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Creating a Company without Employees: Philip Rosedale on Coffee and Power and the Future of Entrepreneurship

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 resume," 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: As always, I would love your help in co-creating BOLD, and will happily acknowledge you as a "contributing author" for your input. Please share with me (and the community) in the comments below what you specifically found most interesting, what you disagree with and any similar stories or examples that reinforce this blog that I might use as examples in writing BOLD. Thank you!
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32 comments
 
Taking an idea to the extreme is always fun as a mental exercise - to see it carried out is interesting - inspiring! Perhaps we can finally gain productivity increase from IT (http://www.economist.com/news/briefing/21569381-idea-innovation-and-new-technology-have-stopped-driving-growth-getting-increasing).

Breaking up work and lowering the barrier to entry will make more work more available to unemployed as well, if the pattern spreads.

You keep coming with really mind-opening stories - it's an amazing time!
 
Awesome. Collective management!
 
First, even Mr. Rosedale acknowledges that an initial structure (spreadsheet) needs to be put in place.  Therefore, there is some level of management.  Although the idea of a loose federation of interested parties can be very, very effective.  Even in the old (pre-web) economy, this has been used with much success, but a key is some initial and ongoing management.

Second, as we move towards this idea of 'collective management', what does this say about planned economies (e.g. China) and their future?  Funny, how the term 'collective' is tied to the principles of communism, yet its implications may ultimately tear a planned economy apart.

All in all, I would agree with Mr. Rosedale's approach gaining favor...first in the tech industry, but then across many, many endeavors.
 
I like the concept but can it be done at any scale?
 
I find the concept amazing. It's the application of it on a large scale that may be a little challenging. But just like anything else, there will be kinks in the beginning that are worked out as we progress. I LOVE big ideas like this and really think that we are experiencing a shift that will eventually tip in the not too distant future.
 
The above has a write-up on the concept that you don't have to subscribe to in order to read.
 
I'm writing a book about this now. You and Ray are discussed in detail in the chapter about the future! The future is going to be a 'microbusiness ownership' revolution.
 
Excellent idea! 

At present the population pyramid is changing; today more people is adult than children comparing how was 50 years ago, IF in the future we could extend life to 150 or 500 years this type of sites (not paying attention at the age of the person rather to what the person brings to a particular problem or task) will be an excellent solution to do the work.

On the other hand is known the worldwide trend of freelance workers, and do the work in a cafe or at home. Again this type of sites is best for these trends.

Really very good concept!
 
Good stuff but comparing today cost using his method with 5 years ago we know is not fair. 

"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.

Could 2 technical founders with average bay area founder salary (80K year?) have built C&P? Well, regardless, I think his overall view is actually a fair way to interpret the direction of employment. The view  of companies multiplying into small nimble teams I think is definitely a winner.
 
I am so excited to finally start seeing people think deeply along the lines of the technology direction for autonomous & social workflow and business process I've been building for nearly 8 years now. I will write a detailed blog post explaining where Rosedale is going right and where he's going wrong, because I've built a paradigm that precisely addresses the most salient aspects of their 'coffee & power' idea but generalized it to enable machine learning to cut out all the waste that current attempts at automating human interaction (humanoid, mechanical turk, elance, taskrabbit...etc.) are all still heavily infested with. 

The name of the paradigm is Action Oriented Workflow, I'll be presenting more about it in the next few months here in NYC but for those interested in the concept and the stealth startup I am in process to launch that implements it, WorkNetz...the blog posts that describe it in detail and my vision from the last 8 years will serve as aid to elucidation.

http://sent2null.blogspot.com/2011/09/action-oriented-workflow-maximize-your.html

http://sent2null.blogspot.com/2011/12/action-oriented-workflow-emancipated.html

http://sent2null.blogspot.com/search?q=telepresent
 
I like how Rosedale thinks! He appears to be someone who knows a talented, creative, passionate, ambitious person when he sees one.  If he's hiring, I can reccommend the perfect person.
 
This rather assumes that a company's work breaks down into standalone tasks and that there is little value in understanding how all the tasks fit together in a whole.  I am not sure how you would manage to refactor and get good reuse of knowledge out of this.  It also has the trendy assumption that management is just overhead.  This is not so in my experience.  Much management is overhead much of the time.  But not all.  Last of all, it is not the case generally that a bunch of independent contributors have the skills, experience, or context to evaluate each other's contributions relative to the whole of the goals at hand when not one them is responsible for or necessarily cognizant of that holistic view. 
 
+Anthony Hilb Sounds like a great book. Your idea of a 'microbusiness ownership' revolution sounds interesting. When can I expect to see your work available to the public?
 
Thanks, Daniel! It will be available in two weeks! I'll be sure to direct you to our site and our Amazon page as soon as it's released!
 
The key to making this work seems to be intelligent communications, capable of identifying and linking the members of the teams that need to be continually forming, working then dispersing. 
 
Hey +Daniel Hulst my book about microbusinesses is available. You can get one from my CreateSpace page or through Amazon. The physical copy is available through CreateSpace and Amazon, and the Kindle edition is also on Amazon. It's my first book, so please go easy on me! It's called 'Make Money with a Microbusiness.' https://www.createspace.com/4199543
 
Some of the points mentioned in the interview are already included in the agile methodologiesof the project management. So the Coffee and Power idea will strongly help the software developing teams.  I am thinking only if the idea can help teams in other areas. One area I have experience that self managed teams can be very effective is in non profit initiatives.
In this area I have experienced that teams could use the idea of “collective management” and “team evaluate the team” and in addition to that the teams could largely influence the scope of their project. 
 
But what has Coffee and Power actually produced?  Anything any good?  The real proof of a pudding is that it actually works to create much more value than it consumes.  
 
LOL you've done it again Peter. The traffic you generated seems to have overwhelmed the Coffee and Power site. Its down. lol.

Pop now its back. lol.
 
Peter, this is amazing thinking from Rosedale; this is a great interview. It leaves me with all sorts of questions - how do ideas bubble up from the key workers, or do they? Who decides what to work on, and how does that change as the project develops? Is there collaboration between self-selected workers, and what does it look like? I'm really interested to see the next part of this interview; this is a deeply fascinating idea.
 
i set up a virtual company with marshall rose and nathaniel borenstein and beverly parenti with no office and no two employees in the same zip code.....1993. First Virtual...it worked well. went public...but we had to get an office when the auditors required that we had a place for our audit documents and files...seemed that GAAP had some tests that could not be performed virtually...!! 
 
Peter this is TOTALLY FASCINATING!!! All the content on the blog so far has been great BUT THIS REALLY HITS THE SPOT. Why? Because almost EVERYONE either works for or runs a company and with the way things are going in the economy I've been wondering what working life will look like for everyone in the future both online and offline. THIS IS CLEARLY IT! You need to go into how this will affect people at all levels of the global society lower classes, middle classes and upper classes. How can the bedroom entrepreneur leverage this? How can the large corporation leverage this? And how everyone else in the middle do the same?

PLEASE put a big chapter in the book regarding this idea - its kind of like merging elance (people bidding for work) with the open source community (isolated talent coming together) and linked (sharing with the world your career and what you are working on) in all together.

I LOVE IT!

Keep going with this one FOR SURE!

Paul Clayton :-)
 
If we can somehow overlay this on poverty we may be able to assist monetary institutions in ways they are not yet aware.
 
As much as I admire Philip Rosedale (in a previous job I spent quite a lot of time working in Second Life), this seems to me to be further "insectization" of the workforce (in terms of Heinlein's famous quote "specialization is for insects" - http://www.elise.com/quotes/heinlein_-_specialization_is_for_insects). Of course, this is hardly limited to Coffee & Power ... the likes of Seth Godin have been advocating the constant narrowing of one's focus and skills for a long time. 

It's gotten to the point that all organizations want are tiny little cogs ... they want one person who's a "rock star" at pivot tables, another who's a logo shading "ninja", etc. ... with no place for anybody who is well rounded, and experienced with a wide range of tools who might have a more "global" perspective on a project.

I am horrified by books targeted to "GenY" workers that advocate becoming in an expert in ONE THING, and ignoring anything that would build context or meaning.  Sure ... it may get you a place on Rosedale's spreadsheet - but you are totally disposable, and in a position that what you know might not be useful six months from now.

Admittedly, I"m a "boomer" who has spent decades at companies (anathema to more recent generations!), but the concept of being one tiny part of something floating in a virtual space seems so DEBASING to the individual ... let alone you're at the mercy of global markets where making a tiny fraction of what I'd expect to be a "fair wage" is likely to end up being the winning bid for these functions.

Sure, a company's going to be THRILLED to get what would have been an 80K/yr employee's work for the equivalent of minimum wage ... but how does that become a sustainable model if the workers are only able to find projects for 20 hours a week of work at a rate where they're likely going to need to bill 80 or more?
 
Feedback Loop & Company Culture
One of the unique characteristics of my career path so far is 3 careers - new media, public relations and expedition guide. 3 careers, and hundreds of bosses. Especially as an expedition guide - you work for up to 10  companies in a year, have a new co-instructor almost every trip you lead by design and logistics, and a new group of clients. Feedback and culture trump everything - even skill - in these circumstances. 

After having had these experiences, feedback to me is more important than reading, writing and math in schools after seeing the huge difference in how a course or company operates when feedback is done well and when it isn't.

The companies with the happiest people have the most structured feedback.

Here's one simple formula to use, but it works well as an Outward Bound instructor. You can't have top-down management in the backcountry; I love how immediate everything is in terms of feedback:

SMART
Specific
Measurable 
Relevant
Timely

In addition, use DAILY check-ins:
+: What went well, using the SMART formula?
^: What could be changed and how?

Rules are Made to Be Broken
A key component of structured feedback is this: structured in that it happens, but the format can and should change. 

In the best of circumstances, a suggestion for feedback happens, and you and your team improve on how that feedback happens exponentially.

A mistake I've made is getting away from solid feedback loops that are productive - not just venting but churn you towards a solution - when that very skill gave me a great culture on a trip.

My co-instructor and I may start gelling so well on a  trip, we say something to each other like, "hey, let's call it a night, the day went well," instead of sticking to our guns and doing the feedback loop we were trained to do.

(Our schedule is 6am - 10pm, getting up an hour before clients and staying up an hour after they go to bed, those 2 hours are when we get paperwork, feedback and maintenance done).

In that situation, important information almost always falls through the cracks.

When we do take time to work on that feedback loop - everyone in the group wins.

Clients, of course, are included in the feedback loop; up to 3 times a day using a variety of techniques to keep it fresh.

I'm being overly generic here - this is a Google+ post - but it works in ways big and small.

So, yes! Feedback on your feedback in ways that are genuine and move everybody forward is on even par with the product or service you provide.

Kaki
linkedin.com/in/kakiflynn
kakiflynn.blogspot.com
 
People to People
I love technology, and, when I can, have the latest gadget first, or at least follow it's development.

I daily use multiple forms of digital communication to speak to people spread all over this amazing planet.

Skype, facetime, facebook, linkedin, calling through my gmail account  and imessage have allowed me to build and maintain relationships that 10 years ago would have fizzled out in months.

While a virtual team is absolutely possible, I would like to hear Philip Rosedale's views on the People equation of  Coffee and Power.

A recently failed attempt at starting a business included an all virtual team. The three of us barely knew each other, and lived in 3 states: Florida, Seattle and California.

The other two partners did not want to meet in person; we were all very comfortable and had been in "virtual" working worlds.

By design, every member of our team outside of the three of us would have been global; we wanted at least one representative in every country on earth.

When studying what worked/didn't work for building a company, the fact that we had never met in flesh and blood really mattered.

It's absolutely still okay to have a virtual and global team. 

We did, however, still need flesh and blood time.

The puzzle to solve is when that human connection needs to happen, and when it can be virtual.

Many of us have already tested when text versus voice works and doesn't work.

Going back in time, the three of us should have met in person for at least a  weekend, minimum, a month ideal - to do a hard push to lay out the groundwork of the company so that we would be clear on at least where we initially were headed.

Kaki
Kaki Flynn
linkedin.com/in/kakiflynn
kakiflynn.blogspot.com
 
Inspired by Abundance and Exponential Thinking - two courses I did with Peter and Ray by Singularity University - I am co-founding Zyclos that will enable conglomerates to embark into the vision  of a company without employees and will enable freelances to serve large organizations. Zyclos follows the same vision. Our team is self employed and even ours sales force will be entrepreneurs and influencers (open Q4/2104).
 
Thanks Thomas. 2014...for sure:-)  
 
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