That's a really charitable explanation and I think it explains some percentage of labor, but not nearly all of it (not even the majority of it, IMO). Yes, there is more going on behind the scenes in every company than you'd ever know about. But I think the majority of labor follows the pareto principle-- there are maybe 100 employees in every company of, say, 1000 people that do nearly all the work, and 900 employees that do very little to nothing at all at best (and produce negative value at worst).
Why that is the case in every business, I haven't been able to figure out. I suspect it's because when businesses reach that size, the efficient market effects become greatly overstated in the short term, so these businesses naturally acquire a lot of fat.
One piece of evidence for this is that private equity exists. You can buy a business, fire a quarter of the people, then sell it and make a lot of money without hurting the operations at all.
> These projects might be pointless on a small app, but in a large business might be worth millions to the company.
With enough traffic and revenue, you'll get a positive return on hiring a bunch of engineers to optimize things that wouldn't be worth it for smaller sites. With enough engineers you'll get a positive return on hiring engineers to make engineering more efficient.
It's only natural in that case that as traffic and revenue drops, the ROI calculation changes and it suddenly becomes better to lay those people off.
And that's just engineering. I can imagine that in this downturn the sales department just isn't generating new revenue. What brick and mortar business is going to advertise right now? It only makes sense to lay off as much of the sales teams as possible. You can hire them back later.
> With enough traffic and revenue, you'll get a positive return on hiring a bunch of engineers to optimize things that wouldn't be worth it for smaller sites. With enough engineers you'll get a positive return on hiring engineers to make engineering more efficient.
Very insightful! As a corollary, you should not staff up until there is something to optimize.
You probably can't "hire them back later". People who you've fired might have an aversion to working with you in the future, or simply be occupied with other work when you want them back. If you mean ripping out entire teams and replacing them with outsiders, that also has costs.
What I've seen is that salespeople are lot more fungible than veteran engineers who have a lot of knowledge of the companies system. Sales armies tend to have a lot of more junior staff too. They might not hire back the same salespeople, but they should be able to hire what they need. There will be a lot of people looking for work.
There's also reputation issues with a "hire them back later" attitude. Engineers are likely to become skeptical of recruiters from companies with a policy like that, and then you start struggling to hire anyone.
That reference was about sales employees, not engineers. I think most people realize that in larger companies the sales team and the engineering team are managed very differently, with the employees having very different expectations about the stability of their position.
> With enough traffic and revenue, you'll get a positive return on hiring a bunch of engineers to optimize things that wouldn't be worth it for smaller sites. With enough engineers you'll get a positive return on hiring engineers to make engineering more efficient.
The problem is that no modern tech company I know actually measures the ROI of this (positive or negative) so it's completely unrealistic to determine the IRR on it. In other words, there might be a scenario where it actually is more profitable NOT to do it.
Check the incentives. For corporate managers, your salary is generally proportional to the number of people you manage. Who cares if your 1000-person org doesn't accomplish anything, you're a big shot now.
On a sports team, coaches are rewarded for championships. There is no room for waste, and underperforming people get cut.
Most sports teams rosters are restricted by league rules. However coaching staffs are not, and they have grown tremendously in recent years, as have college athletic department staffs. When someone actually does take a hard look, these staffs seem exceptionally bloated and wasteful.
Ohio State lists 458 people in its athletic department. There are 192 faculty members in Ohio State's English department, with a support staff of about 50.
One assistant coach is called the recruiting coordinator, but he’s backed by a Director of Player Personnel, an Assistant Director of Player Personnel, a Coordinator of On-Campus Recruiting and a Recruiting Assistant. There are three video coordinators.
That is a charitable view of private equity - that it improves margins without hurting operations.
Another explanation lies in reputation mining. Think of it like doing something profitable but unsustainable.
Curious what kind of experience or data sources you base your first graph on — the Pareto principle piece makes sense. But isn’t it possible the very end of the tail is still profitable, albeit less so, than the head?
> Why that is the case in every business, I haven't been able to figure out. I suspect it's because when businesses reach that size, the efficient market effects become greatly overstated in the short term, so these businesses naturally acquire a lot of fat.
i think it's more likely that no business will know in advance who those 100 employees that create value are. It might even be that the combination of those 100 creates value beyond the sum of them individually (lets say, they are in one team).
There are also mundane work - fixing bugs or upgrading libraries, as well as keeping up the infrastructure running.
And then there's the middle management - that comes from the mis-trust that upper management generally have for the "grunts", and this happens all the way thru the organization.
> private equity exists...
and if you look at those companies that did this - very few of them becomes the next big thing. Very few of them actually innovate. Very few of them, even survive.
Private equity is really about taking risks with a failing business, e.g. buying it really cheap, and cut the fat and ride out the storm for hopefully a better future. I dont think any private equity will buy a company that isn't failing in some ways, and try to "make it better".
Companies doing well generally aren't for sale at a reasonable price anyway, so yeah, private equity by nature buys failing firms and tries to turn them around. That's the goal of the business.
Yes, you're probably right to some extent. A lot of efficiency and velocity is exchanged in these large scale environments for risk-aversion in the form of heavy testing, supporting the ability to revert changes and requiring approvals.
I'm not personally a fan of it, but I get why it works this way. The financial loss if you break something adds up in an excruciating fashion on a per hour basis.
They don't get efficient during a downturn. They might shrink but cuts for the most part will fall on those that lost the political jousting regardless of actual contributions to the top or bottom line.
Why that is the case in every business, I haven't been able to figure out. I suspect it's because when businesses reach that size, the efficient market effects become greatly overstated in the short term, so these businesses naturally acquire a lot of fat.
One piece of evidence for this is that private equity exists. You can buy a business, fire a quarter of the people, then sell it and make a lot of money without hurting the operations at all.