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Thinking Like A City
Why it's hard to kill a city but easy to kill a company
The city of London, where I live, has been around for more than two millennia. It, much like many others, is built atop older versions of itself. Several cities, like Paris and Rome, have catacombs where you can go down and see that remnant. This physical weight of history not only gives it a sense of place, of belonging, but also reminds us that this isn't an ephemeral collection of atoms. It endures.
Nisiyama Onsen in Japan, by contrast, is the oldest extant company in the world and has been around since 705. It is small, picturesque, family-owned, and provides much the same service today as it did in the early days of its existence. As long as the hot spring provides water, it remains a destination, and is likely to continue. It has 37 rooms, hardly a sprawling empire.
London has changed its name, its governance, its size and shape, its layout in many ways, but its endured millennia. The Onsen however has continued to be precisely what it was, an extraordinary hospitality venue providing the best that it could. It's like a time capsule, intentionally stuck doing the same thing over and over again.
The city can grow rapidly, and it can shrink, and it can survive both. The company can grow rapidly, and it can shrink, and often dies.
Immortality for a city seems common. Immortality for a company is almost unheard of.
Most companies function as agglomerations to accomplish something in particular. They are started by an entrepreneur, they are built by motivated employees, they create organisational hierarchies internally as they scale. They try to sell a particular good or service to particular customers in particular segments.
So far all the quasi-immortal companies we've seen so far are either small, family-run enterprises which intentionally stays inside its niche and never expands, or the medium-long-living enterprises in banking or insurance who have regulations and unchanging human need on its side.
A crucial aspect of the scaling of companies is that many of their key metrics scale sublinearly like organisms rather than superlinearly like cities. This suggests that companies are more like organisms than cities and are dominated by a version of economies of scale rather than by increasing returns and innovation. ... Their sublinear scaling therefore suggests that companies also eventually stop growing and ultimately die, hardly the image that many CEOs would cherish.
Cities though are different. They are more innovative, generally speaking. They encourage far more diversity amongst its residents, and that holds true even for company towns like San Francisco and Washington DC. Cities bring people together to explore all available pathways to innovation, to explore all the boundaries of what's feasible. Companies by contrast usually see R&D percentages decline as the company grows. The impact is less visible, and a lot of it is to keep the lights on, but I think we can mostly agree that the larger organisations aren't the ones who are most innovative.
Some part of this difference is that cities are where companies re born and live. They are a meta layer above individual companies. But there's no reason this recursion has to stop at this arbitrary boundary. Companies have internal divisions and those divisions make multiple products. Several companies often come together to have the same corporate parent. Companies even used to create cities for its employees to live in, and Disney still does!
Every company wants the benefits of being like a city. To be more resilient, to be more innovative, to grow their productivity as they grow larger rather than get bogged down in bureaucracy.
Cities also have problems that scale with them, like crime. But their positive attributes grow so much faster that the net benefit is clear.
In cities we saw that one very important hallmark is that they become ever more diverse as they grow. Their spectrum of business and economic activity is incessantly expanding as new sectors develop and new opportunities present themselves. In this sense cities are prototypically multidimensional,
Japan found one way to effectively be immortal, through their shinise which have often survived for millennia. And they did this by eschewing change, by not focusing on profits or margins or growth, but by staying in one tiny niche and serving only that. Ichiwa, a mochi shop that's over 1000 years old, still owned by the Hasegawa family, still only serves mochi. It doesn't even allow that mochi to be sold via Uber Eats.
But there's no reason this has to be the only way to survive. Nintendo, practically a baby at 130 years old, has moved around willy nilly in the entertainment space, going where the opportunity is.
This echoes some of the minimal designs that some of the most innovative companies do today. Look at Google who tried to encourage innovation with its 20% free time effort, or 3M who capitalised on open ended exploration and mistakes to discover the post-it. Those organisations created space for exploration and acted as a sink to attract talent. Bell Labs, the prototypical example of crazy awesome, yet practical, research acted as talent sinks with limited oversight to produce output. They acted a bit more like a city.
But we could take it further. We could imagine a company that doesn't try to do much beyond being an attractive destination for talent and providing a space for experimentation. Someone who acts as McKinsey or Goldman or Google style "talent traps" for smart young professionals, and adds Bell Labs-esque freedom to research and create in a million different directions, and a Samsung-esque ability to not care about whether you're making money with LCD screens or shipping containers.
City governments are famously oblivious to what actually drives growth or innovation in their cities. Partially because they encourage multi dimensionality in the growth of the economy. They don't have much of an opinion on whether the tax revenues come from a successful pizzeria or it consultancy, as long as there's vibrancy and it remains a talent attractor.
It echoes what Bezos wrote in his annual letter, praising innovation and the need to embrace large failures.
At Amazon, we have to grow the size of our failures as the size of our company grows. We have to make bigger and bigger failures — otherwise none of our failures will be needle movers. It’s a very bad sign over the long run if Amazon wasn’t making larger and larger failures. If you do that all along the way, that is going to protect you from ever having to make that big hail mary bet that you sometimes see companies make right before they fail or go out of existence
Companies look at talent as a means to a particular end. Cities look at talent as a means to a general end. The closest to cities we have are probably universities. They're no stranger to the pitfalls of bureaucracy, but once built they're extraordinarily resilient to changes as they're, above all, attractors of talent.
This means that if you want to be known as the founder of a long standing, innovative company that lasts, then counterintuitively you need to let go of the belief in control. You’d have to be comfortable providing a space that will attract the best and let them do whatever they want instead of focusing on average talent quality or product revenues. You're in charge of hiring, but not firing, of curating the right space but not of deciding what needs to be done.
Our corporate structures are either the pinnacle of organisational evolution and therefore not prone to change much, or they are an unfortunate evolutionary cul-de-sac into which we've fallen, unable to see other forms might also exist. We barely seem to acknowledge that corporations have lifetimes too, except through a resigned philosophical lens. We see initial glimmers of this in the crypto space, where folks like Vitalik actively step aside later on to enable the ecosystem to develop organically. Experimenting on ways to climb out of this might just be our saving grace!