Smaller Bites

Co-ownership is a big pill to swallow all in one gulp. It scares people and they react by accusing it of being utopian (i.e., “It won't work in the real world”) or a political scheme (i.e., “The communists tried it, it didn’t work”).

This post is about a few smaller bites that, we hope, people may find to be less threatening and signal “progressiveness.” Rather than attempting to change the ownership structure of the whole business, we are talking about starting with a co-owned repayment fund and a co-owned bonus fund.

Cash Infusions

We have gotten used to taking cash infusions from Angels and VCs. Angel investors get a note that promises them a future take. Then VCs show up and make a bigger investment. The Angels get their money back and their promised take, and the VC gets a piece of the business. More often than not, a lead VC brings other VCs along and together they end up with majority control of the business.

In theory, investors don’t have a say in day-to-day operations, but in practice if there’s something they don’t like, they can fire the CEO and get a new one to do their bid. The end result is that money making ends up being the only priority while everything else falls by the proverbial wayside. The product, the technology, and, worst of all, the people become replaceable components of the money-making machine.

That’s the way the Fiat world works and we are so used to that we don’t even notice it. Unfortunately, if it continues to operate this way, we will go deeper into a dystopia that we may not be able to come out of.

Not Dystopia

The Radical model is an alternative to a dystopian future. In the RADICAL COMPANIES book we propose a model where companies are co-owned and co-managed by everybody who contributes to it, not just a few bosses. There are plenty of benefits of not having all decision-making centralized in the hands of one or a few people. Unfortunately, it scares the bejesus out of bosses and employees. Bosses fear that their role and self-image are at risk; employees fear for their livelihood. Start ups and small companies in general are less scared of this model, but bigger or more established businesses can’t even fathom it.

Instead, we can try the co-ownership model in smaller bites. Like, an investment repayment fund or an annual bonus fund. Decentralizing these distributions gives everybody involved a taste of how they works and they may even see how it could be applied elsewhere, inside or outside the business.

Repayment Fund

For example, an investor gives the company $200K to be repaid with 10% interest in two years. Normally, the interest belongs to the investor. But let’s say that instead the company matches the 10% interest with an additional 10% to end up with a $40K fund. The money in the fund would then be distributed to everybody, including the investor, involved in repaying the investment using RADs.

The Annual Bonus

The so-called bonus^∇ is similar. The usual distribution is based on a whim or a formula, often done by the boss. This guy is a bit of a jerk, but he is very good and we have to make sure to keep him.

Other businesses, trying to be more progressive, establish a formula. This is usually based on years of experience, schooling level, tenure, and other so-called objective measures. I say so-called because in the end they are not always objective even if they are measurable. For example, a certain level schooling may not be necessary, but become part of the requirement because whoever wrote the requirement had a Masters degree from a brand university. “Years of experience” really means tenure at other, similar companies in similar jobs, but it doesn’t account for other flavors of experience in other areas.

If anything, what I’ve called “the boss’ whim is closer to recognizing the value of contributions and that is what RADs do.

RADs

RADs^∇ are all about recognizing contributions and assigning them a value. What the boss is doing when he assigns bonuses does it but in the privacy of his mind—nobody else knows if he is recognizing a financial contribution to the business’ bottom line or to his ego.

RADs are a tool for decentralizing the recognition of contributions. It is similar to what the boss does in his head, but, instead, lets everybody do it. These distributions are fully transparent, too, including the reason why each contribution is being recognized. Finally, RADs make contributions tangible. Instead of vague attaboy, RADs can be translated to a percentage of, say, profits (i.e., earned dividends).

Building Communities

RADs could also be as a way to ease into co-ownership by building communities.^∇

ENDNOTES

• A “bonus” is not a gift. What is normally called “bonuses” really are earned dividends, “… paid to shareholders from surplus profits.”. This is a form of wealth extraction of the value everybody, including you, helped create. <https://www.etymonline.com/word/bonus>

• Giving RADs. <https://radicalcompanies.com/2022/07/17/giving-rads.html>

• Matt Perez. Small Bite: The Co-Ownership Model. August 2022. <https://radicalcompanies.com/2022/08/22/small-bites-the-co-ownership-model>