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.
Very insightful! As a corollary, you should not staff up until there is something to optimize.
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.
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.
https://www.baltimoresun.com/news/bs-xpm-2006-10-31-06103101...
When Vince Lombardi began coaching the Green Bay Packers in 1959, he had four assistants. This year, Denver Broncos coach Mike Shanahan has 21.
http://www.espn.com/espn/page2/story/_/page/easterbrook%2F10...
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.
https://www.newsobserver.com/sports/college/acc/article16325...
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.
2019 Denver Broncos had 23 assistants, 24 total coaching staff including the head coach.
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?
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".
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.
