What sort of business is this suited to?

7. What sort of business is this suited to?

1. New businesses

If you are a new business, you will have an advantage that the competition can’t match. Existing businesses will find it almost impossible to convert to an employee-owned set-up.

Law, tax, and accounting will make such conversion expensive, and existing employees are unlikely to be interested. The conflict of interest between employers and employees runs deep, and existing employees will tend to resent the boss, its profits, and any suggestion that they might work better with better incentives.

But new businesses can recruit more entrepreneurial candidates, and specify share ownership as a condition of employment.

2. Small businesses

Businesses of about seven to ten employees will tend to have the biggest advantage over competitors.

Less than two or three employees will tend to have less advantage, because very small businesses can motivate people via personal relationships and other methods. More than ten will tend to mean that the incentive is too diluted.

Miller’s Law, that the number of objects a person can hold in working memory is seven plus or minus two, is a good guide. Ordinary businesses of this size are less likely to have employee commitment, so the advantages should be greatest at this level.

An employee-owned business will have an incentive to stay small. Technology, automation, and skilling-up will enable employee owners to increase profits without sharing them with new employees.

This means that small companies will probably become extremely productive for their size. But I’m not sure how this model could function properly in really big form, except perhaps through contracts with a web of other businesses like themselves.

3. Creative businesses, and people businesses

A creative business needs commitment from employees, because it needs them to concentrate. It needs them to stick to a problem and work out ways around it.

People businesses need motivated employees who want to leave a good impression of the business and not just a sale. Employees tend to pass on to customers what their employers pass on to them. Commissions may make a salesman hungry, but that is not always enough, especially with the growth of customised business where customers need a supplier whom they trust.