Money, freedom and entrepreneurship

By Thane on Mon 18 June 2012

Lately I've been thinking about the role of money in society quite a bit, and today I was thinking about it against the backdrop of entrepreneurship.

Money, Relationships and Freedom

On a philosophical level, it would seem to me as though money is a sort of portable, tradeable representation of the amount of freedom that can potentially be afforded to you by people you don't know.

Let me explain. When you walk into a shop, pick something up off the shelf, and walk out without paying for it, what happens? If someone notices, they call the police and you get hauled off to jail. If not, you walk out with a free lunch. If, however, you give the person at the counter an appropriate sum of money, the people in the store will allow you to walk out with the item, in full view of everyone, without the threat of violence. You have traded some paper and/or metal in exchange for that freedom, and thus money operates as a (scarce/limited) social signalling mechanism.

In relationships however, ranging from those with acquaintances to family members, people also afford each other freedoms. Hopefully one can go to one's parents' house and take food from the fridge without the threat of someone calling the police to carry you away. We allow each other freedoms in relationship in quite a different way to the transactional freedoms allowed through the use of currency.

This way of looking at money, for me at least, seems to clarify the real trouble in trying to do business with friends and family, and the problem lies in the following question: do I allow this person freedom based on the amount of money they give me (effectively relegating the status of the relationship to that possible with any stranger, and potentially belittling the relationship if both parties are not exceptionally mature), or do I allow this person freedom based on the depth of our relationship? It's a really tough one that's probably best avoided, as I said, unless both parties are exceptionally mature.

Entrepreneurship and Power

Thinking of money and power in the context of entrepreneurship, reflecting on an essay by Malcolm Gladwell entitled The Sure Thing, he notes that really successful entrepreneurs generally seem to have sizeable amounts of money at their disposal prior to starting their venture, and that the risks they appear to be taking are, to the entrepreneurs themselves, not really risks at all - they're "sure things"; well-calculated risks.

Assuming you have a market for whatever you're selling, and you're happy with the risk of your new venture, what is it about having a sizeable amount of money (i.e. portable freedom) at your disposal that facilitates the creation and success of such a new venture?

I'm willing to argue (as I did in my MBA thesis last year) that at the heart of entrepreneurship lies the desire to challenge established power structures, especially ones in the institution we currently call "business". Venture success is somewhat attributable to innovation, but, as this HBR article points out, I think our focus on innovation is overrated. I believe it's primarily about offering people something that allows them to get what they value, that is, to make meaning, and then it's about finding ways to challenge and overthrow those already providing people with ways to get the same value. [I mean, who's really come up with a new need over the past few thousand years? Haven't people just been coming up with new ways of satisfying long-standing needs? That's a point for debate, I suppose.]

How is it that you overthrow someone in power? Well, if they have a lot of followers, it's going to cost you a whole lot of money just to tell those people that you can help them get what they value in a better way. If those followers have a relationship with your competition (i.e. the followers have real-world relationships with people who work for your competition), it's going to be even harder and more expensive to convince them to leave the competition. If those followers have a transactional arrangement with your competition, however, it will be easier and cheaper. Lesson number one that I've taken from this line of thinking: get to know the competition's people, your potential customers, and the dynamic between the competition and their (your potential) customers. If your competition's creating real value for people, and they have great, healthy relationships with those people, you're probably better off looking for another type of opportunity - this would be the less risky route, in my opinion.

Entrepreneurship and Working From a Stable Base

I was reminded of a blog post I read last year, and some advice from a friend of mine to get a stable job before attempting to start anything of my own again, and I've really been thinking about the merits of building up some sort of stable base from which to develop commercial ventures in the future. Of course, this isn't a guarantee for success, but it seems like a less risky route to me - one which I am in the process of trying to pursue. As an alternative to building up your own capital, for example, you could rely on venture capital, but this means making commitments to people that restrict your future freedom, so be very careful about the nature of these agreements.

Building up a stable base financially, which can mostly only happen if you have a good job for quite a while, will generally be linked to building up a solid network of business relationships - people you can rely on to afford you freedoms that you won't need to pay for, because of the nature of your relationships with them. Disclaimer: be very careful of trying to worm your way into people's lives and going out there in order to build relationships with the "right" people. People can usually smell phonies from a mile away. And this isn't a one-way thing: in real relationships, just as others afford you healthy levels of freedom, you afford them healthy levels of freedom too.

The second lesson I've taken: put yourself into positions and situations to be able to build the right types of relationships should they occur, be open to new experiences and, above all, do it naturally - in a way that's in line with who you are. As Gladwell pointed out in his book Outliers, success is one part hard work, and one part luck. The luck part, I suppose, is where hope and faith come in (what you choose to place that hope and faith in, of course, is up to you).

The Danger of Risk-Aversion in Entrepreneurship

Once you become successful, you naturally become powerful in the eyes of your employees. Really good entrepreneurs' success depends heavily on their ability to quantify and minimise risk, and the tendency to gravitate toward implementing strict processes and top-down control (enforced and facilitated by people's perception of power in you as a successful entrepreneur) is inevitable. There are alternatives to top-down control, but it means you have to let go of your perspective of your company as a system and rather start thinking about it as relationships between people. Traditional HR theory makes a clear case for relational psychological contracts rather than transactional ones, and I believe it's largely because of the special freedoms we afford each other in relationships over mere monetary transactions.

The third lesson I've taken from this line of thinking: genuinely get to know the people working with me.

Conclusion

At the end of the day, business (and thus entrepreneurship) obviously wouldn't exist without people. And if money is one means of affording freedom to individuals or groups of people, then business is just as much about those freedoms and our complex relationship dynamics. It's really important then to know people.

A good starting point to get to know others is, of course, to get to know yourself (both getting to know others and yourself are processes, as you and others are dynamic and change over time). As an entrepreneur, it's incredibly important to know the people you work with (your employees), the people you compete against (your competition), and the people for whom you're attempting to create value (your customers).

I'm looking forward to experimenting with these ideas once, with some luck, I've built up some stability for myself. I'll report back as I go, and welcome any feedback on these concepts.

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