RCO: Reimagining ownership and value in regenerative business - tipping the scales towards flow
Beginning of the discovery of what shifting start-ups and VCs towards flow and velocity away from maximal ownership and control. And how this reshapes contracts, accounting and ultimately worldviews.
As a reader of this Substack you get to venture into many different realms with me. One of them is about regenerative business and the explorations I am on there. The Regenerative Community Organism, RCO for short, is work that we have been unfolding over the past 4 years, drawing on some of the most exciting trends within regenerative economics and business weaving it with living systems concepts informed by the lens of human thriving. This piece will dive into a nexus of that, which I am currently exploring. The intersection of value, ownership and flow.
Thinkers that have deeply analysed our current situation often point to separation being at the very core of it. Our separating ourselves from nature, each other and ourselves. Although that trend began perhaps some 10-12.000 years ago, the past few hundred years during the rise of modernity has calcified this belief into a truth. An attitude of a particular type of human supremacy that is currently destroying our worlds. Many speak of it in different terms but Vanessa Andreotti’s pointing to the 'arrogance of modernity' feels accurate to me. The subtler expressions of it could be the presumption of knowing what is right or best. For instance if you presume that you know what is important, or know (for sure) how the world works, and can know with certainty what humans are and are capable of. All of that is modernity speaking.
The last few years has entailed quite a bit of study of other than mainstream perspectives for me, and what I've discovered is that most of what I 'knew' to be 'how/what humans are', is actually cultural conditioning. This relates meaningfully to what Zizek says and what is often paraphrased: It is easier to imagine the end of the world than the end of capitalism. Yet such imagining is exactly what I am engaged in attempting.
My hypothesis is that we are currently in the dying process of both capitalism and modernity. Both of these deaths can occur in different ways and one of my main explorations is how I can participate in the hospicing (V. Andreottis term again) of them. To give them the possibility to die well as S. Jenkinsson would say. So that we can continue working from whatever ruins we were able to salvage, (Dougald Hines lens) rather than starting with a desolate wasteland or not starting at all. Actively hoping that the end of the world as we know it does not have to be the end of the world. That is what the work of the RCO is (partly) about.
This piece will attempt to sketch the contours of the perspective shift I perceive necessary in business, accounting and venture funding. It does not require you to share my view that modernity and capitalism is dying. You may just be longing for something different. For structures that are conducive to life. Longing to challenge how we are used to thinking about entrepreneurship and business. An longing to include a radical concepts in business like: enough (not maximal), contextual (not universal solutions) and contribution (not extraction).
If you have read anything I've been writing lately you know that I'm not one to propose solutions. So I won't be here either. I will however propose some possibilities that still fit within the current cultural and rational climate. Bridges into the fog if you will. Whether it is a solution or not will depend on what you are trying to do.
This is hardly the last thing I will write on this topic. The ideas are just beginning to unfold and will be put into practice in a series of experiments that I am designing and will implement going forward. (Side note: If this sparks curiosity, I'm looking for collaborators.)
Broken logic: Stocks, ownership and control
Speaking with the voice of the current logic, the startup world is about to acquiring maximum financial capital with minimal dilution. To do that we need very high valuations. The idea is that investors are buying something that has a value now derived from where the venture is in terms of realising the potential it addresses and how far it's come (i.e. the probability of success). After the first set of investors are in, everyone involved in the company has an interest in maximising valuations, more or less no matter what. This leads us down a very specific set of solutions. Much of which is predetermined by the predominantly neo-classical economic culture we are currently embedded in.
Because what we own and control is what contributes to our balance sheet with a higher expected value (probability * potential) we strive towards controling and owning. If we cannot control or own now, we will acquire resources now to be able to control and own later. The master resource here is of course financial capital as it can be transformed into whatever we might later need. Not only that, in the current version of economic theory the whole value of anything is (and should be) fully captured by its price. This logic leads to building large balance sheets to motivate big investments. These big investments are what is making even impact entrepreneurs beholden to the current market logic: the one where shareholders are prioritized above everyone else. It is a ramp up of the ownership and separation story we identified initially. It is a logic that sticks us firmly in the socio-technical systems-logic. The one where nature is just background, something that can be disregarded as a static background or taken for granted.
There are economists working to change this where Kate Raworths work on the Doughnut is one of the better known. It introduces thresholds (floors) and boundaries (ceilings) and therefore defines a space within which we can operate. This is a radical thought for most economists where many argue that bigger is always better. Any means necessary to gain the scarce (is it really still?) financial capital are good means.
Implied in this thinking are two fallacies. One is the assumption that everything that is possible to fund is worth doing. Then when we get funding we act as if the problem we are trying to solve is the only important one, and our job is to convince the market (our investors) that we are the best ones to do it. Regardless of what we may discover along the way. (For more depth on this see Chefurkas Ladder of Awareness, many entrepreneurs reside on levels 1 and 2 beginning to touch on level 3) That puts us on a trajectory where we need to build our solution in the biggest way possible so we can go to war with the market. (As an example is Andrew Chen's description of Ubers "constant war rooms" in his book The Cold Start Problem.) ‘Because if we don't then they will, and we will lose.’ This is at the core of the strange attractor, of the negative spiral, of the race to the bottom.
Another fallacy that R3.0 points out in their Blueprint on value and cycles is that we are assuming fungibility between currencies. I.e. that we can easily and without consequence net different currencies out. We behave as if costs/consequences in the ESG realms can be netted against financial gains or contributions somewhere else. That was never the case, regardless of what our accounting showed. It will take 50 years to grow back the tree once you cut it down to use as raw material and during those 50 years it will capture less carbon than it did a minute ago while it was still standing deeply rooted in the soil. Regardless of what the LCA says.
You will notice that a lot of this is in one way or the other a consequence of seeing the world as consisting of separate parts where what we see is what we get. A belief or presumption that the world in its entirety can be explained by adding up all the parts. Parts are equal. Quantity and quality are more or less interchangeable. In such a world control and command is good. Or rather command and control can work just as well as the other approaches. It is good for any actor to maximise what they are doing because that does not really have an impact on the size or value of the whole. Also there is little to no room for generative dynamics. The universe is a dead thing of matter and we are fighting to get to govern and direct as much of it as possible. Energy is neither created nor lost, it is simply maintained. My thing is self contained, inert.
It is just that in the complex, non-linear, living, dynamic world we live in: that is not true. Concepts like dark matter, multiverses, quantum realms are seriously challenging this notion. Whatever we are doing in one part of the universe ripples through the entire thing contributing to or subtracting from its potential.
What becomes possible if we think differently? What approach to start-ups would make most sense if we started closer to how we currently know the world to work? That is where I'll take you next.
Re-scoping ‘the problem': Exploring new questions
What if issues are not addressable by single solutions? What if everything that you do in one domain affects what happens in all other domains? What if it's less important what I do in the market and more important how I relate and interact with the market? What if my interactions with anything are recursive i.e. my assumptions about how the markets work that govern what I do, create the market dynamic that then create the conditions for what I can do in the market etc.? What happens when we stop believing that one bird in the hand is better than 5 in the forest (Swedish proverb) and realise that the opposite is true. The 5 in the forest can multiply, if I know how to acquire one when I need it, the 5 in the forest always wins the day. What I am talking about is of course what happens when we start looking at the world as ecological, or relational. What happens when we start truly looking at the generative capacity (synergy or negentropy) of life?
Any systemic thinker worth their salt will affirm that direct correctives are futile. In a complex, interconnected world, acting without systemic awareness will have many unintended consequences. I just proposed in the keynote I gave at the Nordic Circular Summit earlier this year that "The world we live in is a result of how we think, interact and solve problems". Acting from a narrow scope, 'just trying to do my part' is just the type of thinking we need to address. If you don't keep trying to understand how your topic relates to the whole and commit yourself to optimising for the thriving of the (largest) whole (the one just beyond what you can perceive) rather than your company or ‘your’ problem you are probably doing more damage than good. Regardless of how sustainable the particular venture or problem appears from wherever you are looking at it from.
So what happens when we start from this other logic that I am proposing. If the world is dynamic, complex, relational, non-linear and living. Then what makes the most sense?
Flipping logics: Flow, trust and agility
"In a crazy world looking at it upside down might just be the sane thing." - Someone
First: we need to stop maximising or optimising for narrow sets of parameters. We are going to have to rigorously work with wider sets of parameters. Some of which are not going to be quantifiable or measurable yet. (Perhaps evidence based decision making needs to be replaced by evidence creating approaches?) Any measurement should be for the largest chunk of context we can look at, not just at the individual company, and contain multiple metrics. The age of single metrics is over.
Second; if the world cannot be explained in its entirety by its parts. If emergence and complexity is real. If something can happen when parts interact that are beyond the parts themselves. Then owning and controlling stops making sense. Instead focusing on just increasing flow that propel us in the direction that we are currently looking. This also creates tremendous opportunities for us to be agile. Instead of having to relate to large asset bases when we realise we had it wrong we can course correct. In accounting terms it would look like putting the balance sheet in the background and focusing on the income statement and the cash flow statement, probably alongside some other relevant not yet invented statements that will give us insight into what value flows the company is creating in other domains and how it is contributing to its purpose. It might even look like drawing some vectors to assess the sustainability of what we are currently doing if we project success into the future (see Daniel Schmachtenbergers concept of yellow teaming for reference).
Thirdly: we do need to take into account that we operate in contexts and these contexts offer a set of constraints. Nudging, shifting and working on and around these constraints is an important part of the work. Therefore multi-disciplinary approaches based on partnership where maintaining diversity i.e. the integrity of all partners is important. Being able to integrate and serve a larger portion of all partners' needs will be a good measure of the value we are generating (beyond what is transactionable). These should of course be denominated in multiple-currencies, defined by our socio-technical-natural context i.e. moving away from the deracinated socio-technical systems. It would also invite the doughnut approach of thresholds (lower) and bounds (outer) limits for values we will not compromise on as well as allocation and use of potentially scarce resources.
So wide parameter sets, moving towards a relational understanding of the world as central and addressing the neo-classical psychotic simplification of price=value and start thinking of value as the flow that satisfies the highest proportion of needs of the highest number of partners in the system we are nested in without breaking thresholds or surpassing the boundaries we’ve set up as our (safe) operating limits. Then we’re onto something. And every journey requires us to take a first step…
Beginning with what we have and moving towards a post-ownership paradigm
To start making this leap in the realm of start-ups I began wondering where I would look for inspiration. Innovation seemed like an obvious area to look at so I began researching multi-stakeholder processes both within large corporations as well as in coalitions. Surprisingly (to me) this is how many innovation arenas are actually currently operating:
Work with minimal assets that allows you to be self contained and not perceived as a threat. Risk minimize whatever moonshot idea you are working on to the point where it is a no brainer to pick up and implement in the main body of the organisation. This is interestingly almost a mirror image of the start-up approach.
Good news is that there is precedent. But there are questions to be dealt with and investors and partners to be negotiated with. Although the principles are practiced to some degree in a different arena, there is still work to be done.
One of the key questions to be dealt with when these arenas live between large entities rather than inside them is what a post-ownership and therefore post-control approach could look like? I.e. what if we built ventures that became something like commons, generating maximal value to all those that contribute to creating the flow through them? No dominating owner, no dominating control, no real focus on stocks. Instead a clear value distribution to the ongoing contributors. 5 birds in the forest type stuff…
There are already interesting examples of reconceptualisation happening here: Dark Matter Labs and their work on self sovereign assets for instance. And interestingly one of the largest tech deals the world has seen lately has some of these elements too, the one between OpenAI and Microsoft.
There has been much written about this deal. What tickles my fantasy are two aspects. Microsoft agreed to capping their profits (a high cap but still a cap) and it did not claim financial control over the company (leaves it far from powerless but...). Once they have their return the ownership will revert to the non-profit foundation that stewards OpenAI. One could argue that the deal design reveal something of a shifting climate in the investor community. It might be saying something about the dwindling power of financial capital. It might even be saying something relating to the proposed worldview shift above i.e. away from nodes with clear boundaries towards one of centers and fields, where relationships consist of many levels of communication and what flows in that communication reveals the value.
I'm proposing to begin looking at accounting in a way that focuses on contributions towards a jointly defined end goal (mission) where the partners were remunerated in terms of share of the flow they are actually part of creating instead of the unrealised, uncertain, discounted expected value. It seems from where I’m standing that this should be not just possible but actually desirable in the complex bordering on chaotic world we currently live in.
Wrapping up: Creating velocity
1) Focusing on flow rather than stocks. This is a path out of the backward looking, ownership centered path we are currently on. These practices already exist scattered in various parts of our economic activities, they have just not been re-synthesised for the start-up and/or addressed in the context of (venture capital) funding.
2) Begin to seriously consider multi-currency approaches. The purpose is to insert a wider set of parameters for optimisation, to introduce thresholds and boundaries (where such exist like on natural capital) and to begin modifying the assumption of fungibility towards something more realistic.
3) Finally transition from the abstract, decontextualised socio-technological world to one that at least includes nature. As we re-ground our companies (per definition techne, human made) in (preferably bio-regional) socio-natural contexts in combination it will become necessary to start looking at firms as parts of socio-technical-natural systems. This will invite and require a proper discussion and definition of what we mean when we speak of 'value'.
Fundamentally I am imagining a re-conceptualisation away from the balance sheet heavy current interpretation of economics back towards more sufficiency, need driven and income statement / cash flow focused 'conventional' business practices or perhaps towards more vector driven approaches where both risk and potential of current operations get addressed with rigour in the reporting. This re-conceptualisation will require us to focus on flows and the relationship between the velocity of the flow and the stock for determining companies value rather than the stocks themselves.
To get started we need to experiment with new ways of working together. A movement away from the trustless economy of the blockchain to the trustfull economy of the relational worldview. New relationships within companies as well as between companies and their stakeholders. The RCO proposes embedding dialogue between different operating logics as part of the backbone of the organism’s (sorry organisational) structure. There are other similar approaches that propose preserving difference and reintroducing resilience (redundancy) also in business as a sound strategic choice given the most likely world we will be facing.
All this invites us to ask new questions around what type of value we are prioritizing through our actions. Then the answers to those questions should not stay simply in policy documents and guidelines but rather need to bleed through into contracts that govern how we operate and interact with the market. As well as the the accounting that governs what we pay attention to. What I am seeing when I’m am researching these domains is that most of the tools are already developed and used somewhere. What seems to be lacking is a brave conversation starting from the ‘move beautiful world our hearts know is possible’ (paraphrasing C. Eisenstein) instead of starting in the convoluted logic we happen to find ourselves in right now. What I’m hoping is that this piece of writing can attract some pulled by the same longing. Others hoping to hospice what is dying and, who knows, that very same process might actually also be midwifing the new.
This piece is a synthesis with the ambition to create openings to other 'adjacent possibles'. Perspectives compatible but parallel to the current economic logic. I am developing more of these concepts over the coming months in dialogue, cases and experiments. If you are curious to explore this deeper, reach out!