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Lessons in Business

Earlier today a buddy and I biked over to the West 9th Phoenix Coffee for a chat with Phoenix’s founder, Carl Jones. There were about a dozen or more who turned out for a nice discussion. Many topics were covered, from philosophy to coffee culture to local politics. What I want to focus on is Carl Jones’s take on business, since he is after all, a successful businessman.


When you think about it, the Phoenix Forum itself is something extraordinary. For Carl and Sarah Wilson-Jones (the company's ‘superbarista’ CEO) to take two hours out of their day and invite the community to come and chat is something that many business executives would never dream of doing. As far as the stereotypical business school executive goes, Carl and Sarah probably wouldn’t fit the bill; and that’s something to think about, because even if they don’t play the part, they still are successful business executives.

I asked Carl about the most recent addition to the lineup of television garbage, the show Undercover Boss. If you are lucky enough to have never seen it, the premise of this program is that executives of big corporations go and work in their companies doing menial jobs. Every episode has a happy ending, because once the executive sees the company from the perspective of its employees, he can improve the way of doing business. What’s disgusting, of course, is that there is such a wall of segregation in these corporations that the chief executive can go work inside their own company and nobody knows who they are! The executive is just another faceless character in another faceless corporation.

Carl’s opinion is that once a company's revenue exceeds $100 million the company becomes too unwieldy. Anyone who has ever worked for a Fortune 500 company knows that 95% of the employees rarely, if ever, interact with the CEO. The CEO is a kind of mythical figure, the person who makes an absurd amount of money and is perceived as too busy and important to interact with the company’s employees and its customers.

This ties in nicely with what I wrote last month about the problem with growth. When a company focuses exclusively on growing, it does things that destroy the community that should exist within companies. Carl Jones says he struggles with the idea of growing Phoenix Coffee for that very reason. He thinks huge corporations should be sliced up into their component parts and operated as smaller businesses. He thinks the idea of “economies of scale” is bogus. He despises the very thought that executives should be paid as much as they are. He blames the culture of huge corporations for fueling the financial crisis and destroying historically great and successful firms.

This stuff isn’t coming from a textbook written from the ivory tower of an elite business school. This stuff is coming from someone who has been a businessman for decades and, from my perspective, seems to be pretty good at it.

Comments

B. P. Beckley said…
Well, wait a minute, "economies of scale" is very real in certain cases, manufacturing in particular. However, I would call them "real" economies of scale only if the bigger size allows you to introduce new processes that actually lower your unit cost to add your value.

I would agree that for most service business (i.e. coffee houses), getting bigger probably doesn't allow them to improve their processes in some efficiency impacting way. It allows them to pressure their vendors more, but that's not the same thing. It allows them to lower their corporate overhead, I guess, but it appears to force them to pay more to the executives, so you wonder if it's a wash.
B. P. Beckley said…
Also, I'd like to point out that I don't appear to disagree with Carl Jones on any point but "economies of scale are alwayw bogus"!
Rob Pitingolo said…
@B.P., I think you're right, economies of scale is sometimes a legitimate idea. I think what Carl Jones was arguing is that once you hit the $100k revenue milestone, diseconomies of scale begin to set in. We can argue about whether $100k is the correct figure, but that's a debate for another time.

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