Scalability is widely understood to be a profitable pursuit. Could there be a moral imperative to scale?
Scalability is the capability of a system, process, or platform to handle a massive load of users. In business, the term often refers to the ability for a business to cater to growing demand.
The ultimate decision of whether or not an entrepreneur should aim to make their business scalable lies in their hands, of course. Let’s discuss the key factors that an entrepreneur must consider while evaluating their courses of action.
Scalability can be examined through two viewpoints — the economic perspective, or the ethical and philosophical perspective. The most common economic reasons why businesses go scalable is to increase profit margins, accommodate more users, and basically maximize their growth potential. This attracts VCs and angel investors, which perpetuates the business’ growth even further.
However, some entrepreneurs may have other motivations and may not desire growth. Plenty of young tech entrepreneurs pursue their businesses out of the sheer joy of being able to make money doing the work they love.
Such entrepreneurs can potentially choose to discontinue product lines, terminate customer support, or even shut down the business. Does the entrepreneur have a free choice of what to do with their time?
In a perfectly individualistic world, an entrepreneur would have this freedom of choice. However, they have now started a business. It’s no more just about them; it’s about the impact their products create on society and the environment. Any decent business plays a role in society, and therefore is obliged to act in the best interests of society. All start-ups have a social responsibility and as a founder, the entrepreneur should aim to only enhance, or maintain existing social equilibria.
The entrepreneur should aim to only enhance, or maintain any existing social equilibria.
Kinds of businesses
According to Axel Schultze, founder of Society3, a business can fall into one of the two categories:
Business that serves you and your family. You start this business to be your own boss, make more money and enjoy the prestige of running your own company, while you obviously serve your customers well.
Business that serves others. You start this business when you have a grand vision on how to make the world a better place. You care about the planet and the well-being of all humans that inhabit it. You don’t worry too much about the money that goes into your pocket as long as your business remains sustainable.
According to Maslow’s Hierarchy of Needs, an entrepreneur starting a Type 1 business aims to fulfill the esteem, belonging, safety, and in some cases physiological stages of growth. Scalability is absolutely optional for these businesses.
However, if an entrepreneur starts a Type 2 business, they may be fulfilling the highest forms of growth - transcendence and self-actualization. Through the business, they are giving back to society and in the meantime, finding their true purpose. The business’ products and services are impactful, disruptive, and could single-handedly solve some problems faced by humanity.
Does it make sense for such businesses to not be scalable? Let’s explore this through an example scenario.
One of the biggest problems we all face everyday is commuting. Consider an inventor and entrepreneur (let’s call him Nelson) who has identified this opportunity and proceeded to create a novel teleportation system. Nelson patents this technology and then commercializes it through his start-up WormHooli Inc. He’s fully aware that WormHooli is not currently scalable. The WormHooli product is obviously extremely enabling and powerful, so there’s a huge demand for it in the market. Nelson sells all the units of WormHooli on an ongoing first-come-first-serve basis. Now, Nelson wants to go to grad school to pursue his childhood dream of being a zoologist. Should he choose this path, he will only be able to support the infrastructure required for the current user load. Nelson can either act out of self-interest and go to grad school, or he can act responsibly and take steps to make WormHooli more scalable.
By giving only the early-comers access to the technology, Nelson has essentially offset the social equilibrium. WormHooli has given a portion of the population (the users) a significant advantage over the rest of the world’s population by greatly enabling them. The product was advertised far and wide, but potential customers are unfairly denied it just because Nelson chose to do something else with his time. Is it fair to them that they aren’t given an opportunity to be empowered by the product just because they were too late to the party, or weren’t Nelson’s friends? Therein lies the ethical dilemma.
WormHooli has given a portion of the population (the users) a significant advantage over the rest of the world’s population by greatly enabling them.
It all boils down to impact. Impact depends on three strongly correlated factors:
- Enablement: How much does it transform one’s life? Function of the product’s merit (x) and its outreach (o), i.e how many lives it can transform.
- Technicality: How technically complex and conceptually strong is it? Function of the product’s merit (x).
- Popularity: Society’s interest. Function of the product’s merit (x) and time (t).
- Example 1: CandyCrush.
Low enablement * Low technicality * High popularity = Low impact
CandyCrush’s producers, King, have no compelling moral reason to make their product scalable. The product doesn’t significantly alter people’s lives and therefore doesn’t have any potential to affect the social equilibrium.
- Example 2: AirBnB.
High enablement * Low technicality * High popularity = Medium impact
While the concept of AirBnB has a high impact on society, the product itself has no obligation to single-handedly solve the problem of finding temporary housing for all. Since the product is not high on technicality, a similar on-demand housing platform like Wimdu can easily replace it. Thus, AirBnB can safely cease to be scalable without destroying the social equilibrium.
- Example 3: WormHooli (fictitious).
High enablement * High technicality * High popularity = High impact.
This is the type of technology that is transformative. It’s not just a minor enhancement to our everyday lives, but rather an aid to a newer and easier way of life. It is of high technical complexity — perhaps even patented — and cannot be replicated by another firm. If information about the product’s potential and enablement is transmitted effectively, society’s interest in it would obviously be extremely high. All this accounts for a totality of a product of high impact. This product has an ethical responsibility to scale.
Bottom line: If a product isn’t high-impact, then it isn’t benefiting society to a great extent, and the business needn’t feel obligated to scale.
Some may argue that inventors, engineers, and entrepreneurs cannot be blamed for all the harms their creations bring to society. This holds true when the consequences are related to the creation itself. Technology in itself is neutral, and its uses can only be determined by its manifestation in society.
Physicist Otto Hahn didn’t predict that his discovery, nuclear fission would be used in the Manhattan Project. Tim Berners-Lee would’ve never thought that one day, his invention — the internet, would be used to share kitten videos and dank memes. Jerome Ravetz, in his book Scientific Knowledge and its Social Problems, claims that it is impossible for an inventor to fully escape all the responsibilities for their work. They may be able to legally escape them, but is there a true, 100% moral escape?
A number of tech bloggers are advocating that young professionals build startups without giving second thoughts about scalability. Oftentimes, potential startup founders are encouraged to start businesses in the sole pursuit of monetary gains, personal pleasure, and pride. While the three factors are important, the ethical duties of businesses seem to be mentioned nowhere. This is a highly dangerous propaganda. Do these advocates think that upcoming startups just won’t be impactful enough that they require being scalable? Or perhaps they are aware, but fully at peace with the fact that impactful, yet unscalable products would offset the social equilibrium.
Consequences of disproportionate access
Seemingly innocent decisions often lead to dire consequences. Although opting out of scalability may seem like a fairly neutral act, it is highly dangerous. Ignorance is never an excuse.
Any choice made without prior critical thought and thorough evaluation of options against their consequences can be safely deemed unethical.
The Superhuman Phenomenon
Technology has enabled us so far and has made us more efficient, connected, and informed. Access to most high-impact technology is governed mainly by our personal monetary reserves. If one has the funds, they can purchase a piece of technology and make themselves a bit more superhuman. This is capitalism and it isn’t the most ideal, but it is fairly reasonable.
What is not reasonable is the robbery of access due to the unavailability of more units for purchase. Consumers are barred from the product regardless of how much they are willing to pay for it.
It becomes a case wherein the enablement that the technology provides cannot be purchased and thus does not have a monetary value, sort of like an innate superhuman ability. All the individuals that do own the product would essentially be superhuman now (think brain decoders, powered exoskeletons, intelligent data analyzers). These super-humans would utilize the product according to their own judgements — in ways favourable or unfavourable to the rest of society. This would in turn call for some moderation and government regulation. Unscalable technologies are key drivers of biased inequality.
The Scarcity Market
As it is, introducing scarcity in a social system causes the kind of Pareto optimality that is deeply undesirable. Humankind has been making leaps in creating exchanges that are non-zero-sum, i.e. everyone involved in the trade benefits from the exchange. It is a win-win situation.
The goal is to achieve universal non-zero-sumness, for which the key requirement is the elimination of scarcity.
Unscalable businesses do exactly the opposite. They introduce scarcity — often in such an accelerated fashion — that a market is built around it and the good can be traded at highly escalated prices. Early product adopters would be able to essentially monopolize this scarce market with limited units of the product. The high demand would set an appropriately high price to the product and those few early adopters can capitalize just due to the fact that they got their hands on the product first.
This type of a dynamic — creation of scarce goods, and subsequently trading them at ridiculous prices set by the market — takes humanity back to its roots where the concept of Survival of the Fittest can be seen apt.
Humanity is trying to build a world in which resources are infinite and accessible to everyone equally. Essentially, technological scarcity reverses the efforts made by open-source communities — and broadly speaking, the Internet — in creating a non-zero-sum society. This hampers our normal stream of evolution and progress.
There is good chance that there exist more consequences of disproportionate access. Please feel free to explore these avenues and inform me.
What role should your business assume in the wider society?
Milton Friedman, in his famous essay The Social Responsibility of Business is to Increase its Profits argues that the only purpose of a business is to generate profits and that an organization itself is merely a legal fiction constituting of business executives that are slaves to the shareholders. Although he makes it clear that corporations must engage in fair practice while generating profits, his teaching is widely misinterpreted in the free market economy and has given a leeway for many corporations and manufacturers to exploit labour, overuse natural resources, ruthlessly pollute the environment, and engage in animal testing.
Friedman’s teaching is widely misinterpreted in the free market economy and has given a leeway for many corporations and manufacturers to exploit labour, overuse natural resources, ruthlessly pollute the environment, and engage in animal testing.
Adulterated capitalism promoted by morally deficient interpretations of teachings are one of the reasons why the middle class is shrinking, and all wealth is perpetually accumulated in the hands of the top 1%.
In his arguments supporting corporate social irresponsibility, Friedman fails to acknowledge that most investors simply don’t consider the moral compass of the companies they’re investing in. It is easy to think that this is the outcome of lousy excuses such as not having enough time or not wanting to expend effort to research every potential investment.
While that is a major part of the reason, most investors don’t even have access to this data before buying significant shares of the company. Do we expect investors to make perfect decisions that align with their morality while blindly swimming in the dark? They are uninformed. They are unable to choose wisely even if they are willing to spend the time, resources, and effort to advise themselves of the socio-environmental policies of these organizations.
We need openness and transparency. We need to enforce ESG standards. Currently existing indices (such as DJSI, FTSE4Good Index, and MSCI ESG Index) are inherently subjective. These need to be standardized and made more reliable.
Finally, plenty of investors engage in the activity of investing simply for its fruitful returns — the money. Man is uncomplicated and self-interested.
To subscribe to the Friedmanian thought that the weight of socio-environmental responsibility can be transferred on to investors is rather unrealistic. Friedman’s assertion is that businesses cannot be seen as people, who have morals and responsibilities. I argue that corporations are groups of people that share a common pursuit — the business.
A corporation can be envisioned as a collective mind whose values have been developed through the aggregation of differing perspectives.
This implies that corporations must have values and responsibilities, often those that should — in theory — align with the best interests of society. Therefore, corporations should perform eleemosynary duties and share the weight of social responsibility with investors.
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Part 2 of The Philosophy of Scalability delves deeper into discussions around social capital, Eastern principles on decision-making and inner peace, Adam Smith’s invisible hand theory, Bitcoin, and ethical market creation. Stay tuned!
Big thanks to Daniel Goldberg for his amazing critique of early drafts.