The Nature of the Firm

What is business ownership? Why would anyone want to own a business? Why would we want to own a whole lot of them?

These are questions I’ve been pondering for about 20 years. But I don’t think I had the language enough in my own head to realize it until about a year ago. Spending countless (wonderful) hours talking to business owners will give you that language, I guess.

Looking back the questions for me really started in college. I told a friend a few years ago that I started DelMar right out of school because I thought it was easier to find a couple contracts than to find a job. The whole job fair attending, resume sending, suit wearing racket just seemed like a big waste of time. A few years into working as mostly an independent contractor, I couldn’t understand why everyone didn’t do this. Why weren’t all projects just done with a group of individuals that came together for the project and then disbanded? Then some of them could be reassembled in a different form for another project. I never thought it would be perfect. As an independent contractor, I certainly went through famine periods where I didn’t have enough work. I had feast periods as well when there was more work than hours in the day. But even with the downsides I could see, it seemed way better than this model of huge corporate life and its tales of waste and inefficiency. There had to be some more fundamental reason people would confine themselves to these horrible constructs called a business.

A few weeks ago I stumbled upon an article at the end of a long chain of google searches that provided some language. I think the author must have been asking himself many of the same questions I have been for 20 years. Did I find this article in one of those “10 Things Every Business Must Do” articles? Or this “Buffett’s Morning Routine is the Key to Unlocking Your Business’ Potential”. Nope. I found it in an academic paper written in 1937. R.H. Coase won a Noble Prize for it in 1991. Talk about delayed recognization of your work! I highly encourage you to read The Nature of the Firm.

I printed out a copy. Daryl and I both read it and marked it up. We made comments related to contracts we have with vendors. We referenced times in our businesses when we’ve decided to bring things in-house because we just couldn’t define the opportunity well enough. We really focused in on the owner’s responsibility to allocate funds and time. It’s this organizing function that really is the core of being a business owner. The rewards that can come with it and the risks as well. The paper was written nearly 70 years before the emergence of the “gig economy” but the logic is still valid.

Our marked up copy.

There are multiple topics covered in the paper I hope to think through and write about in the coming months. Until then, I encourage you to download a copy, mark it up, and shoot me an email with your thoughts.