Ownership, Possession, and Control

The book Zero to One: Notes on Startups, or How to Build The Future by Peter Thiel with Blake Masters highlights three functions that influence alignment in a startup.

Three functions:

  • Ownership: who legally owns a company’s equity?
  • Possession: who runs the company on a day-to-day basis?
  • Control: who formally governs the company’s affairs?

Distributing the functions:

Usually, the division of the tasks is as follows. Ownership to founders, employees, and investors. Possession to managers and employees. Control to the board of directors (made up of founders and investors).

In theory, there is a harmony created by the division of the functions among the team. The financial gain of part ownership attracts and rewards investors and workers. Possession increases the ability to get stuff done, and that motivates and empowers founders and employees. Control from the board places managers’ plans in a broader view.

Challenges:

While the whole is greater than the sum of its parts, a trade-off created by many diverse parts is the increased risk of misalignment. An example of misalignment is a principal-agent problem where the agent has personal interest/intentions different than that of the principal and acts to maximize their interests to the detriment of the principal.

Gains from working together outweigh the risk of misalignment if the partnership results in an antifragile entity. An antifragile entity i) comprises of sub-entities, where ii) the sub-entities can break in a distributed fashion (this results in the entire system not breaking if some sub-entities break), and iii) the entity can regrow the broken entities.

Antifragile by Nassim Nicholas Taleb and this Twitter thread by Luca Dellanna are some resources that cover the concept of Antifragility.

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