Issue #71
#71 - The Traditional Firm Thins Out
June 16, 2023

#71 - The Traditional Firms Thins Out

Hi, folks, from San Francisco this week.

I spent some great, formative years in this city: I started my career, got married, and had my first child here. It's great to be back, and great to see friends. And yet, the accounts of San Francisco having "changed" also feel true -- and not for the better.

Gone is the quirkiness that coursed through the town in the early aughts, and the vibrancy that defined it closer to 2010. Downtown, in particular, feels as thinned out as the office vacancy stats would lead you to believe.

Of course, these changes aren't a surprise: SF is dominated by the tech industry, and tech has taken a beating. Large tech firms, hard-wired for efficiency, have laid off tens of thousands of workers, while startups struggle to raise more funding. Still, it's striking just how....hollowed out the city feels.

For decades, tech appealed to ambitious, aspirational people as an industry of inspiring companies and startups. But the draw -- and the upside -- was also the people who were already here. The network effect, to use a very tech term, was real: if you wanted to work in tech, you felt worse off being out of San Francisco, than in it. (And, the thinking went, you benefited by being at a tech firm, in such a dense concentration of human talent, too).

But fast forward the 10 years since I've lived here, and what you now see and feel is a massive dispersion. San Francisco is on the cutting edge of work and you feel, acutely, the decentralizing effects of the pandemic, of shifting work norms, and of a decade of technological change.

But here's the thing: it's not just employees who are hollowing out San Francisco; leaving the city, and leaving bigger firms. The firms themselves are consciously and unconsciously thinning themselves out. Today, our stories explore how and why:

Story #1 - Surprising data and stats about the growth of small firms, and the shrinking of large companies, over just the last three years.

Story #2 -
Two authors who study the future offer a template for "10X" success for modern, technology-driven firms. The upshot is that speed and agility trump scale, so these firms will by definition have fewer employees.
Story #3 - Adobe's Chief Strategy officer, leading the firm's charge into AI, waxes on the future of work -- on firms, and the employees who comprise them -- and envisions a world in which an abundance of tiny firms provide niche, personalized goods and services to us.

Taken together, these Stories prompt us to ask: if the supply of talent continues to shrink demographically -- but also to decentralize, if not opt out of traditional work altogether -- and if technology causes firms to shrink over time, reducing the aggregate demand for talent, then what happens to the traditional firm, and labor market? What happens to work as we know it?

Thank you for reading and exploring with us -- and have a great week!

Aki + Usman


#ThinningFirms #ShiftingDemand #BigFirmsShedHires #SmallFirmsMakeHires

These stats from writer Rishad Tobaccowala paint a surprising picture of the way the labor market has shifted in just the past few years: large firms are shrinking; contracting to the tune of 800K employees (that's before the recent, 200K+ round of tech layoffs). In which case the demand fueling the hot job market is actually coming from small companies, which have hired 3.67 million people over the same period.

It appears that labor demand is shifting: not just from tech to other industries, as we explained in issue #53 -- but from large firms to small ones. 🤔


#ThinningFirms #ExponentialOrgs #Agility>Scale #Speed>Scale

In 2014 Peter Diamandis, Salim Ismail and Mike Malone asserted in their book, "Exponential Organizations", that modern firms had the potential to be "exponential". An Exponential Organization leverages new technology to produce 10 times more output than its competition. And it produces more and dominates its space with fewer resources than its competition, thanks to its ability to adapt.

This month the writers updated their book to include data and case studies from the past 9 years -- including Airbnb and ChatGPT, above ⬆️. The authors explain that for exponential organizations, speed, flexibility and adaptation are more important than scale:

Rather than armies of people or large physical plants, Exponential Organizations are built upon information technologies that take what was once physical and dematerialize it into apps, transforming bulky and expensive hardware into cheap and nimble digital, on-demand information. The transformation of music from cassettes and CDs to iTunes® and Spotify® is an obvious example.

The results?

Ever since the inaugural book was released in 2014, the data has painted a striking picture. Organizations that use the attributes described in the ExO model have been found to yield a 40-fold increase in Total Shareholder Returns compared to those that don’t.

As firms in other industries transform themselves into tech companies -- as they are doing, and will continue to do -- they, too, will leverage technology to become more successful, more quickly, with fewer resources -- and fewer employees. So is it hard to envision a world in which the average size of a firm decreases quickly and systematically? And in the event this materializes, what effects will it have on the org structures of those firms -- and on society at large?

Our next story offers an informed, thoughtful -- and optimistic -- take on how things might play out.


#ThinningFirms #AI #Craft #LongTail

Scott Belsky is the Chief Strategy Officer at Adobe, where he leads the firm's push to integrate AI into its products. But Scott is also a writer and investor who believes work has been too monolithic for too long. Here he explains his thesis that work will evolve to reflect the multiple identities we all hold:

Our brains, interests, and potential have never been single-threaded nor confined to a singular interest or skill. And yet, the traditional labor market since the industrial revolution has placed us in one job at a time — for years at a time. The entire system, from college recruiting and healthcare to LinkedIn profiles and annual tax forms, is geared for monogamous careers.
The system is not optimized for a generation of humans raised with constant bings and buzzes and a constant spectrum of digital and social engagements (jumping from being a real-estate titan in Roblox to chatting live with friends in other places of the world to an online math tutor to live broadcasting your drawing and painting on your iPad…all within the same hour). Do that for a couple decades and then try a 9–5 job doing one thing!

So on the talent side, Scott is betting we will have "polygamous careers" that will be split -- or fractionalized -- across multiple, often simultaneous, jobs; as befitting our many identities.

What about firms and organizations -- how will those evolve?

Well, per his quote in this Story ⬆️ about Japan-esque, craft experiences, Scott believes AI and technology will lead to the proliferation of a long tail of small firms. Small firms driven by craft and quality -- not scale -- that can provide bespoke, personalized goods, services and experiences to meet consumers' long tail of wants, needs and desires.

To his credit, the two theses do fit rather...conveniently with one another. Too conveniently? Is it too tidy to think that AI and tech-enabled firms will aggressively shed employees, but that those employees -- already opting out of traditional work in vast numbers -- will then find homes and meaning by building small, bespoke businesses which they themselves can own?

Perhaps. Perhaps it's all too neat.

Then again, we know that the web is a fundamentally democratizing force; and that the very same technologies -- low code and no code tools, AI tools -- are proliferating and collapsing in price. Together, these forces are already enabling an explosion of entrepreneurship and online careers, reducing the cost, friction -- and stigma -- of running them, month-over-month.

Time will tell. And it will let us know sooner than we think. 🙃

Thanks for reading. 🙏🏻

Work moves pretty fast. If you don't stop and look around once in a while, you could miss it.
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