The Modular Company (TMC)

The Modular Company is a fairly loose collection of individuals and possibly other corporations that collaborate on a variety of projects. Projects are usually commercial, initially the accent will be on 'online' businesses.

When compared with more traditional corporate models the MC has a number of advantages:

• Normally when a number of individuals decides that they want to collaborate on a project they will each lay out an initial sum of money that they use to buy shares with, and they make an agreement on who will do what. This nails down the various relationships right from day one, whereas in practice it is often desireable to keep the relationship fluid to be able to accommodate changes in circumstances or plans.
• If there is a conflict in a traditional corporation it usually ends in front of a judge, in a modular company any change of a stakeholdership is usually limited in scope so a conflict will be easier to resolve in an amicable way.
• Traditional corporate structures have formal governance rules, a MC will have a more merits based and democratic leadership.

In simpler words, a Modular Company is a way to work together with other people with built in safeguards that are designed to minimize the risk of infighting.

Why take part in a MC?
A Modular Company project allows you to contribute risk free to a collaborative effort with a minimum of responsibility and a maximum reward potential. Basically the only thing at risk is your reputation within the Modular Company, and whatever time you've invested in a project. You don't need to cancel your day job, mortgage your house or sell your kids.

Earn a living
Most career related decisions in life are a balance between risk and opportunity, and the Modular Company is no exception to this. To reduce the entry barrier we have spent a lot of time concentrating on how to make it easy to make the step from being employed to being self employed without any 'critical' decision points. This absence of make-or-break decisions make it possible to start piecemeal on contributing to MCP's and slowly wean yourself from a paycheck or other source of income. If at some future point in time you find yourself the recipient of recurring income from Modular Company Projects you can always decide that you've seen enough of your boss.

An example, naturally, TMC is itself a Modular Company, it currently has two active stakeholders and about 10 others that have helped in bringing the concept to life.

So, how does it work and what do you need to start a modular company of your own ?

Stakes

In a regular company it all revolves around 'shares', in a modular company it all revolves around 'stakes'. A stake is a small fragment of ownership of a modular company. Contrary to 'shares' stakes are issued and traded much more freely, and usually in some regular cycle, such as at the end of every workweek (or even workday!).

You could build a modular company using shares alone, but the overhead and cost of doing so would be substantial. A modular company has very flexible ownership, the stakes owned by the various individuals can change on an hourly basis.

For a better understanding of 'what's at stake' here, let's work through an example:

You and a friend of yours decide to buy some old car, fix it, spray paint it and sell it. For this purpose you create a modular company, let's call it 'oldcar'. The car is bought for $500, and to reflect that you put in $200 and your buddy $300 you both register your input dollars as stakes, the stake administration now holds 500 stakes, you have 200 of them and your buddy 300.

You agree on the following: your hours of work are worth an equal amount, you both think $10 per hour would be an ok figure and you make a note to that effect.

The work starts, and in the first month you rack up 30 hours on the clock and your buddy 22. The stake administration gets updated every time some work has been done and at the end it reads 500 stakes for you (your original 200 + 10x30) and your buddy has 520 (his original 300 + 22*10).

So far so good!

This continues for a while in this fashion, until the stakes administration reads 1750 stakes for you and 1600 for your friend (he got ill for a while, you continued working, the stakes administration reflects this).

Now you have a problem, you've both tried your hand at spray painting but you agree that there is no way the car will ever sell if either one of you is going to be doing the spraying, it just doesn't come out right. So you need a pro. Enter 'Pete' , a common friend and professional spray painter. He's willing to take 'stakes' for his part but his employer wants cash for the rent of the spray booth, $240 to be precise. Pete figures the whole job normally would have been about $1000 but since he's your friend he'll do his part for half price and agrees to receive 'stakes', not cash, to be paid when the car sells. He also agrees to go along with splitting the money for the booth three ways, that works out to $80 a head, another $60 is needed for paint.

Each of you ponies up $100, the spray booth owner gets paid, paint gets bought and Pete sprays the car. The stakes administration now reads:

Pete: 480 (100 + (760/2))
You: 1850
buddy: 1700

In total there are now 4030 stakes.

The car is now finished and ready to be sold, it goes up for auction and fetches - much to your surprise - $7500

The money is divdided according to the stakes administration, so Pete gets 480 * (7500 / 4030) $893.30, your buddy gets 3163.66 and you get $3442.93.

That concludes the project.

This same principle can be applied to many different 'projects', startup companies and all kinds of situations where people work together on some common piece of work. The elegant bits here are how the modular company formed for the car project elegantly incorporated new realities in the case of:

In the case of getting ill, lack of interest or some kind of personal crisis the project does not suffer, the stakes administration adjusts itself either marginally (such as in this case) or dramatically (in case someone completely drops out of the project), and there is room to add newcomers to the project to take over.

Cash shortage (buy paint, rent spraybooth) is dealt with by putting cash into the project for stakes, and a failure to plan properly (lack of spraying skills) was handled by bringing on board someone that believed in the project.

For startups change of the plan is more the norm than the exception, and i the first couple of months, possibly up to several years, let's say before cash starts flowing this is a very elegant way of tracking contributions.

Shares, Revenue shares and bonuses don't work nearly as well as stakes , basically everybody that contributes has to be certain that their work will be rewarded if and when the project becomes successful.

The Modular Company concept takes in to account the realities of life, not everybody is able to live up to their promises, and not everybody has the mindset to be a successful player in the long term and this has to be dealt with seamlessly and without fuss.

The concept is easily extended by allowing stakeholders to trade their stakes and to allow forks and merges (for software and internet based projects).

Eventually TMC will make available here an online tool to manage your stake administration.