There Are Two Kinds of Companies

Dave Kinnear 1-On Leadership, 3-LI

MBA vs. Relationship Business

For a long time, I’ve been talking about there being only two kinds of companies. I started out calling them Number Businesses and Family Businesses. That got some blank stares, and a few folks were a bit offended when I referred to their companies as a “Family Business.” They insisted that “No, we run a tight ship here.” So I changed the titles to MBA Businesses and Relationship Businesses. That helped, and I’ve settled on those names. But I still struggled with them a bit. The point is, the MBA business focuses on the Key Performance Indicators (KPIs), and the people are only considered in the context that they are necessary to hit the KPIs. The Relationship business is focused on the employees

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— their health, happiness, and family well-being. They view the KPIs as essential to keep the relationships strong — “No margin, no mission,” is their mantra. So it is the focus that separates them.

Common-Law vs. Roman-Law Business

Recently, I heard Bill Taylor, founding editor of Fast Company™ magazine, speak about his version of “There are two kinds of companies in this world.” He breaks them into Common-Law Companies or Roman-Law Companies. Common-Law companies have a culture that says if an action isn’t explicitly forbidden, then the action can be undertaken as applicable to efficiently and effectively reach a goal. It is usually a safe environment. In the Roman-Law Companies, if an action is not explicitly allowed by Job Description, Policy, or Procedure, then it is outlawed — and punishment can be a result of taking an unspecified action. It is usually not a safe environment.

Intent-Based Leadership (IBL) and the Common-Law Business

I like the Common-Law Business concept for a couple of reasons. First, if we wish to build a company that uses Intent-Based Leadership (IBL) as the culture, then it will be more effective as a Common-Law Company. That is to say, if we wish to build a company that is scalable, sustainable and attracts as well as retains employees, then we want to create an IBL/Common-Law business. The second reason I like this concept is that it helps clarify the way to implement the three functions needed for engaged employees — Autonomy, Mastery, and Purpose (Vision, or Why).

It also gives us a way to think about interviewing and hiring. The prospective employee for an IBL/Common-Law company will be joining an organization that has few prescriptive Policies but instead requires employees to think for themselves, find the most effective and creative solutions in a safe and collaborative environment. For most employees, that will be a huge change!

Summary

I have attempted to use the “standard quadrant” view to demonstrate how all of these concepts tie together (See above graphic). In the upper-right quadrant, we have an IBL/Common-Law company that pays attention to KPIs (no margin, no mission), is a safe environment that cares for the employees (Relationships). It has a clearly understood Vision with an appropriate structure allowing the authority to flow to where the information exists and to hold self as well as teammates accountable.

At the upper-left quadrant, we have a command & control, Roman-Law company. These companies experience high employee turnover as they sacrifice people to manage KPIs, load-level projects, and drive for market share. While we often view these companies as high performing organizations, they will not attract the Millennial generation. They may survive based on automation, but until then, they will experience costly employee churn.

The lower-left quadrant hasn’t yet understood how to focus on the KPIs or perhaps hasn’t discovered the appropriate KPIs to drive performance. They are still command & control in nature and have a Roman-Law approach to policies and procedures. If they do not master the market, they will not survive, and the cost of employee turnover will impede their progress.

I look at the lower-right quadrant as the startup company that is aware of the value of IBL/Common-Law organization but has yet to reach the point where they can effectively communicate the Vision and build the structure for sustainability. Even so, they will usually perform quite acceptably. As their organization fills out, they discover which KPIs are leading indicators and engaged employees to drive success in the market; they will move into the upper-right quadrant. If they do not build these systems, they will not be sustainable long term.

Note that in all these cases, I haven’t said anything about the size of the company. The company may be in one of the upper quadrants but still be a “lifestyle business” size-wise. There is nothing wrong with that. This discussion is simply around the organization’s culture and, coincidentally, whether the founder/owner gets to “have a life.” In the Command and Control/Roman-Law organization, the owner or executive can not easily take time off. The organization requires direction (by definition), and so the executive is a bottleneck.