An Analysis of the Corporate Model

Abstract:

The corporate model, with it's affinity to produce enormous resources for research, development, production and distribution of products and services also has a concerning affinity to outgrow it's station; and collapse under it's own weight. This is a product of the relationship between the business itself and it's investors. Having a great deal of wealth backing a corporation allows the business to gain momentum and keep it until the market is saturated. It's a very effective model for growing a business; but the environmental conditions that are required for growth are finite. The corporate model has no contingency for the condition of a saturated market; and the growth that once funded the returns for the investors becomes simulated with many unfavorable behaviors. Addressing this issue with an amendment to the model, that is to be implemented when markets saturate could be favorable for not only all parties involved, but also the economy in general. Initial Public Offerings: IPOs are populated with licensed investors that have at least millions to invest in prospects with. The prospects of course sell their ideas to the VCs; in order to reach an agreement with some of them. The model for IPOs is exclusive in a manner that makes it difficult to add to the pool of VCs; as it relies on more than just talent. Early opportunity is just as important to the success of a budding VC as talent. It takes capital to make capital. This isn't necessarily a danger to the health of an economy; but it is a problem, in that it limits the potential of the pool of VCs, as it limits it's own distributed intelligence. It's a large enough problem that it warrants concern; due to the economy's high degree of complexity.

Resources for Growth:

The corporate model has the advantage of the potential for enormous amounts of financial support. An effective presentation can win the support of investors; with intentions to invest large amounts of capital, in the interest of seeing larger returns. The effectiveness of a presentation thus relies on being able to argue the profitability of the endeavor. The more effective the presentation, the more likely that sufficient or even overcompensatory funding will result; the latter being a more general inefficiency. The financial incentive to invest in the most interesting endeavors, can overshadow investment in general complexity. Capital can be concentrated in smaller numbers of endeavors; in the interest of higher returns; thus not optimizing for the complexity that an economy requires. The advantages of financial support ease many of the concerns of young businesses. This covers most if not all of the expenses associated in those crucial first five years. It tends to be an enormous safety net; that allows for the growth and thus the profitability of the business... and thus the returns to the investors. As the value of the business grows, so does the value of the investments made in it. This is a non zero sum game that can last for some time. Market Saturation: In addition to the before mentioned lack of optimization for economic complexity, market saturation results in threats to economic complexity. The corporate model is so systemically strong that it tends to produce companies that can work with such high bulk that smaller companies cannot compete with them concerning price points. Coupled with the rigid growth incentives, many small companies are put out of business by corporations. This of course reduces the complexity of an economy. It also aggregates the wealth and markets away from those small business owners and their many employees. Iteration to Monopoly: The rigid growth incentives continue under the condition of saturated markets. This is a large problem concerning maintaining competitive markets. It is indeed a winner take all model; in that there is no contingency for market saturation. The businesses continue to try to grow at the expense of competition. Much work goes into trying to prevent monopolies from occurring; as the business model continues to out perform and thus eliminate all competition. It should by all means be considered an aggressive model. Inflation: The returns that the investors enjoy are not accounted for in the economy. They are above the principle; and thus result in inflation. Eventual Self-Deprecation:

When markets saturate, there is no longer room in the market for the growth that funds returns. This results in cutting overhead costs; that includes raises and benefits for employees, security expenditures, safety protocols and many more important aspects. This also results in anti-competitive behaviors that produce an advantage; which other companies adopt to compete. This is an enormous issue that has an unfavorable impact on business culture and the economy as a whole. As the complexity of the economy diminishes, so does it's stability. The smaller number of businesses that have risen to the top, at the expense of a much larger number of businesses, have driven away the complexity that the economy requires for contingencies. This is known as the business cycle, economic cycle or the crisis cycle. This condition eventually ends in economic collapse. Few businesses survive this condition; and corporations are no exception.

Conclusions: The corporate model has many favorable aspects. This suggests that the baby should not be thrown out with the bath water. The more concerning aspects of the model however are demonstrably dangerous. The full iteration of a business cycle results in a zero sum game. The advantages of the corporate model are essentially short term; and the dangers are long term. If there were consideration of the long term issues built into the initial offering, there would not be such concern over the long term effects. For instance, if the rigid growth incentives were relaxed under the condition of market saturation, the ill effects that tend to result might not result. What if there was a clause in the contract that included an exit strategy of sorts? This could be an agreement between both parties to divide the profits in the most fair manner; for the sake of the business and the investors. That initial non zero some game needs a non zero sum endgame. All of the evidence suggests that the model in it's current form is not sustainable. This should be accounted for in the model itself. Where this is not the case, one should expect a poorer outcome for both the business and the investors. Many VCs are aware of the probable social issues that are associated with the crisis cycle. It's wise to consider the coming of the pitchforks. There has been some observed degree of maturation in the investment community; and there is no reason that it could not continue. Investment not only functions as a profit driven endeavor for the supply side. Now there appears to be some degree of investment in damage control. This is what appears to be happening in the US's housing market. All that is really required for the model to be sustainable is the understanding that growth takes advantage of finite environmental conditions. When these conditions have been expended, the rigid growth incentives become incoherent and dangerous. The corporate model is overcompensatory in it's approach to support supply side. This results in failures; that destabilize the economy and eventually collapse it. Relaxing the rigid growth incentives when markets saturate could result in a much more healthy economy and thus population. This involves all markets; including health care. For everyone's sake, it is imperative that business models be modeled with realistic expectations of returns.