Companies, Cities & Institutions

What if companies could be like major cities? Cities that continue to follow a power law of becoming more relevant and stronger over time instead of the typical 50-year boom and bust of most companies? What if companies took on qualities like major cities to become hubs for economic progress and innovation?

A windy set of questions centered on the view that cities are organisms that compound. Yes, people leave cities. More people will tend to die in cities than are born in them. They might have periods of decline but they seem to bounce back, never losing their relevance. They continue to be places that seem to attract people and capital. Look at NYC and London. 

Yes, people’s lives change and preferences change and people may leave (i.e. a place for the young, not fit to raise children, etc...). They are all choices and various close suburbs pop out to try and meet the demand for those who wish to be close to the hub of the city while trying to get something akin to ’space’. In ways, suburbs might get drawn closer towards the city. 

Some of these major cities have been around for centuries (having been relevant for centuries). Some major educational institutions have been around for centuries as well. The value proposition of community and human connection is undoubtedly the chief value add such institutions. Though, the selling point isn’t these connections as they can’t be proven out with ‘data’. The friends one makes and the people one meets aren’t up to the university. Hence, the selling point is that you get a degree where the value is seen high in society in comparison to other degrees (and of course…the education). Honestly, it's about the exclusivity of being part of the circle of “I went to XYZ."

It’s a business akin to a turnstile. People come in and they leave after a set amount and it’s a long tail model of a few major successes contributing back to the school with fat donations to continue to sell the dream. 

One could argue their value is merely in trying to take credit for something that results in the future. Trying to showcase a cause and effect when it’s really a weak correlation. Yet, it seems to have done the trick in keeping the elite institutions alive for centuries. But other than selling dreams, the raw value of what they provide to spur economic prosperity seems far removed from what they do…which is to take in the prosperity generated by the parents of students and/or money from the gov’t. 

This translates further into the next stage for many of these ambitious treadmill runners (yours truly was yet another lemming on the hamster wheel). The next stage would be the Big 4 for accountants, the Bulge Bracket for investment bankers, the MBB for the management consultants, the FAAMG for engineers, etc… but they are no different than universities. The universities feed into these behemoths that also play the VC game of having a few go on to do amazing things and they will take credit for the success of their alumni when the sheer fact that they LEFT…QUIT… the institution allowed them to pursue something else. Hence, some have university-like models where people are expected to leave after X many years. 

This also means that such corporate institutions also end up relying on the VC hit-like quality of their alumni for the continued value of their institution….I mean….business. But the organization itself isn’t a place that will compound over time, anyone in consulting will tell you it’s an industry in decline from what it was before. It had to evolve and it’s evolved into a commoditized factory that offshores most of their work to India. Though one can argue this is not the case for the large tech companies engineers like to flock to. It might be because they are too young (McKinsey founded in 1926 vs. Google in 1998) or they have completely different qualities that make them more like cities than the professional services companies they seem to be replacing in prestige.

Great cities have shown the ability to withstand tragedies and actually come out the other side much stronger. I find this to be a hard quality to exist in turnstile operations where people just go for the name-value instead of what it actually does. 

It’s true that the city in itself could be of name value. However, I imagine more are drawn to cities, not because of the perception (i.e. I worked at NYC so I’m better than you) alone but the possibility of opportunity that might arise out of the city. Not the opportunity that arises from someone seeing that you had once worked in NYC but that you might meet people and form opportunities and growth in the city of NYC. The intention isn’t to leave NYC but to continue to compound further growth in the city. 

This is what you want people to think inside an organization. To think that by joining a company that they will be able to build something…that there will be an opportunity to find themselves, find something they can do….find a challenge worthy of their life’s time. 

They might find someone and leave to start something. That’s phenomenal. But they could also find someone and build things internally. That is completely dependent on whether the organization is a kind of Wild West that allows for people to have such collisions and build things from within. Kind of a free market capitalist function within the organization. 

Oddly, I think most organizations in the Western world are run like communist dictatorships with leaders at the top, long bureaucratic hierarchies, and a laundry list of limiting processes built to be followed. Processes catered towards the lowest common denominator with the branding of "everyone will be treated the same”. 

The few companies that are vocal about cutting the weak and having a no-rules environment with guiding principles instead of long step-by-step protocols are seen as “mean” and “toxic” but that’s what NYC might even be called. 

The big major cities have higher crime, higher death rates, and just more “shit" than other places. It’s a struggle. But they also create and produce some truly exceptional things. In some respites, companies that wish to have the long-standing, antifragile nature of cities may have to be places with polarizing views. A place that is unapologetic about not pleasing everyone. A place where people might actually say it’s a shit place to work because average people won’t be able to survive there. 

In the beginning, companies will focus on becoming something. Commonly referred to as something sustainable and competitive. Something that has an unfair advantage over everyone else. Having the sole goal of striving to be a monopoly in a market. Some will stay tiny with said monopoly of a niche market. Some will strive to grow large and falling into a state of bureaucracy before dying.

But my guess is that an exceptional few will decide to move away from becoming the Soviet Union of the corporate world. They will move away from becoming an asset-gathering, landmass-grabbing entity run by a dictator that grows to be something so highly dysfunctional that it completely breaks down and decays (the average lifespan of companies in S&P500 is ~18 years). 

The question is whether one can find an organization that can do something remarkable like repeatedly transforming itself and being a city that people flock to so they can do something weird and unique. That will be a messy and chaotic place guided by principles. Though, a truly worthy venture and one worth looking for as an investor.