Jamming on the nature of the firm and the rise of solopreneurship. Why aren't we living in a world where everyone contracts out their services as independent contractors and are recent trends in legoizing businesses, the pandemic, and web 3 now enabling that? Also jamming about product opportunities in the space.
What's up everybody? This is Lola Ojabowale, founder of Lunch Pail Labs. Welcome back to Lunch Pail Daily, my personal audio diary where I share all of the realness and thoughts on building and growing Lunch Pail Labs, which is a digital product studio based out of Atlanta, Georgia. In today's episode, we're going to jam about the changing nature of the firm and solopreneurship.
Let's take it back. What is this nature of the firm? It's a term coined by an author called last name, Coase, probably honestly pronouncing that incorrectly. He wrote an essay in the 30s. And in the paper, he really wrestled with the contradiction between the idea that free markets and economic systems should be able to direct resources to the right places without centralized planning, and this rise of firms. And so he really wondered, why do firms exist, instead of just like a multitude of self employed people who contract with each other on an as needed basis, I'll definitely make sure to link that article, or that essay, in the show notes. And then also like what causes an entrepreneur to start hiring people instead of contracting.
And in, in sort of his essay, he explores these two competing forces. So on the one hand, you have transaction costs, which lead to the creation of the firm, and then competing with the firm size, is overhead and bureaucracy costs. So transaction costs are things like searching for information like bargaining, keeping and enforcing trade secrets. So if like, you know, if you have like a marketing team that helps you get customers the cost of finding someone every time, if that time to sort of do your marketing campaigns, then you'll you'll sort of go the route of employment instead of contracting.
And then on the flip side of like, what sort of limits the size of organizations is overhead and bureaucracy costs and things like wasted organizational time. So like, if you have like one manager for like, literally a million people like that manager, all they they're going to do is maybe like be in meetings. And so these costs have tension and sort of what forces either the nature of firms to increase, or to decrease to this, you know, maybe like solopreneur size would be either transaction costs, decreasing dramatically, meaning the costs of like, running a firm, information costs, bargaining costs that decreasing dramatically, or overhead and bureaucracy costs increasing? dramatically. And I think we're in this time, and I've mentioned things like lego-izing business and API's for services and all this jazz.
I think this might actually be where web 3.0 even comes in. As I'm starting to understand better like what people mean when they say that, in terms of decreasing transaction costs. And yeah, this whole whole idea, or whole thing that we're seeing of lego-izing business, so like, on the transaction cost thing, so I think, yeah, we are seeing this decrease in the just cost of running a firm, which is enabling an increase in smaller firms. Which has has been a thing that has happened. Like, it is a trend, I was reading this interesting article, I can't even remember the name about how like the most valuable companies like 20,30,40 years ago, had, like millions of employees or something. Okay, not millions, but many, many more employees than some really, really valuable companies today. And that sort of trend of companies not necessarily needing to have as many people to punch their weight. And so I think naturally, maybe we'll see like, very small companies, solo corps, that are able to do a lot of businesses as a small team.
So where this web 3.0 comes in, I think in this whole shebang is you know, you've got the blockchain you've got DAOs certainly increasing information transparency. Apparently, possibly, maybe we're not totally there yet, but I think that is some of the idea. Even like a Dao could technically be like a decentralized firm. I don't know where those things kind of play in, but they're very interesting.
And we're already seeing the Lego-izing of businesses. So another really interesting article that sort of segways into this that I recently came across was by a16z. Had an article on software stacks and what would help from a software perspective and products perspective, help more workers go solo and kind of what what do those workers need.
And they touch on three major things that firms bring, you've got the operational support, things like finance, legal and HR, you got the demand things like generating customers, and you have like the networks, so like access to communities that support the individual, and that's where like the firm plays in, and I think we're really seeing a lot of lego-izing of this sort. Yeah, breaking apart of this into various products and services. So like with Lunch Pail Labs for example, which is mostly a solo firm, I mean I don't have any full time employees, I contract things out, certainly. But it is easy, I guess, would be defined as a one person entity. For the operational support, yeah, we outsource things like our finance or legal, we don't have to have those capabilities in house, we just partner with firms.
Or I yeah, just partner with firms. You know, you have the HR piece, which I think, I guess traditionally might like hang out in, like, like payroll by hanging out there. But you have software and services that can do that for you now. On the demand generation side I think that's been very, very interesting to see, especially as we see more independent workers going into space. For example, with no-code consulting, building on bubble building on Webflow. They have their own very sort of like robust like, marketplaces, like, you can be a web flow expert agency or expert partner and get a lot a lot of sort of customer demand and leads and so you don't really have to do all the work finding your own leads.
Same with like, bubble, they have the bubble agency page, I even have honestly turned off their their notifications, because there's just so many like, like, potential like leads there. And sort of Yeah, I think demand there are tons of like efficient ways, or I think better ways than in the past. For people to do that the sales, especially in some, some some markets. So I think, you know, the a16z article talked about a lot of opportunities across these main functions. And I'm sure there are many verticals where the marketplaces could be like, more efficient for those independent folk. But I think we're getting there.
And then you also have things like networks, which I think, especially in the these COVID times, online communities have personally for me been huge. Even though I work as a solo. I feel like I have a pretty strong network of other indie hackers, folks from On Deck, folks from places like founder summit that give that like network expertise, support, even just like advice. And with some of the rise of even physical co working spaces might be there, you can find those. So in Atlanta specifically like the Lola has a lot of like, independent professional women. And so like, if I have like, any real question about like, oh, like, how would you approach this situation? Or? Yeah, does anybody know anything about x topic, there are people who can sort of provide that expertise in the same way that you might have someone to consult in a firm. But obviously, we're not in a firm together. Also, another great place for questions like that is like places like Switchyards, which is another third space slash place where a lot of independent folk hang out. So I think we're becoming tons more efficient on those.
And so, yeah, so why does it matter? What is where does all this all lead?
Like, what is this all mean? I just finished this book. Everything is naked. And it is about web 3.0. It was actually written in 2011 by Ugur Candan. I've probably mentioned this before. And they talked about the sort of like trends of how web 3.0 will differ from web 2.0. I'll probably do an article or post or podcasts about some of the things there because it was very interesting to see that perspective and also compared to where we are now.
But a really, really big thing that I think that was part of all of that was this idea that we are moving from a place where, you know, economies of scale, were kind of like the big differentiator, I think in part of, or not really differentiator, but like, you know, economies of scale was like a massive advantage. That was like one of the main points of the book. And I think that was enabled, and part of the nature of the firm, like transaction costs were so high. So because having a firm or a business entity, like those costs were so high, you needed to have a product that served the most people in the most base case to have the most sort of, yeah, to be the like more most like valuable or profitable now and this book argues that we're moving to this idea of economies of scope, but basically this like Lego izing of business. So I think, I think will benefit consumers, right, because, you know, more more options, perhaps a one person super, super specific law firm to one really wild niche case, especially with like living on the internet, potential to like work with people all over, can serve their users more like like better and also, like, create a lot of money from that, then a bigger law firm that kind of serves everybody in a more general case.
So I think there's like that cool, like benefit for consumers. And there's also an interesting trend two for like, massive companies. As I mentioned earlier, I think like, firms are actually getting smaller over time. Like we're seeing, especially a lot of software companies that are so capital efficient, like, and then we also have, like organizations, places like Airdev and Gumroad, that are really profitable, and large money making entities that are built for the most part on this class of independent professionals.
And then lastly, I think there are a lot of product opportunities, which is where I want like Lunch Pail Labs to be freakin helpful. But across those like what, what needs to exist to empower social workers, which, you know, according to a National Business Bureau, I think, research, whatever that government agency is, since the pandemic, there's actually been a rise in solo workers.
So this is and I think, like, the this class of solo workers has not been well, like defined either the a16z article talks about it, it's like, yeah, and I've even felt this tension like, yeah, kind of dumped into this crater economy. But like, I feel like creator economy has more of a connotation with like, the passion economy. And I don't know if people are necessarily like living out their passion, but they are selling their expertise as a firm as individuals. Like it's kind of like where that leads. And so like, what are their product opportunities for that, like class of people around making it easier for operations around making it easier for demand generation? And networks?
What a time to be alive. What a time to be alive. I know I think this is good. Like, I think it might be a good thing for these trends, I don't know, or could be exploitive? Who knows? But that's really all I've got to say on that. And we'll flush out these thoughts later, but thanks for listening to this dump. I hope you all have a wonderful, wonderful Monday.