Rickerism

A growing company reaches a cultural inflection point when it hires its 100th employee.

Up to the 100th employee, everyone in the company pretty much knows everyone else. Work and responsibility are handled on a first-name basis. Everyone knows that Susan handles marketing material and Bobby handles burning CDs for customers. In a small company, responsibilities are delegated by the old adage, “You do someone a favor and it becomes your job.” As the small company grows and a new task arises, a volunteer steps forward and takes ownership of the task.

After the 100th employee, everyone does not know everyone else. It is impossible for a new hire to quickly and effectively learn all of the ad hoc roles and relationships within the company. It is not the new person’s fault; it is a simple limitation of human cognition. After the 100th employee, the company can no longer manage responsibility on a first-name basis. Responsibility must be managed on a title basis. It must be that the “marketing department” handles the marketing material, not “Susan”. It must be that the “quality assurance team” burns the CDs for the customers, not “Bobby”. It may very well be that at the point of the 100th employee, Bobby is the quality assurance team. Nevertheless, the new hire needs to know the responsibility by department, not by person.

I am not a fan of bureaucracies or hierarchies. I use to think that hierarchies were an evil inflicted upon fellow man for evil purposes. Hierarchies are actually a means to compensate for the inherent cognitive limitations of men. See “The Magical Number Seven, Plus or Minus Two: Some Limits on Our Capacity for Processing Information” by George Miller. It is an N-factorial problem. If one defines business processes at the individual level, then one must define N-1 new relations for the Nth new employee. For employee number 100, the company must define 99 new interpersonal relationships. If one defines business processes at the team or department level, then new hires do not affect the business processes.

The transition to the 100th employee invariably causes distress amongst the original team, especially employees number 1 to 50. The original employees do not see the necessity for all the new bureaucracy. They react with statements such as, “Everything was working fine before,” or “If it ain’t broke, don’t fix it,” or “No one else has a problem with the way its done.”

It may seem odd that the founders of a start up company would be resistant to change. There are many forces at play here to cause the resistance and sometimes outright hostility. First, they are reacting to their own past. The people that joined the start up in its earliest phase were in many cases fleeing the bureaucracy that they now see being established in their midst. Second, they can not empathize. They know everyone in the company; why can’t the new hire just get with the program and fit in? Third, they are threatened or demoted. Bobby volunteered to handle CDs, which was within his capability. He does not have the skill to handle the larger responsibility of quality assurance. In other cases, Susan created the process for distributing marketing material. That system is not adequate for a larger company, but Susan interprets changes to the process as a personal slight.

The start up cannot avoid the cultural transition of the 100th employee. The company has three choices. I can: (1) change to a title-based responsibility; (2) rip itself apart trying to maintain first-name management; or (3) limit itself to 99 employees and becomes a “life-style” company. I know what decision I would make, but I am always surprised at the number of companies that choose option 2 or 3.