Isn't it just better to keep companies small? Maybe have/work on multiple companies, have companies interact better with other ones so they can accomplish more, but keep them smaller.
Ronald Coase[1] explains why an integrated large company can be more productive and efficient than interacting individuals (or interacting small companies). Basically, internal transactions (departments) cost less than external transactions (contracts).
E.g. there is no way for Apple to sell an iPhone for $500 or Amazon AWS to offer EC2 compute for 1 penny per hour if those 100,000+ employees were split up into thousands of smaller 5-person companies.
It seems reasonable that many entrepreneurs have ideas that require more than 5 people to execute.
It occurs to me that if we believe this, the USA as a country could make our entire economy more productive by making contracts less expensive. 5 seconds thought leads me to believe that "less expensive" might have a number of things involved, from simpler legal language that doesn't require a lawyer to understand, to a legal system that isn't set up to benefit lawyers, to less intellectual property restrictions, to a less adversarial legal system. Clearly much of this is impossible to implement.
It's not the cost of drawing up the contract that adds a significant part of the cost. The contract work itself that adds overhead.
Of course not. You accept the tradeoff because it is in your interest to abstract away risks. Part of the costs involved in this risk taking comes from how the contracts are set up.
For example, your employee doesn't have an actual contractual obligation to fulfill such and such goals every month, while an external contracted firm may have.
I didn't say the tradeoff is that other people make profit. The tradeoff is the overhead cost. Sure, that can be another tradeoff -- obliged fulfillment. Either way you're paying the contractee a little more for that.
It's not the contract itself (the legal expense) that is the major cost in a contract. Yes it is some overhead, but is it really a significant part compared to the excess you are paying to have it contracted vs in house?
The point is. It's still going to cost you more, even if the legal cost is zero.
I wasn't trying to say that it is viable to do EVERYTHING with a 5-people company. I was trying to say it is viable to do a lot, and that it is maybe possible to make it more viable to do more.
Imagine there are no companies with the need for dedicated representatives, since they are 5-people companies also.
That depends on what you're trying to achieve: the bigger the goal you're striving for, the more people you'll need for it. Yes, technology is an amazing lever, but it's not infinitely long: 5 people aren't going to make the next smartphone, electric car or rocket.
Generally small companies move faster and can innovate much faster, large companies can bring those innovations to massive scale. This is why you often see the model of large companies acquiring small companies then scaling the business (think Facebook and Instagram).
Can we get coffee sometime? I'd love to exchange thoughts and ideas and just learn your perspective as well. I'm in SF (moving to Oakland soon - looked up your twitter).
I agree about the engagement part, but given that I've always worked in places where people were highly engaged, the next challenge is how to direct that engagement towards a common vision and purpose with efficient execution.