Leadership Lesson: The New Model of Scaling

It's only a matter of time before the question of scaling comes up

Does Agile, Scrum or your existing business model scale?

You'll want to scale

And you’ll do it wrong

First off, what do we even mean by scale?

Usually this refers to growing the company by adding more employees

If you’re doing a transformation, it’s rolling it out to the large number of employees you already have

But most businesses already have too many employees

That’s why we’re seeing massive layoffs in the tech sector and businesses aren’t collapsing

It turns out most of these businesses had more people than they needed to run and grow their business

Balance Between Business and Labor

History is full of stories of the battles between business and labor

In the end, the optimal result has always been a balance of the concerns of both parties

On the labor side, employees want to be

• Paid well

• Treated fairly

• Not driven to burn out

• Given an environment where they can succeed

Businesses need to please

• Founders

• Customers

• Employees

• Shareholders

While still

• Generating a profit

• Growing the business

• Ensuring they don’t become obsolete

If you skew too much to the business side, you’ll find businesses that

• Pay employees as little as possible

• Treat people as commodities

• Sabotage their productivity

• Run them to burnout

Too much on the labor side and you get employees who

• Expand bureaucracy

• Don’t produce enough value

• Generate busy work to justify salaries

• Make demands without justifying a return

• Are shielded from the consequences of their behavior

In both of these cases the business grinds to a halt and starts to decline as time goes on

A lack of innovation from businesses focusing too much on “efficiency”

An oversized bureaucracy that will not remove poor performers

Most business don't choose to end up like this

For some it's the natural end state driven by their chosen business model

Let’s take a look

The Old Model

Everything can scale with enough effort and money

The real question is can we scale it affordably and efficiently?

In The Old Model we find something we can produce for our customers that

• They want to buy

• We can deliver

• And make a nice profit on

Let’s say we’ve been building a product, adding features and making money, using The Old Model

What now?

Scale!

If we can make a profit with our current teams, why don’t we

• Hire more people

• Create more teams

• Build more stuff

• And make more money!

Except…

The Problem With The Old Model

The more people you add, the more people you have to manage

As you add more teams, you need more coordination and you’ll need to hire more people to do that coordination

This means adding

• Oversight

• Governance

• Bureaucracy

• Management

And all that is going to eat into your profits

As you scale, you’re now making less profit per team and as you grow, the overhead grows faster

Your managers will have to have managers

Bureaucracy takes over and everything slows to a crawl

The balance of power swings over to labor

Trying To Optimize The Old Model

We’ve tried to optimize The Old Model

Endless quests to optimize for “efficiency”

In reality, most of these end up being attempts by business to pull back on the balance of power

We tried to maximize the output from each employee, to maximize our return on investment

We tried micromanagement and employee monitoring

Neither increased value

Next, we tried to reduce the cost of labor

Offshoring, outsourcing, and automation

All to restore the business to the profitable dream they had before scaling

But they also failed

Offshoring and outsourcing have their own drawbacks and also need management

Of course, there was always downsizing

The idea that you could actually scale down your teams and still deliver the same amount of work

Take those other tasks and pile them on to your remaining teams on top of what they’re already working on

Now you’ve traded bureaucracy for burnout

The balance of power swings over to business

The flaw in this whole model is the idea that profit comes from output delivered

This is incorrect and there is a better way

The New Model

All Work Is Not Created Equal

This might seem obvious, but it’s easy to forget that each work item is different

Each item differs in two main ways

Value and Cost

Value

Each item that our teams work on should deliver some form of value to the customer and to the business

And yes, some items can have a negative value

It goes without saying that we should focus on items that have the greatest value

Cost

But value isn’t everything

Each work item is going to take effort to deliver and some more than others

Not only that, but everything you add needs maintenance and support

This includes code maintenance as well as overhead for support staff and operations

There is always an ongoing cost

Solve Asymmetrical Problems

If everything has a value and a cost then we should work on items that solve asymmetrical problems

Problems that are easy to solve and deliver massive value

Again, obvious

What is less obvious is that you should stop trying to solve all other problems!

You would think that when we find a great asymmetrical opportunity we would jump all over it

But we don't

Because we’re busy working on other work items

And those work items are a part of what I call The Mediocre Middle

The Mediocre Middle

Finding asymmetric opportunities takes effort

But there are mediocre opportunities everywhere

Every business wants to work on items that are a 10/10 in value and 1/10 in effort and overhead

And no company wants to work on items that are 1/10 in value and 10/10 in effort and overhead

But what about those in The Mediocre Middle?

The 6/10 value, 4/10 effort and overhead?

7/10 vs 4/10?

6/10 vs 3/10?

5/10 vs 5/10?

Welcome to the Mediocre Middle

The swamp that eats up your focus

Time wasted planning, debating and prioritizing

The effort that slows down the delivery of the most valuable items to your customers

How did we end up here?

It turns out that finding asymmetrical effort items to deliver is hard

We need teams skilled in finding and delivering on asymmetric opportunities

What we have are teams that are good at building stuff

And teams that build stuff need stuff to build

So we spend our time trying to find mediocre things we can get them to build

Setting Up The New Model

Here is the step by step process for setting up teams for The New Model

• Put together a team that

  • Can seek out and identify asymmetrical value problems

  • Has the skills to build and deliver solutions to those problems

• Go out and find those high value / low cost problems

• Solve those problems

• Measure to ensure that what you delivered was high value and has a low ongoing cost

• Remove features that have a high cost and are delivering low value

• Repeat

Examples

Craigslist

Craigslist has been operating for decades now with only a small team

It might not be pretty, but it works

They've delivered massive value to millions of users with only about 50 employees

Instagram

When Facebook bought Instagram in 2002 for a record 1 billion dollars they had a total of 13 employees

Massive value, low cost

What’sApp

In 2014 Facebook also bought What’sApp for a whopping 19 billion dollars

At the time, What’sApp had 55 employees

Odds are your business isn’t going to get bought by Facebook, that’s not the point

The point is, you don’t need a staff of thousands to deliver massive value

How much value you deliver matters more than how many features you deliver

More employees do not mean more value delivered

Businesses are starting to figure this out

Wouldn’t You Scale This Too?

This is what a lot of the big tech companies attempted to do and why we are seeing so many layoffs as the economy turns

Finding asymmetric problems is hard

There aren’t always that many available at any given time

Each team adds cost, but the amount of high value items they’ll be able to find will not always increase with it

You will hit a natural limit where the costs will not match the value

Smart businesses will learn to cap team growth below this level

Isn’t This Another Way For Business To Do More With Less?

This approach is great for the business, but what about the employees?

It turns out that employees also want to work on these types of teams

Teams want to use their creativity to solve tough problems that have massive impact

And they tend to prefer not to work in large, stifling bureaucracies

Here's my very unscientific poll

Businesses working in The New Model can also afford to pay more to attract and keep top talent

A Real World Lesson

I once worked for a company that set themselves in an asymmetric model without even knowing it

They later switched to The Old Model and watched it all slip away

Founded in the early e-commerce days, they found a niche market and got a client to take a chance on them

They bet on themselves and asked for a percentage of sales rather than a big payment

The bet paid off

As they grew, they switched to charging customers for development costs

Costs which increased with every new client as they hired and managed more teams

Every feature and new client required more infrastructure and overhead

The product became a bloated mess and customers found better alternatives

This is how The Old Model ends

The Old Model will never scale

The New Model doesn’t need to

Choose The New Model