Havoc's Blog

Even though I spend all day as a software developer, I find it useful
to understand something about financial and business topics. Many
people (including a much younger version of myself) reflexively
dismiss business – marketing, finance, etc. – as irrelevant to them.

Sometimes this is because people think of business as in some way
distasteful. It can be. However, a better way to look at it is that
some businesses and people engaged in business are
distasteful.

Mutually beneficial exchange

Here is what business is supposed to be like. Say we live in a small
town hundreds of years ago. I am a blacksmith and you are a
farmer. You need horseshoes and I need food. We exchange one for the
other. We are both better off.

This is what a company should be like, and it’s also how I like to
view employment
(an exchange of time for money that is mutually
beneficial).

Business is not always like this. Monopolies, for example, can mean
that exchanges have lopsided benefits rather than mutual benefits.
Another issue is that large (or mismanaged) organizations
can become irrational – a public company should be a mutually
beneficial exchange between the stockholders and the customers. The
employees of the public company, specifically the management, are
supposed to act as agents of the stockholders. But it’s not unusual at
all for politics and self-interest to trump both customers and
stockholders. Or for short-term thinking to trump long-term.

It gets more complicated when customers and stockholders mutually
benefit, while some third party gets screwed. That’s when government
incentives or regulations are needed.

The more complex and “abstracted” from stockholders and customers a
business gets, the worse it can be for both stockholders and
customers. Look at the subprime mess: it was too complicated and
unclear where the mutual benefit was, with quite a few links in the
chain between investors and customers. This allowed the agents
(management, employees) in the middle to muck things up badly.

Your company should be making a profit, and your customers should be
better off than they would be without your company. True for a
one-person company, true for a thousand-person company. Nothing else
is sustainable (or ethical).

A way to get things done

Say you want to get something done. Work on a certain project, create
a better mousetrap of some kind and get it out to people, spend your
time on whatever activity, solve whatever problem in the world.

There’s no way around it: whatever you want to get done will use
resources. It will use time, materials, or both. Even if your project
is to quietly meditate in the wilderness, you’ll be spending time on
food, shelter, and other tasks to sustain yourself. You’re converting
some type of resource into some other outcome.

To get something done, you could do all the work yourself. But not all
tasks are that small. So people look for ways to achieve larger goals.

To achieve a larger goal, you can either increase your own
productivity, or you need to organize other people – ideally into a
self-sustaining snowball that keeps pushing your goal further and
further forward.

There are two ways I know of:

• Start a business.
• Organize volunteers and donations; but volunteer labor and
  donations are both supported by some kind of business.

Business is just cooperation

Either everyone in the world is a completely self-contained
and self-sustaining unit, doing their own hunting and gathering,
building their own shelter, etc. ; or they are engaged in
exchanges that should be mutually beneficial, i.e. they are in
business.

When specific businesses or specific business people
don’t seem to fit into this, those are bad businesses and bad business
people.

Trying to ignore business matters is a bad idea. You’ll never get
anything done (or even understand what’s going on in the world).

(This post was originally found at http://log.ometer.com/2008-08.html#3.2)