Tribes: We Need You to Lead Us

by Seth Godin

The brilliant venture capitalist Fred Wilson got me thinking about what purpose a traditional firm (corporation, nonprofit, church, whatever) serves. He quotes Ronald Coase, the Nobel laureate in economics: There are a number of transaction costs to using the market; the cost of obtaining a good or service via the market is actually more than just the price of the good. Other costs, including search and information costs, bargaining costs, keeping trade secrets, and policing and enforcement costs, can all potentially add to the cost of procuring something with a firm. This suggests that firms will arise when they can arrange to produce what they need internally and somehow avoid these costs. In other words, we start formal organizations when it’s cheaper than leading a tribe instead. Having employees, for example, gives you a tight interaction of communication and output that used to be difficult to accomplish from a less formal tribe. Having soldiers, for example, is seen as more reliable than earning the trust and support of the entire population. The Internet changes this because you can build a bigger, faster, cheaper tribe than you used to be able to. The new economy changes this because the transaction costs are falling fast while the costs of formal organizations (offices, benefits, management) keep increasing.