As humanity has evolved, a shared belief that has driven our behavior is that of ownership. Whether we are hunting, gathering or producing, we own and trade things that help us survive and thrive. To make it easier to trade, governments have created monetary systems that enable us to assign a value to our possessions so we can simply exchange money to buy and sell them rather than physically trading them. When we produce, buy and sell things individually or band together to produce, buy and sell on a larger scale, we are participating in the collective reality of a business. In turn businesses are participating in the collective reality of industries and the economies. Ultimately, as Ray Dalio points out, everything is based on the simple behavior of “one person’s spending is another person’s income.”
Taking a deeper dive, businesses can have a single or multiple owners with or without employees. The simplest business is an individual taking a job, selling their services to generate income, in turn spending their income to survive and thrive. Families are similar in that they have a source of income and use it to survive and thrive. Formally organized businesses use their income to survive and thrive collectively, as well as distribute their profits to their owners who use it to survive and thrive individually. Ultimately we are all in the business of surviving and thriving.
Through history business evolved from hunting and gathering, to farming and craftsmen producing products, through to the spectrum of small businesses and large multi-national corporations that we have today. Technology has driven this evolution enabling economies of scale through mass production and automation that lowers the cost of products. Technology has also enabled products with greater function and scale to address more markets. Broadly, business is on the front line of humanity’s evolution, one of the primary ways that we collectively think, learn and work together.
From the perspective of PPCR the similarities between an individual in their personal reality and a business in its collective reality are remarkable. Each needs to register with the government to establish their citizenship or country of origin respectively. They receive an ID, a Social Security Number (SSN) or Employer Identification Number (EIN) respectively here in the US that is used to monitor activity, levy taxes and provide benefits as they journey through life. Effectively they both use budgets, income statements and balance sheets to manage their income, expenses, assets and liabilities. They typically establish relationships with banks to store and move their money, as well as establish credit and borrow money as needed. As they journey through life they learn to thrive, or not, and ultimately individuals die and businesses terminate. The similarities are so great that it has sparked the concept of “corporate personhood.”
Similar to how our conscious mind navigates and directs our body’s behavior, the leadership of a business navigates and directs the behavior of the business through its management structure. Employees of the business carrying out their job responsibilities are acting as agents for the collective reality of the business. They collectively think and produce the behavior that the business exhibits, managing the business’s boundaries and acting to help the business survive and thrive.
It was rather eye opening at one point, working with a Japanese cultural expert during a business negotiation, to learn how eastern cultures focus on collective thinking far more than western cultures. In a Japanese business for example, concepts, products, etc. are typically created by individuals contributing pieces to the group’s overall understanding, arriving at the collective result. It’s considered rude to make broad strokes, taking the Ayn Rand entrepreneurial approach to business like we often do here in the US. Being involved in small businesses over the years, I’ve always considered lean leadership groups based more on individual intuition and behavior as being more responsive, competitive and creative, able to more easily adapt and learn. Either way, as businesses become larger in size, the sheer volume of information and decisions required results in a larger leadership structure and greater reliance on the business’s collective thinking.
From the perspective of collective thinking, the collective knowledge of the business is based on the individual knowledge of its employees. Much of this knowledge is learned through education or job experience prior to becoming an employee. The remainder is learned from the business’s experiences and stored in its collective (institutional) memory distributed across its employees, as well as its information systems. Greater connectivity and computing capability enables a business to better process its information, further augmenting its ability to think collectively. As the business collectively learns and responds to its experiences, the belief system used generally follow the individual beliefs of the business leadership since they are more directly managing the business’s behavior. Collectively they form the morals, ethics and personality of the business. This influence tends to be more prevalent in small versus large businesses and not-for-profit versus for-profit businesses where the ownership hire leadership who focus on efficiency, profits and equity value.
It’s important to understand that internally businesses operate around the flow of money through the organization. Income from sales or fundraising are the source of money for the business. Expenses to operate the business get paid from the income produced, resulting in a net profit (or loss) that gets added to (or subtracted from) the equity of the business. Similar to the net worth of an individual, the equity of the business is what is left after you subtract the business’s liabilities from its assets. Businesses and individuals manage their expenses, credit and assets to maximize their income, enabling them to survive and thrive. Looking at the collective behavior, Ray Dalio’s observation could be, “one business’s spending is another business’s income.”
Breaking it down a level, a business generally organizes into functional groups along the lines of: marketing and sales who promote and transact sales to generate income; operations who produce what is being sold; development who is improving or creating what is sold; and administration who is managing the money, support and direction of the business. Budgets break out the money available into funding for the functional groups and each group effectively acts like a sub-business attempting to execute their part of the business’s collective behavior. How effectively each functional group behaves and works together with the other groups determines how well the business behaves, hopefully not just surviving but thriving as well.
Similar to an individual, the amount of money available to a business puts a boundary on the range of behavior available. If the business has been able to establish credit with a bank or a supplier, just like an individual using a credit card, it can purchase products and services without necessarily having the money to cover the costs immediately. Borrowing money long-term, a business can make investments in equipment and infrastructure similar to an individual taking out a mortgage to purchase a house. Another avenue, not available to an individual, is for a business to access money by selling ownership in the business to investors through private placements or public offerings of shares of stock. However it happens, if the money in cannot keep up with the money out, similar to an individual, the business may be forced into bankruptcy likely having to terminate operations. Effectively the business has bled out.
The similarities of a business operating in its collective reality and an individual operating in its personal reality gives us insight into what a business is thinking collectively. As other collective realities, and individuals in their personal reality, connect with the business, being able to set an expectation about the business’s intentions and future behavior is critical for managing the relationship. A primary distinction is whether the business is for-profit or not. If it’s for-profit, the primary intention is to make money for its owners. If it’s not-for-profit then it still has to find enough money to operate but its intentions generally follow the vision or mission identified when it was organized, for example a food bank, shelter, church or university. You want to understand the business’s culture and intentions, along with the products and services that it produces, as you initiate, manage and support a connection over time. When it is all said and done, we need to understand that employees vote with their feet and customers vote with where they spend their money.
Digging in, a business’s connection with its employees primarily revolves around purchasing the employee’s services. Employees are hired to fulfill roles and positions inside the different internal groups generating the business’s collective behavior. The value an employee brings is based on their specialized knowledge and skills, often evaluated by their prior experiences or adequate background to be trained to fill the role. Value is also brought by how well an employee can work as an agent of the business’s collective reality helping the business collectively think and behave. Compensation for specific positions is often set by policies and budgets but it’s a free market in most countries with supply and demand driving the employment process.
Beyond compensation, the business culture and how the business treats its employees drives how engaged employees are as agents of the business. Are employees: valued; operating inside clear policy and procedure boundaries; dealing with a minimum of politics; fairly compensated; given a voice; supported by their boss and coworkers; have avenues to learn and advance in their career; and feel like they are making a difference being connected to the business? Alternatively are the employees treated as more of a commodity requiring adequate performance at the lowest possible cost potentially crossing the line into exploitation? More likely the relationship is somewhere in between. If employees collectively think it will work better, they have the option in many countries to unionize, collectively negotiating compensation and adequate performance. From the perspective of a small business, engaged, competent employees are critical, often leading directly to the business’s success or failure. In all cases, if the relationship is not working, the business can fire or the employee can quit, leaving both the employee and the business to deal with the consequences. As an employee in our personal reality connected to a business in its collective reality, we need to be clear about what is going on, set our expectations and act accordingly. Employees vote with their feet.
If we look at a business’s connection with its customers, the connection primarily revolves around purchasing the business’s products and services. The customer has to have a need or desire to purchase, while the business has to provide the value and quality at a cost that is acceptable. Value and quality can be rather subjective so businesses build a brand for their products and services that customers can recognize establishing perceived value and quality, along with name recognition, relative to lesser known competitors and their products and services. Additionally, brands often are linked with groups or customer needs unrelated to the product or service, creating product differentiation and additional perceived value. If we take a hard look at the advertisements coming at us, it’s amazing what is actually being communicated. Additionally it’s useful to understand that advertising is expensive and we are paying for it with our time to view it, as well as when we buy the business’s products and services. As a result, many of us find ourselves recording just about everything or using ad-free streaming services, skipping or ignoring advertisements as best we can in all our media feeds. It is far more cost-effective to proactively research products and services when we are making a purchase decision.
Implicit in the quality of a business’s products and services is that the customer’s expectations are met and how well the business supports the customer when expectations are not met. Warrantees, return policies and customer service in general needs to be cost-effectively managed by the business to meet the customer’s needs while maintaining the business’s image and brands. The business’s employees that interact with customers are scripted in what they can say and do, so any conflicts are generally between the personal reality of the customer and the collective reality of the business, a bit of a David and Goliath problem. If the employee cannot meet the needs of the customer, or the personal reality of the employee has become involved, the conflict can be escalated, attempting to find a better resolution. Conflicts hurt both the customer and the business and the majority of what gets learned is generally by the personal reality of the customer about the collective reality of the business. This results in better expectations and more informed purchasing decisions in the future and it may or may not include the conflicting business. Customers vote with where they spend their money.
Similar to an individual with their personal identity, a business’s relationship with its employees creates its internal identity which can be reasonably managed by its leadership. A business also has a public identity, managed through public relations (PR) communication that is central to how it behaves in its community while also reflecting on its brand(s) impacting sales and its ability to recruit employees. The public image of a business can range from appearing soulless, focused on money, walking the line of being exploitative, all the way over to a charitable organization dependent on volunteers and donations. The difference between a business’s personal and public image can be stark and just like advertisement messaging, we want to apply some critical thinking rather than simply accepting what is being communicated.
As a business grows in size, it typically moves from feeling like extended family over to a far more structured organization with standard operating procedures and standard policies governing benefits and paid time off. Businesses find themselves being regulated by government labor laws and occupational safety requirements, as well as regulation of its products and services. A business deemed too big to fail or growing large enough to have a monopoly is an unfair advantage that needs to be regulated as well. Businesses with adequate size, or businesses banded together in the collective reality of an industry, can attempt to influence regulations through lobbying and campaign contributions to governmental officials, potentially pushing up against the boundary of bribery. Size matters and we need to set our expectations accordingly.
If we look at the collective behavior of businesses, we are looking at the collective reality of an economy. Due to the substantial involvement of a government and its associated Central Bank attempting to navigate, each country’s economy tends to behave individually. However, as the world becomes more interconnected, multi-national businesses, as well as all the different country’s economies, collectively participate in a global economy with groups like the IMF and G20 attempting to navigate to a thriving result. The performance of economies ebb and flow based on all sorts of factors and as they adapt and learn they are getting better at avoiding crashes where large amounts of wealth and ownership can get wiped out.
Businesses are intelligent systems with their behavior, generally regulated by money, playing out in physical reality. Their intelligence has been augmented by technology and they are on the front lines of creating and implementing our technology as humanity evolves. After families, they are the primary mechanism by which we collectively think, learn, survive and thrive. When organized for-profit, the business’s leadership and intentions are focused on making money for its owners which makes the business’s behaviors generally understandable, enabling fairly clear expectations about what it is thinking and its future behavior. If not organized for-profit, businesses, and more broadly organizations in general, still have to make the money in keep up with the money out. Governments, religions, industries, communities, etc. which we’ll talk about in future posts all have to operate as businesses which brings a bit more clarity to the intentions and collective behaviors that they exhibit.
We want to be clear there is nothing inherently good or bad about business. It’s a collective reality that we all understand where we can make connections, much like an animal makes connection to its herd, flock, pod, etc. To put a finer point on it, similar to our personal reality, our body is not inherently good or bad, but what we are thinking and intending in our personal reality can certainly have issues, just like the leadership of the collective reality of a business.
Businesses, particularly in a free market, are highly efficient responding quickly to market need, adapting and learning, producing products and services while providing income to its employees. Where it gets complicated is around ownership. In a capitalistic system, whether owners have to invest money or sweat equity in the business, they are taking a risk that they may never get their time or money back, much less make money on their investment. If the business thrives and makes a profit at what point has the risk been compensated and it becomes unfair that an owner or investor gets too wealthy off the endeavor? You need money to make money so what are the boundaries and fairness of generational wealth? What we end up with is banks, governments and businesses creating financial markets dedicated to making money. From a global view capitalistic economies and businesses are competing with communistic or socialistic systems where often authoritarian and fascist governments are driving the collective reality of their businesses. Humanity has a lot to learn.
End of the day, we all need a threshold of money to survive and thrive but as we navigate through life we each need to decide how much of our time on the planet do we want to dedicate to the pursuit of money versus pursuit of work tied to our identity for which we have a passion or simply enjoy doing. Bonus, if they are one in the same. We also want to set an expectation that technology and humanity will continue to evolve with unlimited energy enabling us to produce enough food and housing that everyone can have enough ownership to live a comfortable life where survival is not a threat. Our perceptions of money, rich and poor, societal structure, what it means to thrive, etc. hopefully will evolve as well. More on where it may all be heading in future posts.
As always, I hope that I have left you thinking and questioning. Please leave your comments and feedback on our Connect page where you can also sign up to receive notifications when future posts are available. Lastly, if this all makes sense to you, please endorse the PPCR perspective and invite your friends, family and connected realities to follow this blog and take part in the conversation.
Carpe Diem