Why Nations Fail: a company runs on the best system, not the strongest founder

Late last month I made a trip to Taiwan to talk to a senior mentor about my business, especially about managing the company. He didn't say much. He simply told me to read a book: Why Nations Fail.

At first I didn't quite get it. What does running a country have to do with running a company? But since he'd recommended it, I ground through it over Chinese New Year. As it happens, the author, Daron Acemoglu, had just won the 2024 Nobel Prize in economics. It's a serious book.

Same people, same culture, worlds apart economically. Why?

The book covers many cases, and one left a strong impression: the comparison across the US-Mexico border.

On both sides of the border the climate is the same, the people are similar, and even the culture has a lot in common. So why is the American side rich, safe and well served by public facilities, while the Mexican side is poor, chaotic, with weak education and healthcare?

The authors' answer: different institutions lead to completely different economic outcomes.

The US built "inclusive institutions" that let more people start businesses and innovate, with fair opportunity, driving the whole society forward. Mexico was long shaped by "extractive institutions", with resources in the hands of a few and most people lacking real economic freedom, which froze social classes and stalled the economy.

Systems decide the future

After reading it, I started to ask myself: does the same logic apply to companies?

When I started out, everything relied on the founder: decisions, direction, goals, and I'd even get my hands into small things. It felt like the most efficient way at the time, but gradually I found that as the company grew, one person couldn't hold it up.

What I'd always overlooked is that a company's management system is what really decides how far it can go.

My mentor told me: "Early on, a startup relies on the founder's decisiveness and execution. But to grow big, a company must rely on systems."

He stressed the importance of "broad participation and diverse decision-making": letting staff from different departments and levels voice opinions and contribute, rather than the boss alone having the final say.

What should a founder do?

He gave me an important direction to think about: a founder shouldn't stay hands-on at the tactical level forever, but should put the focus on strategy and building the system.

He opened his laptop and showed me how he designs his management system. It had a few core principles:

1. Clear decision rights

Let everyone know which things they can decide themselves, which need discussion, and which must be escalated. If the process isn't clear, the team will be afraid to decide anything and wait for the boss to approve everything.

2. Encourage diverse views, take feedback seriously

Don't just listen to senior managers. Let every level have a voice. Sometimes frontline staff see problems more clearly than management.

3. Flat management and delegation

Teams need some autonomy; they can't wait for the top to sign off on everything. For example, let the team set its own sales targets, then have the founder ask why they set them that way and how they'll hit them. That builds far more ownership than handing down KPIs.

The biggest lesson: a startup isn't a one-person fight

I used to think a founder had to charge out in front, make the decisions, watch the execution, and manage every detail. Now I'm slowly understanding that a good company doesn't rely on "the strongest founder". It relies on "the best system", so everyone can contribute.

With a system in place, the company can run itself without the boss always there, and staff can genuinely take part. That's how a company grows, and how a founder can step out of the daily grind to think about the right direction. The focus from now on isn't "how much I do myself", but "how I build the system so the team does better".

I recommend this book to every founder.