Larger teams get less done per-person. At a certain point, teams hit a wall where incremental hires actually slow them down, and a larger organization gets less done per-person than a smaller one would. This is why hiring freezes and even layoffs can actually increase output for some companies.
Larger companies accumulate red tape as they grow, like barnacles on a whale. There are more layers of communication, more status updates, and more processes. Balancing the benefits of systematizing your operations (predictability, quality control, specialization) with its downsides (friction, overhead, employee frustration due to existential despair) is an important part of scaling.
Recognizing the Signs of Growing Bureaucracy
The most dangerous part of growing overhead at your company is that it’s a problem that makes itself worse over time. At first, these processes don’t cause problems – you might move a little slower, but now you know if the trains are running late.
But as time goes on, the systems that you’ve built grow within your company like mold until one day you stumble into a meeting and think “how is it possible that we need 6 approvers to publish this blog post?”
The first rule of bureaucracy is that it never fixes itself. The people that you task with building processes don’t wake up one day, realize that they’ve unintentionally harmed the company by adding overhead, and quit. If you want it solved you have to take steps to fix it yourself. Here are a few signs of bureaucratic practices, the sometimes surprising ways to identify them, and what to do to resolve them.
The Calling Card: People never feel like they have enough data.
Fast decisions are vital to a scaling business. Correct decisions are great, but the Right decision is usually the fastest one that you can make with the information you have today. You can often empirically test 3 ideas in the time it would take you to do a pre-analysis of which of the 3 was the most correct.
When an organization becomes obsessed with correctness over speed, it often starts to insist on gathering more data. Asking for more data always sounds reasonable – data is great right? A never-ending quest for more data is a symptom that decisions are being made too conservatively, and that people don’t feel secure making calls that they believe in but can’t mathematically prove.
Another, related sign is when people defer to external authority (“the CEO wants this”). Data obsession is a special case of appealing to a higher authority – data is the highest authority you can appeal to. And since there’s never enough data, decisions grind to a halt.
This problem arises from the punishment of incorrect bets. Someone makes a mistake – they get roasted for it. A failed project is used as political leverage by others. Then someone else makes a quick but risky bet that pays off, and they aren’t rewarded for their speed. Once everyone learns that there’s asymmetric downside to failing fast, the team slows down en masse like cars that just saw a speed trap on the highway.
This problem is a cousin of lack of accountability: You’ve put too much accountability on pure outcomes and not enough accountability on how people are operating.
As a leader you can fix this issue in a few ways. First, reward fast decisions that result in shots on goal in addition to points. You should particularly reward bets that have strong first-principles justification, even if the data isn’t perfect. Next, make sure to differentiate between cases when data is both easy to get and vital for a decision, and when it is not.
Second, as a CEO, executive, or leader, you don’t face the same asymmetric downside of others – you’re more shielded from politics and judgment. You owe it to your team to take final accountability for decisions that are slowing down and push them to a conclusion.
Over-Specialization, and Toxic Specialization
The Calling Card: Every project is swamped with approvers, or people who need to be consulted before you can go forward with a decision.
As a company grows, it gains the ability to hire specialized experts in all fields. Specialization unlocks a higher level of quality, but also adds brittleness – as the scope of each individual’s job narrows redundancy and adaptability decreases.
Routinely having large numbers of approvers for decisions is a sign of over-specialization because it indicates that the “brain” of the organization has been subdivided such that no one individual can look at a plan and holistically judge its viability. Separate fiefdoms that have narrow fields of view are a hallmark of bureaucracy: Think of when you’re trying to fix some issue with the IRS and you keep getting passed from sub-department to sub-department.
In addition to slowing you down with lengthy approval processes, over-specialization can ultimately result in what I call Toxic Specialization: When people force themselves into the critical path of decisions unnecessarily:
- Specialized experts will tend to feel that their focus area is of vital importance
- Being in the critical path for decisions feels good, both for the person who’s in the critical path and their manager (I have such genius experts on my team!)
- It’s hard to argue against someone with a deep background being in the critical path of all relevant approvals
If you see this pattern arising, you’ve likely over-specialized your team.
(Another calling card of over-specialization: Frequent agitation to tear down an entire process, product, or team and rebuild from scratch. This is another side effect of too many specialists: Strong confidence in the “right” way to do things, combined with close-mindedness to new approaches, because we already know the right answer)
To solve over-specialization, make sure that you value generalists with high aptitude as well as specialists with strong domain expertise. It’s easy to fall into the trap of only hiring specialized experts because it’s easy to believe that your problems are so hard that only a world expert can solve them. Ask yourself: Are your challenges so extreme that someone needs to bring a decade of experience to fix them? Is this like playing cello in the London Philharmonic, or do you just need someone who knows how to talk to customers and use Figma?
Of course, there’s nothing wrong with hiring people with deep expertise. In fact, the ideal hiring profile is the “T-shaped” teammate who has deep expertise in some areas combined with wide experience. The problem is that strong T-shaped employees are in high demand and difficult to hire. As a result, many organizations end up settling for narrow expertise and perpetuating Toxic Specialization, particularly because many interview processes are tuned such that narrow experts perform disproportionately well.
Hiring former startup founders or early employees is another way to prevent over-specialization, because startups force you to wear many hats. For early employees, you want roughly the first 30 hires, and as few as the first 10-15 for companies which raised a large amount of funding from top VCs from the earliest stages. The reason: Top VCs tend to push hot companies to grow and enable companies to hire experts from Day 1, meaning that specialization typically sets in much earlier. Less hot companies have neither the external pressure nor the means to hire that highly specialized external guru.
Finally, make sure that your team members are exposed to different parts of the business. Do secondments, have people collaborate across departments, and critically make sure to write things down because that’s one of the best ways to cross-train. One of the great things about Toxic Specialization is that all of the tools to break it are in your control; you just need to make sure that you use them.
Losing Sight of Value Delivery
The Calling Card: “Our team is excited to announce a new program! Here’s a 500 word email about why it matters.”
As organizations expand, they create teams that are further and further removed from the core of how the company generates value, supports customers, and makes money. This wouldn’t be a problem if these peripheral teams were lazy and unambitious, doing the bare minimum necessary to get by. Instead, problems arise when they’re energetic and driven, and create more work out of sincere but misguided efforts to help the business.
The calling card for this situation is the Really Important Ask (™) accompanied by its Lengthy Explanation. The Lengthy Explanation is key. When a need is actually vital to the company’s core mission, it can almost always be explained in ~5 words:
- Biggest Customer wants to churn
- Need to launch flagship product
- Deal is critical for Q4
- Security breach
All ambitious teams want to deliver value. When ambitious teams are far removed from where the company actually makes money and helps customers, some will start to manufacture problems so they can add value by solving them.
But since these problems aren’t actually that important, they require much longer explanations to highlight 2nd and 3rd order benefits. These benefits are often philosophical in nature: We need consistency, we’re removing risk, we’re investing in the future. It’s sort of like how your cable and Wifi provider wants to talk on the phone for 30 minutes about why you shouldn’t cancel your plan, but they’ll let you sign up and pay them in 60 seconds online.
This issue is more common on some teams than others. In SaaS, functions such as Product, Sales, and Customer Success/Support are the least susceptible to losing sight of value delivery due to their commercial and customer focus. Many parts of Marketing, Engineering, and Design are at higher risk, and back-office functions like HR or IT are most vulnerable – particularly those like Security and Legal whose primary jobs are to say “No.” Finance is notably more resilient to this trap than other internal functions – since they see all of the numbers, they tend to understand directionally where the value in the business is getting generated.
The simplest fix for this issue is to get everyone in front of customers. Some companies have all employees do Support as part of onboarding, for example. Even minimal customer contact works wonders. Talking to a customer for 45min / month is enough to keep a very high-level pulse on what makes the business work; try to ensure that as many people as possible do this, especially teams like Engineering and Marketing that make decisions impacting customers (100% of executives should talk to customers). People will say that this doesn’t scale, but those people either don’t know what they’re talking about or are lazy and don’t want to take the time.
Training also helps - sharing customer stories and reiterating how it is that the company makes customers happy, and the commercial implications thereof.
Finally, you can force teams to justify initiatives that require other teams’ time. This is where bureaucracy can help you out. Any ask that isn’t part of the service delivery experience must justify their demands upon those who are.
A proliferation of red-tape and and big-company processes are inevitable as companies grow. If you don’t take steps to control them, they’ll eventually grow larger than you’d like or even out of control entirely. Look out for some of the most common issues:
- An obsession with data is a sign that your decision-making is too conservative
- Multiple layers of approvals are a sign of over-specialization
- Long explanations for critical projects are often a sign that the projects aren’t actually critical