Welcome to Issue #10!

American business has become a story of small heroes and scaled-up villains.

‍The Backstory: Two weeks ago, Pew Research published a study on public sentiment toward business in the United States.

• 80% of Americans said the felt small businesses “have a positive effect on the way things are going in the country these days.”
• When applied to technology companies, that number shrunk to 49%.
• And for big business, the ratings were scathing: 71% of Americans felt “large corporations had a negative effect on the way things are going.”

Why it Matters: As founders of startups, you may hope your business becomes a large corporation, but I doubt you’re interested in 71% of Americans thinking your creation harms society.

I have yet to meet a founder uninterested in building a business that was useless and undesirable to society. So, the question I’ll leave you with to chew on today is: what is so corrosive about large corporations that small businesses are unaffected by, and how do startups avoid (and should they) transforming from hero into a villain?

Big Idea #10: Andrew Ure’s Three Systems of a Factory

When defining “management” or business down to a simple definition, it’s easy to communicate, but it loses the nuance inherent in the system’s complexity.

Theory

Andrew Ure lived in Glasgow, Scotland, in the early 1800s. After getting degrees in chemistry and “natural philosophy” (we call that science these days). Ure took a position at Anderson’s Institution, a school founded to educate factory workers and managers. At Anderson’s, Ure taught and trained many owners and managers of Big Deal factories in the U.K. during the first half of the century¹ .

A widespread issue in the early 1800s involved a few rabble-rousers in a factory deciding to skip work or stop working, leaving proprietors with a chaotic mess. To address this issue, Ure argued a factory needed three systems to operate in harmony. Systems that Ure compared to the equivalents of “the muscular, the nervous, and the sanguiferous systems of an animal” ² :

1. The Moral System: “The condition of personnel.”
2. The Mechanical System: “The techniques and processes of production.”
3. The Commercial System: “Sustaining the organization through selling and financing.”

Practice

Founders need to be able to spin their mouse wheels to zoom in or out on a business. You need to see the forest and be capable of getting in the weeds without getting lost. Models like Ure’s help you see the forest and act as a counterbalance to the human tendency to make shit more complicated than it needs to be.

What I mean by that is that startups are much better at giving everyone fancy titles and holding meetings than solving The Main Thing. For example, in a startup, it’s maddeningly common to see a pre-product-market fit company with a CEO, VP of Product, Head of Engineering, Head of Sales, Head of Marketing, and all kinds of other nutty titles without actually having a strategy for getting to PMF.

Ure’s system says: (1) does someone own making sure we have the right people and that they’re happy? (2) does someone own making sure we know what to build and how to build it? and (3) does someone own making sure we’re selling stuff and have enough cash in the bank to keep operating?

I love the simplicity, but I can already hear the “Yes, buts.” Yes, but,” what about facilities, admin, and marketing, and analytics, and all the other functions with labels that I don’t see in Ure’s systems? I’d argue that if someone owns each of Ure’s systems, all the other functions will emerge to achieve each system’s stated goals.

One last piece of practice: in a 2017 piece, Brad Feld broke a business down to three “machines”: (1) the product machine, (2) the customer machine, and (3) the company machine. It’s a very similar model, and I love how Brad believes that if you’re a “sub-scale leadership team (e.g., 3 founders and 4 employees), as a CEO, you can own one, but not more than one. As you get bigger (~>20 employees), hopefully, you will have enough leadership to have one person own each).

Reads & Resources