The problems with Price’s Law
Price’s Law. Ever heard of it?
Half of the work in any organization is done by the square root of the number of employees. Ten employees? Three of them do half the work. One hundred employees? Ten of them do. Ten thousand? Just one hundred.
Price’s Law isn’t new. It’s just new to me. I came across it last week in a Jordan Peterson video.
At first glance, it sounds suspiciously like Pareto’s Principle, which would say that 80% of the work is done by just 20% of the employees. Pareto’s Principle is generally fractal, meaning if you cube 80/20, you get 50% of the work is done by just 1% of the employees.
So in a 10,000-strong company, Pareto and Price would pretty much agree.
What’s really interesting is that Pareto is scale-independent. The scale, the size of the field doesn’t matter. 1% of your employees do half the work, whether the company is 10, 100, 1000 or 10,000 employees.
Price would beg to differ. He’d say the scale matters hugely. By growing your company, most of the people you’re adding are little more than useless, and the Useless Fraction gets bigger as the company gets bigger.
At a size of four, everyone is pretty much equally productive. By the time you’ve scaled up to 9, your top employees are twice as productive as the bottom ones. At 25 employees, they’re four times as productive, and so on.
Price would say, Competence and productivity scales linearly with size. Incompetence and uselessness scale exponentially with size.
It’s not hard to make some deductions from this, Sherlock:
(1) Price’s Law, and high-performing, small, creative, profitable companies that stay that way, must have Karl Marx spinning in his grave.
Price’s Law is as anti-socialist a concept as you can get. All people are created equal, right? Nope. Equal in value to God and under the law, maybe. Equal in skill, capability, productivity in any endeavour? No chance.
However, I think Herr Marx died before he saw the data.
(2) Most mid- to large-size companies are really just socialist states, existing to keep people employed and off the streets.
Is that such a bad thing? Well no, it isn’t. Who likes being on the streets? Who likes anybody else being on the streets?
But is it such a good thing? I’d argue the same. No, it isn’t. It’s just very mediocre and neutral. Shades of grey. And actually, all those shades are the same.
(3) It’s imperative for every individual to find that skillset, and environment, where they can be a top performer.
This can take time. Sometimes decades. And a lot of encouragement. How do we build a society where people are encouraged and supported to search relentlessly for their Golden Nut, and not quit until you get there? And where companies are encouraged to compensate their people for performance, not just showing up?
It can take some people a long time to find their place in the world. I’ve only known one person who knew himself so well right from high school, that he had only one ambition, and he’s gone and done it. And that’s all he’s ever done. Still doing it. I wasn’t so fortunate (or clever). It’s taken me a long time, indeed I’m still not sure I’m there.
But you do neither yourself nor the rest of us any favours by settling for second-best (or worse). Steve Jobs would agree. Don’t settle, I think he said. Here’s to the misfits.
(4) The typical corporate pay-scale is badly flawed. Top-performing competents are paid little more than (and sometimes the same as) incompetents.
The first really large place I worked in had your typical pay-scale. I got a chance to do what seemed at the time like my dream job.
It was a frying-pan-to-fire story. I busted my butt the first year, made a few mistakes, and when salary review time came around, got rewarded with a 2% hike. Wow. Whoopee.
Okay, I get it. I need to work harder. I did. Busted my butt waaaaaay harder.
A year later? 2% again, same as everyone else. Disappointing. Hmmmmm.
The third year? I was approaching burnout, and found it very hard to motivate myself to bust anything.
So come salary review time, I expected nothing. What did I get?
2% again! Same as everyone else.
Aha. Now I see how this game is really played.
By then I had also noticed that the best guys, the really good engineers . . . . were for the most part, contractors, not employees.
Why does this happen? Simple.
How can you compensate the top performers with top money if you don’t know who they are? The decision-makers probably could find out if they tried, but they’re usually too busy. Or, it might be politically inconvenient to find out. People have this annoying tendency to get really mad if they think they’re one of the less-equal-than-others. Well, go figure.
(5) Most employees in large companies are just barely adding more value than they take away on their paycheque. Some are actually taking more.
Those useless ones may even SENSE their own uselessness. Problem is, they need the money. Mortgage, kids, etc. Their have such litle self-confidence that their objective is to fool the interviewer enough to get the job, then hang on to it with their back teeth until they can retire when they’re old, sick and decrepit.
On the job, they go about creating unnecessary work for themselves (and others) to hide behind. This makes it hard for them to be identified as useless, and also hard for the top performers to be identified as well.
In that same dream job firm, one year the division got a new head honcho, who was a smooth talker. I made a passing comment to a colleague, who muttered under his breath, “Yeah, well, he’s creating a lot of work.” Left unstated: USELESS work.
This approach is all sub-conscious, of course. If it isn’t, they’re a psychopath, sociopath, or something-else-path.
(6) Rapid growth might mean something good: You’ve hit the motherlode of growing markets. If that’s the case, great.
But you’d better be darn sure that’s the case. And that every new employee solves a problem that can’t be solved any other way. And then, be slow to hire, quick to fire.
If that isn’t the case, you’ve probably just been sucked into a tornado. Yeah, you’re going up briefly, but it’ll be brief. And then the tornado will become a death spiral downwards.
The first two companies I ever worked for both experienced this sudden rapid growth.
The first one quickly recognized something was amiss when profits started plummeting at the same time as they were growing. Business was up, all right, but it wasn’t a brand new market. The growth was just cyclical. They smartly rationalized. I was one of the useless ones they culled. Correct call. They did themselves and me a favour. (Although it didn’t feel like such a favour at the time.)
The second company wasn’t so smart. The crash was as meteoric as the rise. This time, I was smarter. I started out useless, became quite productive (not kidding), cashed out my options early, and left just before it really crashed.
(7) The bottom line is always improved by layoffs OF THE USELESS ONES, long before the top performers get so fed up that they leave. Jordan Peterson talks about this in his video. Once the top guys abandon the ship, it’s already sinking. Very hard to stop.
(8) The ideal scale for any creative endeavour is somewhere between 4 and 10 people. Scaling beyond that is asking for trouble.
If you’re a lone ranger at present, chances are you’re going to hit pay dirt sometime. And you’ll want to raise your game. Fair enough, I want the same.
Just remember Price’s Law.
