On the speed of decisions slowing down, as companies grow

As companies grow, things sometimes become a lot slower. Not only in terms of execution speed, but also in terms of ambition.

I am not an expert by any means, just outlining my experience so far and some thoughts around this πŸ‘‡

My theory is that, unless highly driven by the company culture, a lot of the middle management without a high-stake in the company is by default risk-averse.

Risk-aversion is, in a nutshell, a preference for certainty, even when the uncertain path has a higher pay-off.

So, what creates average products? I don't think a lot of companies go out to do something with a bad experience on purpose.

New, innovative ideas present in most cases a high-risk. If good ideas were obvious, we would get everyone competing on executing the innovation vs marginally optimising the existing status-quo.

Who are willing to incur high-risk? Often, the people with also a high reward.

If investing in high-risk stocks would have the same potential return as collecting interest from the banks, people wouldn't be incentivised to invest in them.

So, looking at start-ups specifically, who has a high-reward from an innovative idea that plays out?

Often the founders and early employees, and often a delayed reward (stock).

This can create a weird inconsistency where:

Founders + investors + early employees are incentivised to take big shots because the win can be exponentially bigger than the initial investment

People that joined later, no-stock all cash are incentivised to do a good job at keeping their job.

This means not rocking the boat, optimising what's already working and hitting the targets.

If I do a well-enough job or fantastic job, unless the incentives are in place to reward me to get out of my way and take a shot at a high-risk idea, all I inherit is the risk.

This ☝️ is not correct if everyone wins from the company winning.

Things that would align the incentives:

  • Bonuses based on the impact of new initiatives
  • A culture heavily focused on rewarding and pushing innovation (Netflix)
  • Profit sharing or stock options

Paraphrasing Thomas Sowell who proposed: "looking at systems in terms of the incentives they create, rather than simply the goals they pursue. This means that consequences matter more than intentions - and not just the immediate consequences."

I don't have a clear solution for a bottoms-up realigning on incentives, as so much is dependent on the leadership.

But when something is slowed down in the decision-making process, looking at what incentives every person in the decision chain has vs the job description can hopefully bring more clarity.

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