Companies fail because people stop working on them. I need to put that fact on the table before going on.

But, in our case Fireworks Technology Projects LLC was a unique, and perhaps interesting failure because of the progressive legal structure that governed the company.

The 400 Year Old Corporate Structure

All corporations have some sort of binding document, corporate bylaws or an operating agreement, that define the rules of the game. I used the word "game" because that is what a corporation is; a game where breaking the rules has serious enough consequences that most people will avoid cheating.

The first corporation, as we know it, was the Dutch East India Company established in 1602. So, the notion of a corporation as a legal entity is over 400 years old. In the U.S., our corporation legislation is as old as our constitution.

So, we're due for an update. But it's still unclear what the next iteration of corporate legal structure will look like.

Member Managed Corporation

The first big difference between a member managed corporation and the current corporate structure, is that anyone who wants to work for a member managed company inherently becomes a member. So, in a way, everyone in the company is a shareholder and an employee at the same time.

The member managed corporation depends on Game Theory and is strongly influenced by the the open source software community like that of GitHub. One particular component of Game Theory, the Nash Equalibrium, states that, in theory, all players of a game will eventually settle on a strategy which maximizes their individual gain and the game will reach an equilibrium. A member managed corporation attempts to design the game so that the Nash Equilibrium will be reached at a point where the organization is operating at maximum capacity and everyone is being fairly compensated for their efforts.

In theory, the goals of a member managed corporation are the same as any corporate structure. The difference is the way decisions are made and how compensation is done. In our version of a member managed corporation the game was played by players awarding points to other players for adding value to the company. All profits of the company were split among the players according to the number of points they each had at the end of each month. Most big decisions were made by voting, where each player got one vote per point.

If you are interested in learning more about it, and why we chose it, I wrote an old blog post that you can check out. I'll come back to the member managed corporation again after exploring what I believe were the reasons for our failure.

Reasons for our failure:

  1. No focus. None whatsoever.
  2. Drank too much of the Koolaid.
  3. Big chip on the shoulder.
  4. Never learned how to manage with a distributed team.

Focus

If you can't focus, you can't communicate, and nobody wants to listen to unfocused, rambling abstractions. If somebody asks what you're working on and you start your response with "It's hard to explain..." you've lost them. A startup is not a small version of a big company. You have to focus on one digestible thing and do it well or you will fail. If you're lucky you will discover this truth before you run out of time, money, and motivation.

I was hoping that I could assemble a team of people and we could all discuss what to focus on; but what a terrible idea that was. People coalesce around ideas because they get excited about making an idea into a reality. People generally don't get excited about talking about ideas, the processes for creating ideas, business model discussions, organizational structure discussions, yadda yadda. If they do, they are an entrepreneur; a different breed of person. They are probably out starting their own companies.

Don't Drink Too Much of Your Koolaid

Yeah, it's great to have a grand vision, but keep it to yourself because it will scare everyone else away. Amazon has built the biggest cloud technology platform ever known to man. It's the closest thing we've ever had to The Matrix, or Skynet in real life. When Jeff Bezos started Amazon he didn't go around telling people he wanted to build The Matrix, he told them he wanted to sell books online. It has been part of the plan all along that selling stuff online would be the main use case for the Amazon Matrix and would mint them some serious cash. But Bezos knew that was too scary of an idea, so they kept it to themselves.

Get Rid of the Chip on Your Shoulder

Most of this is my fault. The chip we carried on our shoulder prevented us from seeking help from people who would have been more than willing to give it. Although I can't specifically remember any instances of anyone offering help, I would have refused it anyway. We were entrenched in some kind of "us vs. them" mentality in which we classified everyone else as a tech snob or vulture capitalist. I hate to even think of all the opportunities we missed because of this.

Anyway, I've changed. I'm having more fun than ever, and I'm an order of magnitude more certain we'll succeed because of all the awesome developers, designers, angel investors, venture capitalists, lawyers, and accountants I've met, and listened to. I know my co-founders feel the same way.

If You Are Building a Distributed Team, Expect a Long Learning Curve

Actually, you'll probably never get it right. But, you will get better over time, and the key is being flexible and open to ideas. Find people who have learned how to learn. Those are the only ones that can make a distributed team work.

The Root Cause

When you look at the member managed corporation, on the surface it would be easy to blame our failure on it. It's too progressive, too democratic, or ahead of it's time.

Maybe it is, but when I dug deeper, asking why, why, why, I discovered we simply stopped working on our company. We stopped working on it because we were not focused on a digestible idea, but at the same time we were so enchanted by our big idea that we lost short term opportunities. Furthermore, we carried a chip on our shoulder, missed great relationships along the way, and made the wrong assumptions about what makes people organize and create something wonderful. Yes, our legal structure amplified these problems, but it was not the cause of death.

Moving On

Maybe someday I'll be able to be a part of the first great member managed corporation. I hope so.

For now, we've reorganized as Fireworks Project Inc. We got rid of the chip on our shoulder, we've met and been mentored by some really great people, and we're working together better than ever in our remote work setup. Our first product is Corkboard: an event calendar and bulletin board for local communities, and to say we're passionate about it is an understatement.

We're also looking forward to raising a round of money from smart, passionate investors in the coming months. This time we'll be the coachable team we need to be to get the most from them, and others we meet along the way.

We're focused on learning instead of proving ourselves right, and that is a breath of fresh air.