I’ve been remiss, but a couple of my favourite bloggers have noted the recent passing of some great musicians.
I saw Don Williams in concert years ago at, I think, the Hammersmith Odeon (whatever they call it now). My memory is of an incredible sense of stillness.
An incredible band; sophisticated, cool, erudite.
Both Becker and Williams were great musicians.
Don Williams Image: Rolling Stone
Eighty years ago, in The Nature of the Firm, Ronald Coase (1910 – 2013) explained why firms exist. His answer (transaction costs) both explains the recent rise in the number of sovereign professionals and highlights the challenge faced in building a high-value sovereign professional business.
Essentially, Coase argued that firms exist where the cost of contracting individual tasks becomes too burdensome. It is relatively cheap and easy to contract simple tasks in the open market, such as taking a taxi or paying a window cleaner. However, the myriad subtle responsibilities of, say, a personal admin assistant are more effectively met by hiring someone on a contract of employment.
The rise of technology, especially smartphones, the web and cloud computing, has dramatically reduced transaction costs on both sides. Size matters less and it is easy for an individual to market themselves, to be found, engaged and for all the requisite admin to take place. Those relatively concrete transaction costs are clearly lower as a result. One could imagine such relationships reaching a new equilibrium where it is now economical effective to contract out a larger set of “tasks” to sovereign professionals.
However, building on Coase’s work, Sanford Grossman and Oliver Hart described two types of rights over a firm’s assets: specific rights, which can be contracted out and residual rights which cannot. The more a sovereign professional works on a client’s strategic projects, the closer he or she comes to those residual rights. At that point, as The Economist describes in Coase’s Theory of the Firm “a merger would make more sense” – i.e., that work may be better done by an employee.
The challenge for the sovereign professional is to build the sort of “trusted adviser” relationship that gives access to strategically important (and therefore valuable) projects while maintaining independence.
Both papers are worth reading and digesting;
Image: GNU
We gotta get out of this place
If its the last thing we ever do
We gotta get out of this place
‘Cause girl, there’s a better life
For me and you
Just in case you’re stuck in salary-slavery, or need to remember why you ever left its cosy embrace.
You’ll be dead before your time is due
I know it
Watch my daddy in bed and tired
Watch his hair been turning gray
He’s been working and slaving his life away
We Gotta Get Out Of This Place was a 1965 single from The Animals and it subsequently appeared on their second album, Animal Tracks.
This 1965 TV performance has a bonus appearance by a young Dr. Duckie Mallard, or is it Ilya Kuruakin? I get them so confused.
Even allowing for the cheesiness of 1960s TV, the band manages a commanding, moody performance.
The 15th / 16th century German artist was a pioneer and a role model for today’s sovereign professional.
Back in 2011, The Economist published this article in their Christmas edition: Portrait of the Artist as an Entrepreneur, the Economist. I wrote about it at the time, over on the Burning Pine blog.
Albrecht Dürer was a sovereign professional in so many ways. He was proudly independent. In an age when artists so often depended on patronage, he considered court painters to be parasites…
hanging round great men, waiting for a commission to fall from the lordly lips. He, by contrast, was an independent businessman. He made his money not by grovelling, but by selling copies of the woodcuts and engravings printed, since 1495, at his workshop in the centre of Nuremberg. He was not even a member of a guild, for there were no artists’ guilds in the city: he was a free individual, unaffiliated, making money and a reputation purely for himself.
Dürer was also keenly aware of his cost base (both the materials used and his limited time) and of the return on investment from various projects. Of his “Madonna of the Rose Garlands”, he wrote: “My picture … is well finished and finely coloured [but] I have got … little profit by it. I could easily have earned 200 ducats in the time.”
To a customer, he wrote, “I shall stick to my engravings, and if I had done so before I should be a richer man by 1,000 florins.”
By investing in his own printing press, Dürer was able to produce copies of his works and leverage his creative work more effectively whilst also maintaining control by producing the prints himself.
He also understood how to market his services. He understood the value of his brand, going to court in Nuremberg and in Venice to defend his trademark monogram.
Dürer took a strategic approach to levering his talent, he developed re-usable intellectual property and he built his own brand. He understood his business – his P&L – and his marketing. In every way, we have much to learn from Albrecht Dürer.
There’s a spin-off benefit, too. Even 500 years later, original Dürer prints are available on sites like Artsy for just a few thousand dollars. Not pocket-money, but not the mega-millions of original works either.