The biggest contributor to marginal hours of cost is the increase in coordination for adding headcount to a team. The core problem is that without smart organization design, this cost grows quadratically for the team, and the marginal cost (i.e. cost of each additional person) grows linearly.
In combinatorial mathematics, this is a problem called the handshake problem, which counts the number of handshakes in a group if each person shakes hands with every other person exactly once. The general formula looks like this:
This means that handshakes grow quadratically - i.e. the cost of every additional headcount is more and more expensive, and the problem gets incrementally worse as the team size grows (see below).
You see this everywhere - as teams grow larger, people often say that the team feels slower, decisions become harder to make, the team runs on inertia, or it has become bureaucratic. These are all symptoms of the handshake problem, as the cost of coordination starts to overwhelm every action, interaction and decision, resulting in inaction, indecision and inertia.
To overcome this through hiring exclusively, new hires need to be:
better than the previous new hire
incrementally better than the average of the existing team just to keep the net hours of the team the same
This is makes team scaling untenable - the 10th person on your team will need to be 10 times as good as the first person on your team just to keep the same per person productivity. Even top performers would not be able to keep up with that aggressive of a cost increase.
Based on this, it would be impossible to build large, productive teams. However, we see large teams in the real world - why is that? There are two primary reasons:
Most large teams are actually non-productive. The unfortunate truth is most large teams could be as efficient, if not more so if they were smaller. Management is not doing the math.
For the few large teams that are productive, they figured out ways to bend the curve on the handshake problem. The best managers, especially those that run stock-like teams, spend a lot of their mindshare optimizing this.
To bend the curve on the handshake problem and keep marginal hours of cost in check, there are two effective strategies:
Pizza teams: Break the curse of dimensionality by creating small teams that have effective cross-team processes for interaction
Weighted handshakes: Reduce the number of handshakes you need to make a decision by weighing some more than others
While none of these strategies will fully eliminate the growth in marginal hours of cost, they will significantly bend the curve. This will allow you to run higher leveraged teams successfully, which increases your value as a manager.
Pizza teams
The “Two pizza team” is a concept coined by Jeff Bezos, which promotes running teams that are small enough to be fed with two pizzas. While there are no hard and fast rules, this usually results in creating 8-person teams, since every person gets to enjoy a two slices.
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