The temporary, pop-up corporation

A stat I heard repeated all over Davos: that the average lifespan of a Fortune 500 company is now 15 years, according to Cisco’s John Chambers. Trying to confirm that figure, I found others saying the number is less than 50.

Whatever. It’s far from forever.

So what if corporations more and more become short-lived enterprises? What would that mean?

Consider that Kodak just announced that 124 years after it started, it will stop making cameras. GM and Chrysler a mess of banks would have died, if they weren’t too big to fail. Borders and and Circuit City and Blockbuster and giant retailers are dead. Whole industries are dying.

Now consider that Kickstarter just passed a key milestone: two projects garnering more than $1 million in … what do we call it? … contributions? purchases? investments? We don’t have the right name yet for orders received before a company starts and a product is made. We don’t have a name for a company founded on its customers’ capital.

I have been arguing that vertical industries will be replaced by horizontal ecosystems made up of three layers: (1) platforms that enable (2) entrepreneurial ventures to be created at low cost and risk and (3) networks (e.g., ad networks) that, when needed, bring these ventures together to reach the critical mass that firms used to provide.

Of course, enterprises today can start with no need to build factories (use someone else’s) or distribution (plenty of that, for now) or technology (use the cloud) or marketing (let your customers do it for you) or design (let your customers help) or retail outlets (they’re dying anyway) or capital (see above). We know that this new architecture of the economy means enterprises can be launched with less investment, risk, and effort.

But consider that it also means that enterprises can disappear without leaving much of a hole. The guy who made the Kickstarter-backed iPod Nano watchband, who raised almost $1 million and guaranteed himself success (so long as he priced the product right), can keep making it until it isn’t hot anymore and then just do something else. No need to worry about long-term return on investment; no need to fret over feeding a factory-full of workers. Bermuda, here he comes.

But that’s not how our economy is built. How often do you hear that the wise person invests for the long term? Well, what’s long-term now? A generation? A decade? A few months?

If this is the case, then the platforms that make this temporary economy possible — Amazon and its web services, eBay and its retail chain, FedEx and its distribution chain, Google and Facebook and their marketing power — will be the best long-term plays. That’s why VCs keep saying they want to invest in platforms. But there’s only so many of those.

Of course, the problem for VCs in the last decade has been that start-ups just don’t need them as much as they used to. That will be ever more the case. Now the rest of us will know how the VCs feel. Where can you put our money if you’re an investment fund or a pension fund or a plain investor? Where will equity grow? Will it? I wish to hell I knew.

I’ve also been arguing lately that technology is leading to efficiency over growth. That, too, means that it will be difficult to find new jobs and equity growth.

Oh, there will be wealth. Witness Facebook’s IPO. But consider that Facebook serves soon a billion people with a staff the size of a metro newspaper company and they will end up with much greater wealth in fewer hands. Technology will not solve the economic imbalance of the 1 percent but make it worse, unless you’re one of those 3,000 employees of the platform or you manage to start a new company — likely a temporary, pop-up company — on top of it.

  • http://www.cultuur-ondernemen.nl Joost Heinsius

    It is growing, but somewhere in a sentence it was hidden: you still need factories to make stuff. And building factories takes investments, longer foresights and people working there. So ven if there is a new economy rising, for a large part it will get nowhere wiyhout the ‘old’economy.

    • http://www.buzzmachine.com Jeff Jarvis

      But where are those factories? Where the labor is less expensive.

  • http://elm200.blogspot.com/ EIJI Sakai

    Thank you for this very insightful post. I have read your book “Public Parts” with Kindle and it brought me here. I am a Japanese person who lives in Japan and share with you a very similar view on the current and future economies. The same problems are taking place here in Japan, too. Please keep up the good job. I will be learning from your posts.

  • http://thefifthwave.wordpress.com/ Martin Gurri

    Jeff, the stat is from Creative Destruction by Richard Foster and Sarah Kaplan. Two interesting bits: the study it’s based on took place in 2001, I believe. Life expectancy for S&P companies is probably less than 15 years today.

    The other bit: in 1937, the life expectancy was 75 years. You know that feeling that things are spiraling out of control? It’s quantifiable.

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  • Andy Freeman

    > We don’t have the right name yet for orders received before a company starts and a product is made. We don’t have a name for a company founded on its customers’ capital.

    Actually, that’s reasonably common in high-tech.

    The “new thing” is the open call for potential customers and the large number of customers.

  • http://ppalme.wordpress.com Peter Palme

    I have done some research that confirms your findings on companies long term success. Mainly there are 3 bestselling books that were written over the last 30 years identifying the most successful companies. They list the key success factors for these companies. And probably every CEO has at least one of these books in his/her book shelve. http://ppalme.wordpress.com/2011/12/01/in-search-of-the-best-run-companies-but-once-that-you-find-them-are-they-the-next-dinosaurs/

  • andrew long

    here are my new terms to describe the kickstarter funding phenomenon:

    Cherub Contributors take the place of Angel Investors

    Adventure Capitalists, committed enthusiasts along for the ride, take the place of Venture Capitalists, who basically outfit the entire safari.

  • Jib

    Jeff, you are right on this but one thing I have not seen addressed in this post or others is that this is not the first time in our economy that efficiency trumps growth. It is a normal part of long term economic cycles. It occurred last time in the 30′s, before that at the end of the 19th century. It the result of a fundamental shift in the economy, we go from an old base (pre-industrial to steam in the 19th century, steam to internal combustion and electricity in the 30′s) to a new base. At some point in that long transition, you have the old jobs being destroyed as fast or faster than new jobs are being created. At that point, you get efficiency trumping production.

    But it does not last. Eventually, the old jobs are all destroyed but the new jobs keep getting created. And then you see real growth again. Maybe it wont happen this time but if it does not, then it would be the first time it has not happened. Efficiency trumping production, this too shall pass.

  • Mike

    All this focus on platforms ignores a key issue. The sort of enterprises here all depend on the same pool of customers who move from one product to the next new thing. These customers need income wiht which to buy their new things. Right now this income comes from the old vertical economy that is going away.

    The problem with this economic model is that it is dependent on the existence of a separate economy that operates under different rules that provides the customer base exploited by the new economy. It is similar to export-led growth, that has been successfully pursued by small economies to rapidlly develop. At some point the new econmy has to provide its own customers.

    How will it do this if the returns from its operations flow to a small population? Who will be their customers as their current customers lose the old-economy incomes that currently fund their purchases?

    The poster writing about economic cycles is partivally correct, but he left out the key role played by leading sectors in economic development.

    A leading sector is a new industries or associated collection of industries that fulfills a NEW human need/want AND which requires a lot of workers to operate. Example: the invetion of the automobile created the good of personal transportation, which created a new cost center for households, but one they were willing to take on because they wanted the benefits provided by personal transportion.

    Initially only housholds with surplus funds purchases cars (early adopters). Making cars was people-intensive so producing th cars for these people mean job creation, (i.e. onomic stimulus) that led in increased income and increase demand for more cars. The result was a virtuous cycle has American household gained a new cost center, whcih supported millions of jobs, and generated the increased income that covered the new cost center. That is, a classic bootstraping process.

    Creation iof new computer apps doesn’t fit this bill because the number of potential consumers vastly outnumber the number of producers. Ealry adopters will buy the produce but too few net jobs are created and the bootstrapping doesn’t happen.

    Computer technology in generation suffers from this problem and so it cannot form the basis for a “new economy”. It certainly can be a major part of the new economy, but it will not serve as a leading sector.

    The obvious candidate for a leading sector is health care. There seems to be unlimited demand, and it is very people intensive. Hence it has serves as a sort of leading sector. Unfortunately, healthcare does not function as a normal product because of peculiar features than makes it quite different. As a result of these features healthcare has become a cost problem to be “managed” rather than an industry to be grown as a leading sector.

  • Mikkel Kjær Jensen

    Reading your post Jeff I cannot help but think of Cory Doctorow’s book “Makers” (http://craphound.com/makers/download/). The central technological innovation in “Makers” (because in such near-future Sci-Fi stories there are always only one such innovation) is the huge improvement of 3D-printers, making production of many physical goods easy and cheap.

    In “Makers” one of the characters explicitly mentions that any given product will be profitable for a few months, before someone else figures out how to push it off the market, and the original company will have to invent something else.

  • http://twitter.com/kirk_fleming Kirk Fleming

    I think a bigger potential problem of the economic model is that its main outcome appears to be the increased speed with which we convert resources to useless junk. That it may make fewer people far wealthier is only a sign of having more effectively attained the primary objective of any corporation–the consolidation of as much wealth into as few hands as possible.

  • Taran

    Thank you for this very insightful post. I have read your book “Public
    Parts” with Kindle and it brought me here. I am a Japanese person who
    lives in Japan and share with you a very similar view on the current and
    future economies. The same problems are taking place here in Japan,
    too. Please keep up the good job.