Over the past few months, I’ve noticed that a number of business people on LinkedIn have shared personal stories of tragedy, triumph, and love in their life. These stories made me reflect on my own life and my personal philosophy on business. Being an entrepreneur or small business owner requires a lot of personal sacrifice and devotion to one’s business. But no business venture is worth pursuing if it comes at the cost of losing valuable relationships. In today’s article, I am going to discuss why relationships matter in business and life.
Friedman’s Flaw
In his often quoted “Friedman Doctrine”, Milton Friedman states that a business has no social responsibility to the public or society, it only has responsibility to its shareholders. He argues that a focus on social responsibility shouldn’t come at the cost of reduced profits for shareholders, increased prices for customers, or reduced wages for employees. Further, people could prioritize social responsibility in their own private lives once profits were achieved, prices were reasonable, and wages were paid.
I believe that this maxim is not only wrong, but it’s dangerous. Now don’t get me wrong, profit maximization, low prices, and steady wages are essential components to running a successful business and make up the basic elements for capitalist competition. I am also not at all diminishing the role capitalist competition plays in improving the quality of life for the human race and the social benefits of such improvements. But the very fabric of civil society is predicated on the social responsibility we have to be good to one another and its foundation is in our relationships. If we don’t prioritize our relationships in a business context and focus solely on competitive advantage, we run the risk of devolving into a social darwinist society where our fundamental human value is defined by our material resources and genetics. A pretty gloomy outlook if you ask me.
Relationships Drive Better Outcomes
Looking at capitalism through the perspective of evolutionary game theory, it is possible to preserve relationships while harnessing the forces of capitalist competition for good. Relationships are established when we have repeated interaction with other people. In his influential work, “The Evolution of Cooperation”, political scientist Robert Axelrod argues that if we cooperate in these repeated interactions with others it can lead to a net benefit for both parties. He substantiated this by running several hundred iterations of the famous Prisoner’s Dilemma (a traditionally zero-sum game) in a tournament context to find the optimal strategy for success in competition. Those participants who were initially cooperative with others, not envious of others’ success, had genuine motives, and were only retaliatory upon provocation had better long term success outcomes than those who only sought self-maximization.
If we apply these principles to a business context, we’ll find that it makes sense to prioritize cooperation in our relationships. By cooperating with others, we’ll develop a good reputation as business owners. If we have a good reputation, people will want to work with and transact with us. And ultimately, if people want to work with and transact with us, we’ll be successful. Conversely, we can identify situations where only self (or profit) maximization led to negative business outcomes. Anybody remember the financial crisis of 2008? A lot of sexy shareholder returns predicated on the deception of prospective homeowners until the tide came in and nearly everyone went bankrupt.
Relationships & Happiness
But enough academic arguments for now. I believe there is a more fundamental, emotional reason why relationships matter in business and life. Prioritizing relationships creates long term happiness. Humans are innately social creatures that need community and acceptance from others to survive and thrive. There is no amount of material success in business that can substitute for the feeling of belonging in our relationships. If our life is one large plot of scorched earth to achieve success, we’ll have no soil left for the vegetation of friendships and love that sustain us. This life is a gift and it is short. Do you want to spend your limited time destroying others or building them up? Do you want to be remembered as the person that had to win at all costs, even if it meant losing valuable people in your life? The choice is yours, but regardless of what you choose, always remember, relationships matter.
