The Inverted Pyramid

Closing the Linkery last week was mostly a joyous event but it was of course also, in a profound way, sad. The sadness wasn’t a sadness of ego — no, ending a project is more exciting than beginning one, in the same way that high school graduation is more exciting than the first day of ninth grade.

Instead, this sadness was very much about saying goodbye to my closest friends, the people I had worked with for so many years. They were all very generous about it, but we all knew that, by quitting in my job as owner, I was resigning as their advocate — or, as we’ve called it for a long time — firing them as my bosses. And really firing people — a thing which is different than the kind of day-to-day firing and quitting which is part of the fabric of many hospitality companies — is a raw thing to do.

Let me give a little background.

Many years ago, I was searching for a model to explain how I saw the owner/manager’s role in a company, and I ended up settling on what I call “the inverted pyramid”.

To contrast: most conceptions of how a company is organized end up looking like a pyramid. Many of us have seen this type of “org chart” distributed in companies we’ve worked at, it looks like this:

typical org chart (click to embiggen)

It is a command-and-control structure, and I believe its primary function is to perpetuate the illusion that makes us big bosses feel so good: that the success of our companies originates in our personal superawesome noggins, and we then propagate those ideas by instructing the department managers what to do, with them in turn directing the individual workers. The end result that I the big boss, get to watch what seems to be a hive of people, all acting as my extension, helping bring my Jesus-light to my customers who need it so much. Drawing that org chart feels great because it shows how important I am!

Of course, as anyone who was ever worked in a job toward the bottom of that pyramid knows, that chart has little to do with reality. In all but the most Tayloresque organizations — and in any organization that can be competitive in the post-connection economy — the people at the bottom of the chart are the ones responsible for making the decisions which make the company beloved, and doing the work that creates value. In most companies, the front-line workers are getting the job done for their customers, and also doing their best to neutralize the potentially destructive influence coming down the chain of command from the “top”.

Now, I’ve lived on all levels of that pyramid and I’ve been guilty of all sorts of sins, including top-down thinking and, as the saying goes, “taking myself too goddamned seriously”. Because when you’re responsible for meeting payroll, in times of stress it’s really hard to focus on letting each person contribute their gifts — in fact, it’s nearly impossible to *not* get into a command-and-control mentality. Simply put, when there are rocks all around the ship, you don’t want hold a town hall meeting on the bridge. That said, I know that any time I’ve been in command-and-control mode as a manager, our company was not — could not be — anywhere close to its best.

Because I know all that, I tried to change my perception of our company to an upside-down pyramid. That is, a pyramid that looks like this:

actual organizational functions (click to embiggen)

In this model, the front line workers are individual agents who do work that has intrinsic value. If, for instance, they are cooks, they could choose to sell their services independently, as private cooks who come to your kitchen and cook you dinner, one meal at a time. If they are servers, they could sell their services as individual butlers or valets. However, instead of selling their services independently, in this case they have decided to band together to sell their services as a group — say, as a restaurant.

As cooks, servers, dishwashers, janitors, and office workers, they have all the skills they need to operate the restaurant. However, if they’re busy cooking/serving/washing dishes/running spreadsheets, none of them will have the time to actually organize the company — to make sure everyone is meeting their commitments to the group, that revenues are distributed fairly, that adequate capital is obtained, that word is getting out about their product, and so on. So, this group of workers conceptually “hires” an owner/manager to assume those responsibilities, and they each agree to pay that owner a percentage of the revenue they generate.

This decision made by the workers to hire an owner works because, as a group, this band of workers has now greatly increased their earning potential: the 20 of them can easily serve 500 people in a night (25 guests per person), whereas independently they might have struggled to serve 8 people per worker. Out of the extra difference, they pay the salary of their manager, whose job is to provide them the service of maximizing the value of their effort. In other words, they have hired the “owner” to represent them and make their work as valuable as possible.

I believe that this mental illustration of the relationship between owner/manager and front-line workers (ignoring for the moment capital, to which I’ll return shortly) is the only illustration that makes sense. However, we can’t see it because of the language we use.

When a group of workers hires an owner, we say that the owner hired a group of workers.

When a single worker decides that her owner is not doing good enough work maximizing the value of her work, and she fires that owner in order to find a better one, we say that she quit.

When an owner decides that he is not capable of maximizing the value of his team as a whole if one specific person continues to be among his responsibilities, and the owner elects to stop representing the work of that person, we say that the owner fired the worker.

In every case, our language is describing the exact opposite of what happened. But there’s a reason for this: because, in our system, the capital is controlled by the management class. In fact, capital, owner and management are so closely associated that, in practice, we use the terms interchangeably.

In our situation where capital and management are completely aligned, owners of profitable collectives are able to extract far more than the value of their services. Skilled workers in most industries (unless they have very rare talents or are unionized) have extremely limited choice in hiring their owners, and are always at a major financial disadvantage in negotiations with the very managers they are hiring. If the workers want to eat and pay rent, they end up giving their owner almost all the excess value of their services. And they’re usually better off keeping whatever job they have, since any new owner they find is likely to be as bad or worse than their current one — and the worker may go broke while they find a new owner who will work for them.

(It’s interesting to note that, while it seems to us like a given, the confluence between capital, ownership and management is not a necessary condition. We can easily imagine a society where the standard model of business formation is for businesses to be capitalized by guilds. In this model, skilled workers would band together to start a company, and obtain capital from their guild, to which they already paid dues. The capital would be in the form of a loan whose interest is calculated exactly to pay the insurance against some such loans failing. The workers’ primary form of compensation is profit sharing after making their loan payments. The workers hire a manager, whose job it is to maximize the value of their effort. If the workers evaluate that the manager is not doing an adequate job in increasing their value, they fire the manager and get another one. In this perfectly plausible scenario, the guild represents the capital, the workers are the owners, and the manager is an employee. It’s only by cultural happenstance that we now typically experience all three roles as being held by the same entity, or by two or three closely aligned entities.)

Given the power imbalance in the world we actually live in, we let our language reflect the real control that management-capital has over workers. An owner who fires a worker may just be thinking that he (the owner) can perform better representing a different worker; but the truth is that usually the worker will have a much harder time finding a new owner, than the owner will have finding a new worker.

The good/bad news is, I think, that this reality is merely an artifact of the dominant business paradigm in our current society. As community-based businesses, and businesses requiring insignificant amounts of capital, become more prevalent, then capital, management and ownership can start to be seen again as separate functions. When that happens, the true role of management, as an agent of the workers whose job is to add value to their work, can be seen more easily.

Which brings us back to closing the Linkery. I made that decision that we would do so, when it became clear to me that, given the changes in the market over the last few years, I was no longer the right person to maximize the value of the work that our people could do. In fact, it was clear just about any other manager would do a better job at it. And, while there are markets in which I know I can help make people’s work much more valuable, those markets are not in San Diego. Which means I had to fire all these wonderful people — fire my closest friends — as my clients, force them to find a new manager to work for them, and leave town.

All of us will be far better off for it, I am sure. But the act of actually doing it, sucked.