Creating a Company without Employees: Philip Rosedale on Coffee and Power and the Future of Entrepreneurship
By Peter H. Diamandis M.D. on March 08, 2013
In this blog, I'm continuing my conversation with Philip Rosedale, founder of Second Life – and his newest company "Coffee and Power." Here, Philip explores his belief in the new way of employment, the new virtual company and what he learned in the process of creating new ways of doing business and finding work.
In my next interview with Philip, he gave me a glimpse of his newest startup, called "Coffee & Power," as well as his vision of the future of companies. A future where workers were far more independent and far more efficient. I asked him to talk about the origin of Coffee & Power, the origin of its name and where he thought this latest venture would take him.
"When my co-founder Ryan Downe and I started this new company, we wanted to explore some of these ideas around how people worked together and how to make that more efficient. We hung out for a year or so in coffee shops. We told ourselves that we were not going to get an office, that we were going to operate completely virtually, through a series of face-to-face interactions in transient locations like coffee shops, now co-working locations," Rosedale said. "One day, Ryan turned to me and said, 'All we need to do this is coffee and power,' and the power meant a place to plug in your laptop. We were so struck by that name that it ultimately became the name of the whole thing," he said.
"The vision of Coffee and Power really is to build a set of tools that allows people to work together more effectively using the same sort of techniques that we pioneered inside Second Life. Those are things like getting people to be granular and transparent about what their work achievements are — even if they're telling them to people who aren't their peers in their organization but are people whom they may someday work with," he said.
Rosedale had been inspired by work done in the 1930s by Nobel laureate, Ronald Coase (now 102 years old), author of an influential book "The Nature of the Firm," that contends that market forces regulate everything. Coase asked and answered a provocative question back in the 1930s, 'If markets are the most effective way of doing things, why are there companies at all?' And what he got the Nobel Prize for was his largely correct answer, which postulates: The reason is because there's cost in negotiating with someone, in other words, transactional costs," Rosedale said. If you remove the overhead associated with those costs, and allow people themselves to price the work they do, and to create a system where everyone evaluates you in an open and transparent manner, then everything changes.
In outlining his thinking process behind Coffee & Power, and during its realization, Rosedale came up with seven essential assumptions or predictions about the future of companies and the future of employment. These ideas are key to the future of what I call an "exponential organization":
1. Work will consist of projects broken down into pieces bid on by individuals: "If you have to argue about salary or if you have to argue about the price of building a marketing program, it becomes inefficient because we're wasting time arguing and not working together," Rosedale said. "What Ronald Coase said was that, economically and mathematically, the reason companies exist is because there are a lot of negotiating costs associated with working together. If the technology changes to make it easier for negotiating and knowing what the work product is, and knowing how people are performing, and it becomes easier to do things in smaller and smaller chunks and with more granularity and with less hassle, the nature of firms and the structure of firms will probably change," he said. "Obviously, they will go down in size and the relationships will become much more transactional. So," Rosedale said, "my belief became that the future of work will be some sort of a situation in which many more people will contribute to projects in much smaller chunks," he said.
2. People will no longer be tied to one company. "People won't necessarily think of themselves as being employed by a single company," Rosedale said. "They won't necessarily work at one company for 10 years; they might work at it for 10 months or even 10 days. They will be profoundly transparent with everybody else about what they're doing. The feedback gained from everyone will be a primary way of measuring them or even paying them for what they do. The companies of the future will be these aggregations of people who work together not necessarily because they're working for one person or on one project, but because they're somehow useful to each other at a high level."
3. Workers will set the price for the work they do. "The first thing we did when we started Coffee and Power was, rather than hiring anybody, we made a big Google spreadsheet and we set it public," Rosedale said. "We said on each line of the spreadsheet what we needed to get done — find a lawyer or make a logo or write the first little chunk of code — if anybody out there could help us with this they could put their name next to it, get it done and keep us updated. Then when something got done, we sent them money via PayPal. What matters most isn't that you can set the price. No, it's the fact that you're setting the price in an environment in which that spreadsheet is public. I'm giving you the pen. You put whatever you want on the wall, we'll pay you," he said.
"It worked great. Having people set their own prices on things actually works fine, provided it's done transparently."
4. The savings in costs and time can be extraordinary by opening it to the crowd. "We created Coffee and Power in about nine months," Rosedale said, "at a cost below $200,000. Five years ago if you had built a typical Web tool type of thing, you would have spent $3 million doing that. So this was a lot cheaper — and a lot better. Most of the work was done by about 100 people. If you graph their contributions, it was the classic Internet long tail where there were like five people who were more or less making full salaries from us, from all over the world," he said.
5. The team evaluates the team. Old-style management is irrelevant. A huge amount of energy and effort go into human resources overhead, which is inefficient, as well as politicizing (especially when it comes to evaluations and bonuses). "Think how unbelievably amazing your company is culturally if you don't have to evaluate people using the management team," Rosedale said. "Instead, you get people to share information about what they're doing, and then to recognize each other for their achievements in a way that creates a kind of a modern version of the résumé," he said. "It's a kind of a feedback loop around progress that encourages people to keep going, that better values their contributions to each other and then causes them — and this is the magic of Coffee and Power — to more effectively engage serendipitously with people who may give them their next job."
6. Collective management will build companies – not top-down decision-making. "That idea of using the crowd or using collective judgment or wisdom was a matter of necessity," Rosedale said. "My fascination with the area of collective management and my desire to help people work together better and faster, originated from my feeling as an engineer that Second Life was going to be complicated to manage in a really top-down, centralized fashion," he said. "I was struck by the thought that we're reaching a point where the scale and complexity of the things we're building exceeds our capability as individuals to do planning around them," he said.
"Even I, with all my passion and reasonable intelligence around this subject, I don't think I'm smart enough to just tell everybody what to do," Rosedale said. "From the very beginning, I said I wanted to do something a little different. I wanted to be a lot more loosely joined in how I manage this as a company, or as a technical leader," he said. "I want to try having a lot more transparency, a higher degree of trust — as opposed to just upfront planning. I wanted to figure out how to get us all to work together, to collectively manage each other," he said.
7. Future companies will be smaller and more nimble. "The reason that we built things as big top-down companies in the past was because the difficulty of negotiating with people around their contributions was actually very high," Rosedale said. "As technology changes, and the cost of those interactions grows, it follows naturally that companies are going to become smaller, faster and work together in ways that frankly, I think, won't look much like the companies we have today," he said. "I don't think the companies we will have in 10 years will be structured in a way that will even allow your eye to draw analogies with the companies we have today. When we talk about the Google of the future, I just don't even think the words we're using today will fit very well because the mechanism will be so different."
In my next blog, I'm going to continue my talk with Philip Rosedale of Second Life and Coffee & Power, who explains the "secret sauce" of Silicon Valley – and why it's such a hotbed of entrepreneurship.
NOTE: Over the next year, I'm embarking on a BOLD mission -- to speak to top CEOs and entrepreneurs to find out their secrets to success. My last book Abundance, which hit No. 1 on Amazon, No. 2 on the New York Times and was at the top of Bill Gates' personal reading list, shows us the technologies that empower us to create a world of Abundance over the next 20 to 30 years. BOLD, my next book, will provide you with tools you can use to make your dreams come true and help you solve the world's grand challenges to create a world of Abundance. I'm going to write this book and share it with you every week through a series of blog posts. Each step of the way, I'll ask for your input and feedback. Top contributors will be credited within the book as a special "thank you," and all contributors will be recognized on the forthcoming BOLD book website. To ensure you never miss a message, sign up for my newsletter here.