July 29, 2010 at 3:07pm
You may think this company is nuts! They have people who make it work but they aren't employees and they don't make salaries. They have presence in five cities but they don't have a single office. Their service offering has no price. The firm has no CEO, no business plan, and no documented business process. The firm questions best practices and follows none. When the firm looks for people, it sometimes looks for those that do NOT have the right experience on purpose. Nuts? Maybe! Successful? Absolutely!
Hanna Concern was initially founded by me as a shell company in order to provide consulting services in the areas of strategy and organization and to act as a holding company for my personal investments. As the firm began to expand, I started to think about how I wanted to organize it. Since this was an early stage start-up, I had the opportunity to create the entire organization from scratch.
As I thought about the right organizational structure, I came up with the list of management orthodoxies and listed the risk of following each one. Here's what I came up with:
- Companies come up with service offerings and figure out how to differentiate them from competition. I wanted to be a monopoly. I didn't want to ever worry about competition or differentiation. If competitors ever came in, I didn't want to copy them. I wanted to envision what customers want and create my version of the offering, regardless of what competition thinks.
- Service offerings have pricing. While vendors look at pricing from the revenue perspective, I wanted to look at it from the customer value perspective, meaning my price may be different for every customer, depending on the value they gain. Therefore, I didn't want to price my services.
- Companies have employees. But employees represent legal risk (employment laws, tax burden, etc) and create fixed costs (you have to pay them salaries regardless of your revenues). I didn't want to face any legal risks, worry about benefits, taxes, unemployment insurance, and pay people salaries if I didn't have work for them to do.
- When companies hire employees, they look at their resumes. But resumes don't tell the right story. They may be poorly written, biased, specific opportunity oriented and limited. By reading resumes, I'd be biased too. I didn't want to select people based on resumes.
- When companies hire employees, they look for specific type of experience. This experience may be bad. Just because an employee did something at another firm doesn't mean he did it right. I didn't want to hire people who had the right experience. I wanted to find people that understood how to solve my problem in the right way.
- Companies have offices. One of them is called the headquarters. Offices represent fixed costs. I don't like fixed costs.
- Companies have leaders, org charts, and titles. When that happens, people spend too much time building leaders, figuring out who reports to who and giving each other fancy titles, thus limiting creativity, learning abilities, and reducing the amount of time people have to actually do the work. Plus leadership isn't natural. I wanted to find a way for people to work in a more natural way. I wanted them to be themselves and work in a team environment.
- Companies have CEOs. The only reason they have them is to give direction to people below them. But if you hire the right people and put them in right positions, why do you need to give them any direction? I didn't want to have a CEO.
- Companies engage in strategic planning and create business plans. I've reviewed over 200 business plans and strategic plans in my life and I am yet to see one that was able to clearly predict and describe what the firm will really do. While strategic planning is a nice exercise, I didn't want to spend too much time trying to forecast stuff I can't really predict.
- Companies have tons of documentation that no one reads. I didn't want to waste time creating unneeded documents.
- Companies select a business model and set it in stone. When competition comes in, companies have hard times changing their business model. I didn't want to do that. I wanted the organization to self-reinvent its business model often.
- There are numerous best practices and standard business processes that people follow without understanding why they do so. I wanted to question every process and only follow the ones I understand and agree with. Otherwise, I'd redesign them my way.
- "Customer is always right" is a bad slogan. While I care about customers, they can be wrong. I didn't want to hurt my organization at the expense of sucking up to customers who are wrong for the purpose of showing them that they are right.
- Companies ask customers what they want. But customers never know what they want. I never wanted to ask customers for their requirements. Instead, I wanted to figure out the context of their problem and design my own requirements.
Key Innovations & Timeline
Once I listed risks associated with management orthodoxies, I designed my own approach to solving each one. Here's what I came up with:
The offering. I switched our firm's focus from helping customers with strategy and organization (lots of competition!) to helping them design high impact learning programs, also known in the industry as "training that sticks." Essentially, this offering questions the effectiveness of executive education programs designed by world's top business schools like Harvard, Stanford, and Wharton. We designed a proprietary framework and became a monopoly in our space. We don't worry about Harvard, Stanford, and Wharton. We work with customers that know how ineffective business schools are. These customers come to us because they have nowhere else to go.
Employees. Instead of having employees, I found entrepreneurial business partners. While they'd participate in the life of the firm like ordinary employees, each person was going to work as an independent contractor. This would eliminate benefits, taxes, and other legalities associated with employment. I made them all owners in the firm. Because they are entrepreneurial and would only make money if the firm made money, they are hyper-energized and driven to turn the firm into a success story. Each person is allowed to select his own hourly rate, which could change depending on the client and the type of work people did (supply and demand system). People could also select which projects they could work on and say no to any project. We don't have titles. Everyone is called a partner. We don't have org charts or managers. We all work as a team. There is no CEO. Just a team of 100% equals. The team can vote anyone out of the team at any time.
Resumes. I only looked at resumes briefly and only for the very key people. I spent most of my recruiting efforts figuring out if people are smart, if they would be a great fit in my culture, and if they agree with my vision and my mission. Because my service was questioning the status quo in the industry, I didn't look for people that had experience in this industry. Instead, I looked for industry outsiders, so they could question it as well. Although sometimes I'd come across industry insiders who'd question their own industry.
Services. I didn't set pricing for my services. When customers were interested in my offering, I'd follow one of the two strategies. (1) I'd approach my "partners" and ask how much they'd like to charge for the service based on the perceived customer value or (2) I'd ask customers how much the service is worth to them and ask my partners if they were willing to do it for that price.
Office. It's a 21st century. We have the internet, e-mail, phones, skype, webex, and other tools. We can all meet virtually while we work from home. We've decided to not have an office. Every single partner works from home or from customer's site. The phone system is outsourced. Extensions are forwarded to people's home #s.
Planning. We've decided to not worry about business plans. The only plan we had is an estimate of our administrative costs so we could figure out how much money we need to make to break even. We did however think about our strategy. We'd like to re-invent our industry completely. But this strategy didn't come with a sales forecast.
Documentation. We've decided to only document things we will constantly refer to or things we need to give our customers.
The business model. We've decided to re-review our business model on a periodic basis and see if it needs to change. We wouldn't make the change decision in the context of our business. Instead, we'd ask ourselves what kind of business model we'd use if we started our firm from scratch. If it's different from our current model, we'd implement the change.
Best practices. We've decided to ignore what we've learned in our MBA programs and question every best practice. Best practice is an excuse for not being able to use one's own head and innovate. If we can't justify a best practice, we reinvent it in the context of our organization.
Customer is always right. We've decided to put our partners in front of our customers. If a certain customer interaction threatens us, our partners, or what we stand for, we fire the customer. We'd rather not make money than get hurt.
Customers don't know what they want. Instead of asking customers what they want, we ask them to tell us about their organization. We then tell our customers what they want. If we disagree with their requirements, we don't take on the assignment.
Transparency. We made all information transparent. Everyone knows each other's rates, how much the firm makes, and how much they'll get from profit distribution.
Challenges & Solutions
Just like in any organization, finding the right people is hard. We overcame this by posting ads on LinkedIn. These ads outlined our way. We responded to almost everyone but selected less than 10% of the respondents.
Benefits & Metrics
There're lots of benefits:
1. Lower risks
2. Lower costs
3. Ease of adding or removing people
4. Less legal liability
5. Self-driven organization. No need to motivate.
6. Self-governing organization. Few checks and balances.
7. Positive attitudes. No toxic people.
8. Better competitive position.
9. Great internal communications. Desire of people to innovate and improve. No fear. Trust!
10. Ability to change quickly and at a minimum (if any) cost.
11. Ability to attract great customers and charge premium rates.
12. No leadership. No worry that comes with it.
13. Transparency and all the benefits that come with it.
14. No politics. Everything is a team decision.
15. No resume bias - greater diversity, resulting in greater idea pool.
I designed this organization. Thanks to Michael Barr from Netrino for giving me an idea of a business model that utilizes 100% contract labor.