Working Together As Small Companies
Companies are a form of organizing that aligns work toward specific goals. It is an effective way to organize if you need a lot of people to work together to do something complex to achieve a clear outcome. Whether a company is for-profit or non-profit, there is a strong feeling of who is us and who is not us. At scale, and with many people who are making their decision to align with the company strictly for their paycheck, we haven’t yet seen a better alternative for building the technology we use every day.
Across emergent tech spaces, however, we are seeing a trend of much smaller (1-10 person) companies trying to do it a new way— working together, integrating each other’s tech and deriving value from each other.
However, it’s a very very complicated process, and more often teams fail to work together more than they succeed.
We are all working backwards from “wouldn’t it be great if people could make ________” to “okay, how do we make this valuable, profitable, more than just an open source codebase, a real business?” I don’t think the people who are getting up every day and pushing open source code to Github started from trying to become millionaires. I think most of us who create for a living are primarily motivated by trying to add new and good ideas to the world. We congregate online to meet others who share our interests and could get value from our legwork. Mostly it’s nerdy, highly technical conversations which are overlooked by the general public.
Sometimes, however— like in web3 and now AI— we come under the scopes of the people who are in the business of turning that value into revenue. An idea becomes a product becomes a company. We collect the people we trust, build our ship and give it a name. We sail West, backed by someone or some group who believes in us enough to fund the venture. On the open seas we meet other bands of privateers on their own ships. Some are well-funded, some have been going for a long time and just happened to catch the winds of hype, many are smaller teams building much of the same infrastructure to accomplish slightly different goals or attack slightly different verticals.
When a hype wave like web3 or AI hits, it’s inevitably centered around a few faucets of value— in web3’s case it was the ERC20 token and ERC721 NFT plus extensive templates and tutorials on how to deploy a smart contract with a little help from YouTube. In AI’s case it’s been Stable Diffusion and then ChatGPT, which have brought AI into the public and spawned this wave of companies.
And so, many of the companies building up around it are using a lot of the exact same infrastructure, same libraries, largely the same source code to solve the same problems. It has largely been that open source packages get installed into software which gets sold as SaaS to other companies who wrap it into an end product for users.
Web 1.0 sort of set the bar for how things are supposed to be. Incubators like Y Combinator standardized a theory of growth that yielded things like the SAFE agreement, drastically simplifying the process of raising money for many founders. They gave founders a clear framework for success, and that framework enabled very lean teams to build many of the Web 2.0 products we know and love today.
Why mess with something that works? Keep it simple. Get to revenue and grow as quickly as possible.
It makes a lot of sense. But how a team grows is not really clear. How do you define the value of an employee, versus a really value partnership, versus a friend you trust and work with based on that trust. How do you value having a good relationship with another team who is building toward the same dream you are, and sharing the latest research and learnings as soon as they happen?
It’s hard to put into our pitch deck or tell as a story. We’re being poked and prodded for weakness by critical investors, asking us what our moat is. If the software is open source, if you have the same capability as all these other companies you’re working with and talking to, then why are we putting our chips on you, and not them, or someone else who promises to crush all of you?
And so we build our moats, while still continuing to shout over the wall to our friends. We all talk on Discord, Telegram, on Twitter. We all like each other. We’re in this together. In our conversations we arrive at great ideas together, and it’s obvious that if we could work together we could bring value to each other. Instead what’s happening more often is an increasing tension between a new generation of people who are meeting others who share their passion online and the equity/ownership structure of their existing companies and agreements.
What’s missing is simple: we don’t have a clear way to share revenue from the exploitation of that value and our companies are not well set up for it. It’s a hard story to tell, especially to investors. We could make this software together, but if we’re both shipping the same features then we’re inevitably competitors.
In open source land it’s subliminally argued that this is the price of doing business, but there’s another fear that even the free software people feel deeply— what if someone else comes out with the same idea, gets a bigger community and all the time I put into making this is wasted? This has happened many times. Some people are still made about GNU/Linux.
Human beings are complex because we are group selected for both cooperation and competition at the same time. Competition is obvious and default in nature. For companies large and small, it’s pretty rare for companies of any size to collaborate unless one organization is paying the other and taking priority ownership of the IP and assets. A good example of a collaborative partnership that went right is Project Natal, a collaboration between Microsoft and PrimeSense which produced the Kinect and lead to Apple acquiring PrimeSense. In that case, and with most cases, the reward of the research investment was highly asymmetrical, as Microsoft has struggled to productize the Kinect for any profit while Apple has shipped a version of it in all of their recent phones.
When two companies work on something together, and they don’t share in the revenue, one company always makes more revenue or gets more business value.
And yet, we really want to work together.
[Part 2 is here]