Thursday, May 12, 2011

Business Model Change Required

Basically business is about exchanging something for something: grain for meet, food for clothes, trinkets for gold or for Manhattan, gold for banknotes, services for money, etc. Simplest possible way of organizing business is implemented in robbery: You save your life for giving to your business partner all valuable things you have with you at the moment you are arranged in this deal. It’s really simple: no printed agreement, no multipage requirements, no long lasting relationships – just a knife or a gun being exposed, and that’s it, deal is done. However, very few of us agree to be involved in such a business, so for centuries people have been designing and implementing more and more detailed and sophisticated means of regulating business relationships. All these rules and requirements about how business should be done, which documents should be singed between parties, what kind of reports should be provided to the state authorities, etc., are intended to make business relationships as safe as possible – safe from fraud, from inadequate behavior, from unjustified risks, etc.

Is it good or bad? It depends. If we compare it to robbery – current mechanisms look very good, but as soon as we recall Enron and Lehman Brothers cases, we understand that all these mechanisms are rather weak.

What’s wrong with rules and regulations? Maybe if we do them stricter and more sophisticated, Enron-like cases will be impossible? No, nobody can guarantee this.

The main obstacle to reshaping current business rules so that they become ideal is the nature of these rules. Let us recall that initially the rules appeared to develop robbery-like and warlike business relationships to make them wider applicable, safer and more effective. We see that from the very beginning business parties were considered enemies, and nothing has changed since then, all the rules still protect parties from each other and society from the parties. This struggling and defensive nature of business relationships prevents us from really improving them.

Times have changed; at least I believe they have. Now there is no need to totally beat down your business partner to gain more profit for yourself. Almost all of us understand now that it is much better to find consensus with business partners and with state authorities to ensure wealthy future for our families. In mathematical terms it means that, considering business relationships a game, we should move from zero-sum to positive-sum paradigm.

Can the Internet help us make steps in this direction? Fortunately yes, it can, and I’ll try to show it in my next post.