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"I guess we'll never know what Harvard gets us,
but seeing my family have it all, took the place of that desire for diplomas on the wall" Drake, Crew Love When discussing my company with family or friends, the heuristic most people use to gauge company success is headcount. This same heuristic is often a talking point for CEOs/founders with media and often cited in articles. This is so fucking dumb and dangerous for businesses. Whenever I encounter someone who asks me about actual measures of a successful business - gross margins, unit economics, LTV, etc - my heart skips a beat. I wanted to document why I think aggressive fighting against growing headcount (even while scaling) is important. 2 quick notes: (1) my views are strong but weakly held, data to the contrary will always change my beliefs; and (2) aggressively fighting headcount still means you can hire, but makes it a conscious, difficult decision rather than the solution to all problems. Without further ado, why increasing headcounts in an organization sucks: Headcount disincentives ownership The larger the staff count, the harder it is to feel ownership. The ideal size of a department is 0 or 1. Once there are teams of team, the head of a department loses ownership because they are responsible for the output of teams but find it harder to feel like an owner. Feeling and acting like an owner is one of the single biggest predictors of success. What are the signs that someone is an owner? An owner picks up trash in the office, an owner spends company money like their own, and an owner feels deep personal responsibility for failure and success. The further you remove an owner from the impact of their ideas and the “doing of things”. John Boyd summed this concept up well by asking his mentees “Do you want to be someone, or do you want to do something?” Owners do something. Also, by giving people ownership you can hire and keep the right people. Great operators want to own things – if you give them full control of an issue they will usually feel empowered and enjoy their job. People will create work The pervasiveness of people creating work in modern companies is crazy. It is value destructive and any sign of it should be crushed immediately. Recently, I was at an airport in Geneva and there were 5 staff members who were organizing the line to security. I observed them pretty closely for 2-3 hours and nothing they did ever changed anything about the line or the efficiency of the system – but they looked busy and were constantly moving things and chatting with each other. The optimal solution was to just leave the line alone (the number of people needed to do the job was zero). They should all be fired immediately (I say fired rather than reassigned because a competent person wouldn't tolerate being in a fake work position). Just last week, in an exchange at work with a partner company, I was slapped in the face with screaming ineptitude and fake work (in fairness it was the partner's partner so probably exacerbated things). At this other company there is a team (not even a person) that must sign-off on partner marketing. This team is given a checklist of things to look out for and are essentially incentivized to do the following:
Why do they have those incentives? Because their job is to approve or disapprove things! By taking 5 business days and making a list of things that are wrong they are justifying their job. One of the 2 “errors” we made was having an object within half an inch of their logo on a landing page – I'm so glad we got that resolved! Now they can point to all the work they do and be vindicated by the organization's decision to have them on staff. A normal business – one where an owner made decisions - would make this 1% of 1 person’s job and make it clear – as long as it’s not wrong then its fine. Move forward and do something. As Charlie Munger has stated – “Well, I think I’ve been in the top 5% of my age cohort all my life in understanding the power of incentives, and all my life I’ve underestimated it.” Given the incentive is high – point out every single issue to keep your job – there will always be an issue with something we send over. As you hire more people, the likelihood that someone in your team or your company is adding zero value or decreasing value multiplies. Don’t risk it. Headcount means bureaucracy because people are nice Companies want people to feel valued and that they are making a difference (yay). Companies tend to do this in a few ham-fisted ways:
All this will change a fast moving company to a slow moving corporate blob in the blink of an eye. Good decisions aren’t made with 14 people in a room, democracy in decision making is dumb when everyone isn’t fully informed, and more teams create silos of information and people you need to “run things by.” This will crush even a 30-person company if you aren't vigilant. 50% of my job is just fighting these things from occurring, aggressively. Luckily, I hate these things with a passion so its going fine. Realize pain = fun in the long run This is probably the hardest one to grasp but the most important. When you keep headcount lower than a normal company by an order of magnitude (say 50 v 500, not 50 v 60), you will feel pain. This pain will mean that when someone is on vacation things don’t get done as well. It will mean when you have a customer facing emergency you will bemoan not having more people to help. It will mean you lack expertise in many areas. It will mean that things will suck, often. Looking back at events or even long periods (months) that really sucked at work – I often look back with happiness. It honed our operational excellence. It brought us closer as a team. Shared pain is the greatest builder of relationships. I look at where I've become closest with friends, it’s always through shared painful experiences (sports team, pledgeship in a fraternity, 100 hour work weeks as a lawyer). Recently, I went to a wedding that was a logistical nightmare. We couldn’t get on and then off an island where the wedding was taking place. People were stranded and 90% of the wedding missed their flights home. I’ve never had a more fun wedding – I made new friends and solidified bonds with old ones more than any enjoyable evening out. Those same principles apply in the work place. Sub 50 Word Summary Adding headcount must be deliberate and a measure of last resort. Adding people reduces ownership and increases the likelihood of mediocrity. Embrace understaffing. Embrace working harder. Fuck 12-persons meetings and running things by different groups. Do work. Comments are closed.
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