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January 2007
February 2007

2007-01-25 »

More on profit per man-hour

I wrote before about optimizing a company for profit per man-hour. I'm interested in this because small teams with high Bigness of Thought can form elegant solutions where larger, less effective teams can't. And all that ties in with a hiring practice I first heard from my friend at Amazon.com, who says they only hire people who are better than their current average employee.

Why does that tie in? Because it's an interesting problem for a startup company: if you, the founder, are the awesomest guy you know, how will you ever hire someone above average? Is the most efficient size of a company exactly one person, the smartest person in the world? And if so, is that even a useful conclusion? Maybe "hire above the average" is only useful for companies the size of Google or Amazon.

Actually, I think the "maximize profit per man-hour" strategy is just an easier way to express the same idea.

If you're the founder of a one-person startup, you have a problem: you have to be good at everything. And while you might be passable at almost everything that matters, you can't be good at it all. So as you're growing, the right thing to do is to hire someone who's awesome at the thing you need most, and not bad at other stuff. By doing that, you spend more hours of your own time doing things you are good at, and fewer hours doing things you aren't. Meanwhile, the things you weren't doing well can be done by someone who is good at them, so they can be done faster and better.

That's all probably obvious to most people, but what's interesting is the mathematical effect. Person #2 might not have been any use in a one-person company; maybe they're completely missing some critical business function, like a personality or the ability to understand financial statements. But when you, who are just sort of good at most stuff, hire that person, your company's productivity goes up - not just in total, but per person!

Thus, if you hire someone who will raise the profit per man-hour, you must be hiring someone who is "above average" even if they're not above average at everything. It must be true; the average productivity increased when you hired them.

So the good news for me here is that you can follow this algorithm even when you add person #2 to your company, and it works all the way up to companies the size of Google. I find that very interesting.

I'm CEO at Tailscale, where we make network problems disappear.

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