4 ms·

You bring up a very good point and HN is the best place to ask -- what are the correct incentive structures, what are some examples of companies that do the sam

You bring up a very good point and HN is the best place to ask -- what are the correct incentive structures, what are some examples of companies that do the same? I want to avoid making these mistakes for my startup.

wavemode 3y ago
Companies end up this way because they become large and bureaucratic. The distance between the customer's mouth and the business leaders' ears becomes too great, and filled with too much noise. Every company, when starting out, tries to avoid going down this path (recall Google's "don't be evil" or Amazon's "it's always day 1") but they all eventually lose the spark, after becoming large enough. Large companies who have lost this spark eventually start hiring consultants and agile coaches in a desperate gasp to regain it (much like estranged couples hiring marriage counselors). This usually goes about as well as you might expect. I've never found a counterexample to this principle. I think the only real way to avoid it is to stay small.
- piva00 3y ago
  It's not about becoming large and bureaucratic, that's a result, not the cause, in my opinion. It's the result of having a large enough footprint to require legal checks, it's the result of having lots of investors and shareholders meddling with how the company should function (since those are only interested in ROI, and as fast as possible). When a company gives out its control to 3rd parties that are not involved in what the company does, and only cares about financial statements, it loses its spark. Not because they decided to lose it but that's how the market forces act: squeeze out as much as possible, for as little as possible, and call it a good day. The only counterpoint to that phenomenon is what some large-ish private companies do: stay private, don't get investment from external investors who haven't bought into what the company is providing as value to society, don't get investment from people looking to make their money 2-10x in a short period of time (short being around 10 years). The moment a company enters squarely into the current financial markets it's doomed to just become a carcass of whatever vision it had, it's now just another commodity. Edit: and every startup founder wants to be different and not fall for this, I don't think many manage, after some rounds of investment it's not in your power anymore to decide that, your VCs and other members in the cap table control you. "Silicon Valley" is such good satire exactly because it depicts almost exactly how that happens.
- DanielHB 3y ago
  It seems it does happens some times, but requires outside intervention. Usually in the form of lost value. For example Microsoft seems to be doing much better today after botching just about everything for 10+ years.
brnt 3y ago
As people here are (or should be) well aware: any system can be gamed. You can never outsource all of your diligence to a set of rules. Thinking that this must be possible is folly. Important hiring decisions can't be automated. Scaling ladders neither. And don't overestimate the quality of your hiring/promotion decisions while you're at it: you suck at it and so does everyone else. What kind of people do you want to thrive, and what do you want your business to do?
graemep 3y ago
The problems start when you have outside investors. The worst problems happen with a public listing. Your biggest shareholders will be fund managers. They are judged by how well they do in annual rankings. Their incentive is to make the share price go up over the next few months. The only way to avoid it is to stay private. Financial incentive structures are very hard to get right. People will always find ways of gaming the metrics.
nostrademons 3y ago
I think that one challenge is that the proper incentive structure changes as the company grows and matures. Google's biggest problem c. 2004 was that the suite of opportunities available to it on the Internet was far more than it had skilled employees to capitalize on. So they enshrined "leadership" and "influence" into their performance review system. You got promoted first for showing that you had the independence to tackle complex problems on your own; then that you could lead a team of people to tackle an even more complex problem; then that you could train others on how to lead teams of people; then that you identify the next set of complex new problems worth tackling; and so on. Worked great as long as the Internet was a big growth opportunity with lots of virgin undiscovered territory. But then when all the basic problems users care about are solved, how do you get promoted? Well, first you have to cancel a product that's working well. Now you have a big glaring complex problem that needs to be solved, so all your people can get promoted, move off the project, and then it can be canceled for the next cohort of promotions. And so on, until the only skillsets that company leaders have are "canceling products" and "creating technical debt". Google basically built a pyramid scheme into their performance management system. The thing is, this incentive system works on the level of the whole economy itself. There were plenty of companies (and open-source projects!) that did not build a pyramid scheme into their incentives. LiveJournal. OpenID. Semantic Web. RSS. PubSubHubbub. Bittorrent. Freenode. Where are they now? Well, they didn't build a pyramid scheme into their incentives, so they got out-grown by companies like Google and Meta that did. And this pattern extends back at least to the Industrial Revolution. Why do we have unsustainable car-centric suburbs based on polluting fossil fuels? Well, that technology grew faster than alternatives and then used their newfound wealth and customer base to convince cities to dismantle their trolley lines.
hyggetrold 3y ago
Real question: what's your exit strategy for your startup? If the exit strategy is to get acquired, don't worry about it. You will make money and get to leave before the mess begins. If your goal is to go public, it's almost guaranteed that you will end up in this situation eventually. Most of the corporate insanity is driven by public company antics and having to show growth every quarter. The two examples I think of when I try to come up with "companies that don't suck" are Patagonia and REI. Both are private. In the case of Patagonia, the founder has spoken out against the quest for growth as it's a driver of so many bad things. I don't know much about REI but I'm sure if they went public quality would go downhill as well. You are either serving people or serving Wall St - in my experience it's not possible to serve both.
QuantumGood 3y ago
Companies that are large and do badly look at "assets" the same way ticks look at mammals: "Let's suck the blood out of it". They kill the Golden Goose. The people that want to build and optimize are moved where they can suck more blood / kill it faster. Don't do that.

wavemode 3y ago

Companies end up this way because they become large and bureaucratic. The distance between the customer's mouth and the business leaders' ears becomes too great, and filled with too much noise. Every company, when starting out, tries to avoid going down this path (recall Google's "don't be evil" or Amazon's "it's always day 1") but they all eventually lose the spark, after becoming large enough. Large companies who have lost this spark eventually start hiring consultants and agile coaches in a desperate gasp to regain it (much like estranged couples hiring marriage counselors). This usually goes about as well as you might expect. I've never found a counterexample to this principle. I think the only real way to avoid it is to stay small.

piva00 3y ago
It's not about becoming large and bureaucratic, that's a result, not the cause, in my opinion. It's the result of having a large enough footprint to require legal checks, it's the result of having lots of investors and shareholders meddling with how the company should function (since those are only interested in ROI, and as fast as possible). When a company gives out its control to 3rd parties that are not involved in what the company does, and only cares about financial statements, it loses its spark. Not because they decided to lose it but that's how the market forces act: squeeze out as much as possible, for as little as possible, and call it a good day. The only counterpoint to that phenomenon is what some large-ish private companies do: stay private, don't get investment from external investors who haven't bought into what the company is providing as value to society, don't get investment from people looking to make their money 2-10x in a short period of time (short being around 10 years). The moment a company enters squarely into the current financial markets it's doomed to just become a carcass of whatever vision it had, it's now just another commodity. Edit: and every startup founder wants to be different and not fall for this, I don't think many manage, after some rounds of investment it's not in your power anymore to decide that, your VCs and other members in the cap table control you. "Silicon Valley" is such good satire exactly because it depicts almost exactly how that happens.
DanielHB 3y ago
It seems it does happens some times, but requires outside intervention. Usually in the form of lost value. For example Microsoft seems to be doing much better today after botching just about everything for 10+ years.

brnt 3y ago

As people here are (or should be) well aware: any system can be gamed. You can never outsource all of your diligence to a set of rules. Thinking that this must be possible is folly. Important hiring decisions can't be automated. Scaling ladders neither. And don't overestimate the quality of your hiring/promotion decisions while you're at it: you suck at it and so does everyone else. What kind of people do you want to thrive, and what do you want your business to do?

graemep 3y ago

The problems start when you have outside investors. The worst problems happen with a public listing. Your biggest shareholders will be fund managers. They are judged by how well they do in annual rankings. Their incentive is to make the share price go up over the next few months. The only way to avoid it is to stay private. Financial incentive structures are very hard to get right. People will always find ways of gaming the metrics.

nostrademons 3y ago

I think that one challenge is that the proper incentive structure changes as the company grows and matures. Google's biggest problem c. 2004 was that the suite of opportunities available to it on the Internet was far more than it had skilled employees to capitalize on. So they enshrined "leadership" and "influence" into their performance review system. You got promoted first for showing that you had the independence to tackle complex problems on your own; then that you could lead a team of people to tackle an even more complex problem; then that you could train others on how to lead teams of people; then that you identify the next set of complex new problems worth tackling; and so on. Worked great as long as the Internet was a big growth opportunity with lots of virgin undiscovered territory. But then when all the basic problems users care about are solved, how do you get promoted? Well, first you have to cancel a product that's working well. Now you have a big glaring complex problem that needs to be solved, so all your people can get promoted, move off the project, and then it can be canceled for the next cohort of promotions. And so on, until the only skillsets that company leaders have are "canceling products" and "creating technical debt". Google basically built a pyramid scheme into their performance management system. The thing is, this incentive system works on the level of the whole economy itself. There were plenty of companies (and open-source projects!) that did not build a pyramid scheme into their incentives. LiveJournal. OpenID. Semantic Web. RSS. PubSubHubbub. Bittorrent. Freenode. Where are they now? Well, they didn't build a pyramid scheme into their incentives, so they got out-grown by companies like Google and Meta that did. And this pattern extends back at least to the Industrial Revolution. Why do we have unsustainable car-centric suburbs based on polluting fossil fuels? Well, that technology grew faster than alternatives and then used their newfound wealth and customer base to convince cities to dismantle their trolley lines.

hyggetrold 3y ago

Real question: what's your exit strategy for your startup? If the exit strategy is to get acquired, don't worry about it. You will make money and get to leave before the mess begins. If your goal is to go public, it's almost guaranteed that you will end up in this situation eventually. Most of the corporate insanity is driven by public company antics and having to show growth every quarter. The two examples I think of when I try to come up with "companies that don't suck" are Patagonia and REI. Both are private. In the case of Patagonia, the founder has spoken out against the quest for growth as it's a driver of so many bad things. I don't know much about REI but I'm sure if they went public quality would go downhill as well. You are either serving people or serving Wall St - in my experience it's not possible to serve both.

QuantumGood 3y ago

Companies that are large and do badly look at "assets" the same way ticks look at mammals: "Let's suck the blood out of it". They kill the Golden Goose. The people that want to build and optimize are moved where they can suck more blood / kill it faster. Don't do that.