Why Small Businesses Are Starting to Win Again • Hacker News Board

Re: Why Small Businesses Are Starting to Win Again

#41

Post by yuhong » Sun, Jan 25, 2015, 7:55 PM UTC

AnthonyMouse wrote: post #40

yuhong wrote: post #27

Earlier quoted context omitted.

I wonder why they are so common though.

My theory is that we have too much diffusion of ownership. When Foo Corp is majority owned by four dozen mutual funds which are in turn owned by ten million different people, there is nobody minding the store. The mutual fund managers are picking a stock to make up ~1% of their fund, and they have the same perverse incentives as the executives. The individuals who are the real parties in interest don't even know what…

Does the mutual funds actually push for such people or is it caused by the culture or something like that?

Re: Why Small Businesses Are Starting to Win Again

#42

Post by AnthonyMouse » Mon, Jan 26, 2015, 2:36 AM UTC

yuhong wrote: post #41

AnthonyMouse wrote: post #40

Earlier quoted context omitted.

My theory is that we have too much diffusion of ownership. When Foo Corp is majority owned by four dozen mutual funds which are in turn owned by ten million different people, there is nobody minding the store. The mutual fund managers are picking a stock to make up ~1% of their fund, and they have the same perverse incentives as the executives. The individuals who are the real parties in interest don't even know what…

Does the mutual funds actually push for such people or is it caused by the culture or something like that?

Don't think of it as a problem with specific people. It's systemic. You tell a CEO that he gets paid primarily based on how much profit the company makes this quarter and he's going to start slashing long-term R&D and burning the office furniture for heat.

But you're asking why funds invest in companies like that or prefer that method of compensation. Part of it is just laziness. Investing in a company or rewarding a CEO who posts big profits seems intuitively sensible and is easy to measure. It's a lot more work to do the investigation it takes to realize they're going to crash and burn and you could be the one holding the bag.

Another factor is that fund managers are often compensated using the same methods. If the fund does well in the short term then they're rewarded. The companies dedicated to short-term profits do exactly that, as long as the market doesn't factor in the long-term value before you divest. But the bonus if it works goes to the fund manager whereas the risk is to other peoples' money.

Re: Why Small Businesses Are Starting to Win Again

#43

Post by Gurkenmaster » Mon, Jan 26, 2015, 12:28 PM UTC

syllogism wrote: post #18

This was a frustrating article, because I think it's almost right, but not quite. It's not that mass-production kills quality or "intangibles". We don't have to assume boutique products have a quality advantage. It's just that scale is most effective on price, and price sensitivity is not linear. Once products are cheap enough, price discrimination stops being decisive. > The true-differentiation strategy seems to wo…

Massproduction guarantees that there is no variation in quality. Whether the product is of low or high quality depends on other factors.