Managing

A founder’s role changes a lot as a company grows. An analogy from the sports world:

1–10 employees: player

10–100 employees: coach

100–1,000 employees: general manager

1,000+ employees: commissioner

Bureaucracy is quantified by the number of people who can veto your actions. Generally, it should be low. Yet if it hits zero, you have no team. The inverse of bureaucracy is direct personal accountability. Many people quickly find they prefer bureaucracy.

Politics is about the disposition of shared resources. The less that is collectively shared, the less room there is for politics. A startup has few politics because there is nothing to loot within the organization. All resources are outside.

When a small organization is expanding into a frontier, there is little gain from internal politics and large gains from engineering and sales to external parties. This suggests minimizing politics at a company level, which means increasing incentives for seeking resources outside the company. At an individual level, minimize politics by acquiring resources externally by coding or closing a deal versus requesting them internally. One of the reasons an external focus helps to minimize politics is there is much less dispute over ownership. Eat what you kill.

Scale increases the size of the pie, which decreases economic alignment. As team size increases, payoff functions begin diverging and politics arises.

Given K people, each with a binary win-or-loss outcome, we get 2K outcome scenarios. Your job: ensure each person wins more when all others win. Off-diagonal incentives will kill organizations. Politics arises when one person's biggest win involves (or requires!) another person's loss.

More people, more differing incentive structures (hence problems).

As scale increases, alignment decreases. Eventually, a sufficiently misaligned organization degenerates into infighting. We can turn this into a mathematical model that will predict the optimal size of a network and the point beyond which “network defects” dominate. Network defects are what I call the case when increasing size beyond a certain point decreases the value of the network.

In classic network effects, Metcalfe’s law is based on the idea that every node gains value from every other node, hence N^2 utility. Mathematician Andrew Odlyzko argues that it’s more like N log(N), as most nodes don’t contribute value to other nodes. But neither model predicts a network size beyond which utility declines.

Leaders should focus on creating, quantifying, and communicating alignment as much as possible. Doing so is complementary to daily management. Alignment is why people do things even without assigned to-dos.

An actual organizational chart is a map of who listens to whom. Twitter has changed the “org chart” of the world. Slack has changed the “org chart” of each company. Who actually listens to whom? That matters more than whatever governance structure is written down on paper.

Both the best and worst CEOs have this in common: the company could run without them.

Before candidates join your company, have them write out what they would consider success, mediocrity, and failure: bull, base, and bear. Where do they want to be in a year or four years?

This is a useful thing for you and massive for them. What would be good, what would be amazing, and what would be a failure in four years? By considering that, they take more responsibility for their own paths. And they’ll have fun looking back on their answers four years later. They’ll be able to see, “Wow, I was so awful on these predictions, and I was correct on these!”

Use the same technique for dividing up labor between a manager and an employee. Do a two-by-two table with four quadrants: What does the manager expect from themself? What does the manager expect from the employee? What does the employee expect from themself? What does the employee expect from the manager?

This type of table is so simple, but you should create one at every one-on-one, and you should do a one-on-one every week. It completely rectifies miscommunication. By putting into writing what you expect of yourself and another person, you’re holding yourself accountable in front of that person, just like that person is holding themselves accountable in front of you. Both of you know what you expect from the other.

Tracking the tables in a simple document over time is super useful as a manager because it allows you to point back to what was agreed on, and the employee can do the same. It is not an adversarial thing, but it is useful to keep aligned. Everybody doesn’t always nail everything. New things come up. It’s not meant to be signed in blood.