Sadankata

A common phrase heard from startup founders and small business entrepreneurs is “wearing many hats”. One person does the accounting, all the sales, the marketing and the procurement. All of those functions are important, but in a small business there’s not enough in each function to justify a full-time employee, let alone a team.

As companies grow, they get more customers. Now they need salespeople to go sell even more, marketing folks to get their message out effectively, and accountants to record all this revenue properly. They have to buy large quantities of raw materials and talk to suppliers so they need procurement people.

Of course now they have so many salespeople and marketing people and procurement folks that the CEO can’t oversee them effectively, so she appoints executives. These function as her deputies and oversee people on her behalf. Those executives delegate downwards until we get to the people doing the actual work. These CEO-delegates, from executives down to front line managers create a whole cadre of workers whose job is not to do the actual job function. Rather they are described as doing things like coordinating, leading, overseeing, supporting, aligning, prioritizing etc.

This subdivision creates a few peculiar problems. If a person in the products division is planning to launch a new product and wants to market it properly, they need to market it on billboards, facebook, instagram, TikTok, Google search, the web and on Snapchat. All of that is handled by different people. Now they need to align with all these folks on timing and direction. This happens for all products and marketing channels. This problem then extends into Legal, who have to sign off on marketing to prevent being sued over an ad, and procurement to actually buy the ads, and finance to approve the ads. Now even the individual contributor, the product manager who just wanted to launch a new product has to spend more time aligning and coordinating with people rather than actually building. This coordination overhead, or coordination cost is higher when they have to spend time even figuring out who they need to talk to before beginning the alignment.

As companies grow and have different people do what one person used to do, they have to spend resources to ensure everyone talks to everyone and is on the same page. This coordination cost grows in a nonlinear fashion. My elementary math says that for a network (company) with n nodes (people), the number of connections required to connect 1-to-1 is 0.5 x n x (n-1). A company with 100 people will need 4,950 relationships for everyone to know everyone, while growing to 1,000 people takes that count to 499,500; almost 100x.

There are many opinions about what the right company size is such that the additional output of an additional employee exceeds the added coordination cost that the company incurs. A better question to ask though is how can a company leader make coordination cost tend towards zero? What types of people need to be employed? What types of tools need to be used? How can ICs spend more time building?