Signs of a magnetic pole flip in company ownership

16.13, Thursday 12 May 2022

What if the dominant model of company ownership inverts? What if we’re at the end of an era of companies being owned by external stockholders, and at the beginning of bottom-up ownership by the people who do the work – the employees? Feels unlikely I know, HOWEVER:

This morning’s news is that ustwo is now employee-owned.

You’ll likely know ustwo. Here’s their Wikipedia page. They’re behind the hit puzzle game Monument Valley; long-time digital design agency (founded in London in 2004) with a couple hundred staff; part of many joint ventures to provide design/software/marketing/etc for startups, e.g. DICE. I know Mills (@millsustwo), one of the two founders, from the general scene - huge congrats mate, brilliant move.

I have a soft spot for an ancient bit of ustwo work, being home screens designed for the Sony Ericsson XPERIA X2 (bloody hell that’s a mouthful) smartphone from 2009. Watch the Pixel City video on Vimeo: Pixel city moves through a cityscape, its different elements linking to the functionality of your phone. Text messages appear playfully on billboards, calendar events arrive by train, a passing aeroplane shows your call history and much more.

ustwo have always been as inventive and pioneering with their business model as their design work. They’ve been blogging today about going employee-owned:

  • How: a majority of equity is now in a vehicle called an “Employee Owned Trust,” purchased from the founders with a loan (like a mortgage) which will be paid back over 6 years. Three employees have joined the board. There has been a multi-year transition leading up to this from being founder-led to management-led.
  • Why: employee-owned firms are more productive, grow faster, and are less likely to go out of business (where ownership is >30%; ustwo is now 62% employee-owned). There has always been profit share; now this can grow.

It’s great that they’re sharing the nuts and bolts of how this works. It’ll demystify the process for others who want to follow the same path.

And I’m sure there will be a bunch of future lessons in how to make this work – like, how can there be meaningful employee involvement in how to chose work or influence big bets or what happens when there are lean cycles in the agency cycle? I hope ustwo’s sharing will continue.

A shout-out at this point to my friends at Clearleft! A smaller but also well-established agency and extremely well-regarded for their design work and community presence, the Brighton-based design studio went employee-owned in 2020.

Two makes a trend right?

Exciting times for design. And for the agency model, which has been in a state of perpetual reinvention for as long as I remember.

RELATED: There’s something fascinating in thinking about succession planning as the founders handing control not to another individual to the machine. It makes me think of Sikhism which, after a line of 10 gurus, handed over leadership to an “eternal living guru,” the Sikh community itself. As previously discussed.

There’s always been the question about how founders exit from an agency. Two traditional routes:

  • Management buy-out funded by private equity. Going the PE route means “unlocking value” – there are strong growth expectations for a future flip (i.e. a return for the PE firm).
  • Acquisition by another agency, ideally a major network.

The agency world has its own nature and own norms – it’s like a more established, parallel world to the startup ecosystem.

One feature is the presence of behemoth networks like WPP plc (that’s their Wikipedia page). There are a handful of agency networks around the world. WPP is UK-based and owns a few hundred agencies, with collectively 100,000 employees and somewhere north of 10 billion annual revenue. They coordinate, share work, get scale (a small agency can be part of a global project), and save on back-office.

So while I love that ustwo and Clearleft are figuring out the path to employee-ownership – the eternal living guru of the organisation…

…thinking about the larger scale makes me ASK:

What is the equivalent of the agency network for employee-owned orgs?

Can we imagine some kind of multinational network organisation that coordinates, shares work, achieves scale, etc, without taking full control of the member agencies?

Going further:

The agency world has a fractal structure. Agencies are often 50% freelancers and they subcontract like crazy. Then they roll up into bigger firms – the Coasean logic of travel towards lower internal transaction costs means agencies combine and combine again until you get the network giants.

(The startup world parallel is the data-driven gravitational force which results in Big Tech, a.k.a. Srnicek’s platform capitalism.)

Can employee-ownership exist at all scales?

Hey and here’s an example in the UK! CoTech is a network of 45 creative technology companies, all individually organised as co-ops, providing digital services together. More like that pls.

(Thank you to the folks at the co-op Common Knowledge for letting me know about this. Common Knowledge itself creates digital tools to force-multiply social movements.)

Perhaps we’re at the beginning of an ownership inversion where organisations from big to small will follow the principle of bottom-up agency.

Dominant models change every so often! I remember reading that the dominant model in the US relatively recently (1900s?) was family-owned businesses. I’ll have to hunt down that reference.

The analogy here is to geomagnetic reversal, the process by which the Earth’s magnetic poles flip – the North Pole becomes the South Pole; the south becomes the north. It happens periodically: There have been 183 reversals over the last 83 million years (on average once every ~450,000 years). The latest, the Brunhes-Matuyama reversal, occurred 780,000 years ago.

(i.e. we’re overdue, just in case you were wondering what else the 2020s may deliver.)

So I guess something happens such that the pole-flip kicks off, and sheer magnetism drags everything else with it to complete the process? There is no halfway house.

Once I started looking for signs of an ownership inversion, labour becomes capital and capital becomes labour, then I started seeing it everywhere:

  • Unionisation – it’s growing in tech and service jobs, and not directly employee-ownership but still an agitation for self-determination.
  • Independent employees – Uber drivers, Airbnb hosts, and the gig/sharing economy generally… are these employees stripped of rights, or individuals exerting self-determination, or (as I’ve previously argued) a third category of worker, something in-between? Maybe there’s the seed of employee-ownership hidden here. Let’s roll in the creator economy here: as Uber drivers love their flexibility, creators love the hustle.
  • Co-opsThe Drivers Cooperative in New York, the Uber-alike where the drivers own the software, and others in the platform co-op movement: organisations where management is the commoditised class, not the workers.
  • DAOs (Decentralized Autonomous Organisations), looking further out into the web3 world – a way for the bureaucracy of an organisation to be represented as executable code, and for individuals and other individual-like agents to drift in and out of the organisation, the reward for work being ownership. Intriguing stuff. A great essay on the topic is A Prehistory of DAOs (by @keikreutler).


How an organisation’s self-determination, ownership, and value-creating work become indivisible, held by the same people: the employees?

It turns out this same question is being asked at all scales.

So let’s assume the magnetic pole flip is in progress!

Or at least, let’s assume this: there is tectonic tension towards this corporate ownership inversion, even if as yet unrealised. So enabling tools will quickly find traction and unlock behaviour.

Answering questions like…

  • Simple paperwork to flip a company’s equity into an Employee Owned Trust, as with ustwo and Clearleft, and case studies of the same?
  • Software to enable worker-owned co-ops (as previously discussed).
  • Common patterns for meta-organisations such that (say) employee-owned design agencies can co-market and compete with global roll-ups?
  • Safety net/pension analogues for independent workers to buy into, and one-click personal incorporation, such that they have security while their employers can treat them with flexibility?
  • At a really mundane level: shared channels in Slack provide a way for teams in different orgs to collaborate. What other cross-org demilitarised zones might there be?

And so on.

If you were a VC you might invest in this, as a long term bet.

If you enjoyed this post, please consider sharing it by email or on social media. Here’s the link. Thanks, —Matt.