commodity and financial capital was scarce, to the new world, where leaders saw how human capital and intellectual capital could be converted into more valuable goods for commerce. They understood the power of non-obvious flows like authority and energy in the building of modern society.

Italy, I always remind the Americans, is the cultural matrix of the modern course,” wrote Italian novelist, poet, essayist, editor, and international intellectual Giorgio Bassani:

Without the critical rethinking of the past in the Renaissance, the world, which was ancient, would not have become modern. The artistic heritage is the proof, the punctual testimony, of the spiritual process that has changed the profile of civilization. It is for this reason that Italy, for me, has a sacred character.”

Among the claims to fame of classically trained Bassani are his key role in the posthumous publication in 1958 of Giuseppe Tomasi di Lampedusa's Il Gattopardo, an incredible testimony of human resistance to change, even with full feeling of the value of positive change, and authoring The Garden of the Finzi-Continis in 1962, for which he won the Premio Viareggio.

Bassani described how one store of value or capital is transformed into another.


Why build a company

“Turning something with greater value than money into money is not value creation,” says Tunjic. “Under this new stage of capitalism, the capitals are no longer transformed to create the greatest value but the greatest profit.” Since the other capitals invested to turn that profit have greater value, this operation creates no increase in value.

The belief that financial capital was the end-all-be-all of value kept management thinking stuck into optimizing only for money. Thus cutting jobs, slashing research, increasing automation, and non paying taxes—all well-worn modern tactics to boost the financial bottom line—don't increase energy, nor create value. These measures are an inefficient transformation of capitals.

This inefficiency “reduces the total value available to sustain individuals, corporations and even nations.” The opportunity for building a company is to realize the full value of capital to do the work of change. There are multiple types of capital where value is stored. When you transform one type of value—say money—into another that has greater capacity to do the work of change—say intellectual, human, or social capital—then you have greater value.

The qualitative differences between capitals dictate that some increase by use—for example social capital—others, like financial capital, exhaust by use/or non use (inflation). While human capital may exhaust over time, culture is a store of energy that accumulates over time.

Building a company is creating the vessel to hold value. Your flows capitalize on work by turning intellectual, human, social, promissory energy into positive change through triggers. It's easier to see how you convert value from nature, say a tree, into manufacture capital that gives you a chair by using human and intellectual capital—design, craftsmanship can differentiate your chair from any chair.

Thus, when someone buys that chair designed with craftsmanship that uses human and intellectual capital to convert value from nature to manufacture capital, you have an exchange of financial capital (pricing/quality factors) into social capital. That lobby was impressive! Her living room was so tasteful and comfortable! Your company also gets brand and reputation value from the exchange.

You build a company to have a vessel to organize higher forms of value. A company is an opportunity to remain super relevant years later, years beyond your own life. That's the power of an idea grounded into the work vs. the drama of doing the work.


Knowledge work and embodiment

I always enjoyed working with products, because it's easier to get a sense of the conversion of value. It's trickier to understand this concept of value and quality with knowledge work. Maybe we're in the early stages with knowledge work, where the thinking focuses on cheap labor. A writing piece is a piece of writing: except for when it doesn't convert, we say in profit-only mode.

But how do you explain the energy you draw from reading Dante Alighieri 700 years after his death? The understanding of human condition you feel from reading A Tale of Two Cities? They dip into culture and become timeless, creating value for generations. I just finished reading Farsighted and I confess part of it felt labored. I know it took time to hatch. Perhaps like this article.

But if I were writing directly to Stephen Berlin Johnson, I would also add that I know of the realities of publishing and the audience wanting a formula or a practical thing they can do this very minute. There’s pressure on authors to make things easy to do—but that’s not how enduring work like Middlemarch works:

Stephen, your segment on Middlemarch works beautifully because you drew energy from the culture of George Eliot’s time. It’s so clear to me and inspiring for that reason. Your words are stronger, they come from feeling and connection. The chapter transfers value to me easily in a digestible format because of that energy from your work. It was a gift to be in conversation with you and her about that time and your time of reflection. 

To understand the value of culture, you need to think in capitalization terms. For example, social capital works harder and longer than other forms of capital, but, as they've been saying for centuries, you cannot buy yourself a stellar reputation. Can you put a price tag on the feeling of reading your favorite book with your grandmother?

When I produce a story for a company that involves research, intuition, and inventiveness, the output is data with a soul. It can stir emotion, become a favorite part of someone's learning experience and motivate an experiential process of adaptation. In this case, the output capital can do more work than the input capital. If the focus is only on transaction costs, you miss the value of the greater capacity to do work of the output.

Knowledge work has a measurement problem. John S. Fuoto explains the irrational belief that all things can be measured and observed in a repeatable manner well here:

Engineering is the use of scientific principles to design and build machines, structures, and other items, including bridges, tunnels, roads, vehicles, and buildings. “The use of scientific principles” means principles that can be determined using the scientific method; in other words can be measured and observed in a repeatable manner. It isn’t the engineering mindset that is the problem. It is the philosophy that you describe; what I call the cult of scientism. The irrational belief that ALL things can be measured and observed in a repeatable manner and that what we can observe and measure now has always been that way.

We're so wrapped in the way we do things around this culture (same root of cult), that we miss other ways of observing the transfer of value. 23 years after writing The Living Company, Arie de Geus has given me a relevant piece of the puzzle on value. This is the power of an idea: even when the context has changed, the idea it still sound and valuable.

Beyond the persistent effort of literary geniuses who may or may not have found success during their lifetime, a company is an entity for sustaining value over time. By building on the power of an idea, a company can capitalize on the capacity to do work. But herein lies the paradox. By misunderstanding how capitalization works, many companies become like a tale of two cities in their approach to building:

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way—in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.


My work is at the intersection of culture and strategy. The tools of my trade are conversation, writing, and anticipating trends. Many of the things I write about include design—of things, but also relationships—and research—talking to people we can gain perspective on the gap between what people say and what they do, including us (companies).

I synthesize a lot of interesting data and stories in issues that attempt to minimize overwhelm and maximize joy.


Leave a Reply

Your email address will not be published. Required fields are marked *