I’ve observed that companies exhibit certain patterns as they evolve into large corporations, and I’d characterize the most common sequence as having four phases: the colony stage, the legend stage, the stepping-stone stage, and the bureaucratic stage. Each has its own specific characteristics and notable motivations of the players. In large organizations, multiple stages can exist at once: for example, there can be an earlier-stage entity within a company that is mostly at the bureaucratic stage, the final one. While the “startup within a big company” dynamic is often oversold and underwhelming, pockets of earlier-stage behavior and attitudes can exist in companies, so this evaluation of companies is based on the overall tenor rather than being uniformly applicable to every activity within an organization. All of that said, the macroscopic culture and performance of an organization will tend to derive from where it is in this four-stage cycle.
First is the colony stage, named after the concept of a “colony” in the board game Go: a group of connected pieces that either “live” (that is, remain on the board) or “die” as a group. In the colony stage, workloads are high and emotionally intense relationships are the norm. People are often working on a savings-neutral or worse salary, and the wealthier people may be drawing none. More than half of the people in the colony stage, typically, will be founders because the only people who will sign up to be non-founder employees (with comparably low equity) at that point are bottom-of-the-barrel engineers without other options (or without a clue). The colony stage is immensely productive for founders and immensely quixotic for employees, who tend to believe that they’ll be growing in to leadership roles, but are often pushed aside once the company can afford full salaries.
After some degree of establishment, and raising a small or mid-sized venture round qualifies, a company enters the legend stage. Most of the startup mystique focuses on the legend stage, and it’s probably the most fun time to be a founder. In the legend stage, you’re inundated with young and directionless but talented people who want to be a part of your operation, having read about it on TechCrunch or Hacker News. You can offer them stock options and sometimes they won’t even ask you what the denominator is. They’ll work 80-hour weeks for 0.15 percent of the company and a title that might not mean anything. They’ll trade in their 20s for a chance to prove themselves to someone (you) who’s had a little bit of success. The legend stage has a lot of boozy Friday afternoons, stylish-looking (if miserable, for anyone doing actual work) open-plan offices, and nontechnical personnel who were hired because some executive, operating under offensive stereotypes, thought it would motivate the programmers to look at them. This is what people think the darling startups look like.
In the legend stage, there’s such a strong sense of abundance that a large number of people are willing to work hard without focusing on where they stand in the organization. At some point, that ends, and the stepping-stone stage begins. When people realize that there aren’t enough leadership positions to go around, and that the best bits of the equity pool have been disbursed long ago, the focus turns toward personal career benefit and exit options. People will still work hard, but only on the projects that improve their external market value. This is a hard transition for many founders to swallow, because they go from an arrangement in which people will gladly throw down long hours on grunt work, to a mercenary climate in which undesirable tasks are done without enthusiasm or, worse yet, ignored.
The legend stage separates exalted visionaries from eager acolytes, willing to sacrifice themselves to gain the respect of the core group of people who have found (or lucked into) a bit of success. There’s a symbiosis there, between storyteller and listener. It tends to break down because, while the “listeners” are extremely dedicated, the organization eventually needs expertise and “adult supervision”. If it doesn’t acquire those capacities, it will expend great effort while accomplishing little. In the stepping-stone stage, a true managerial hierarchy (as opposed to a “flat” arrangement, with a few exalted storytelling visionaries and many eager acolytes) begins to emerge. Titles start to matter. Tasks start to be done more quickly or slowly depending on who is CC’d on the emails. HR starts to worry about what will happen if the people still on legend-stage salaries find out that new hires are being offered 50% more in base pay. Employee equity allotments tend toward token levels: less than $20,000 per year at-valuation, at which point there’s no reason not to work beyond the typical 9-to-5 (and to favor heavily the tasks that align with one’s own career goals).
After the stepping-stone stage is the bureaucratic stage, whose inefficiency is notorious in the startup world. (There’s plenty of bureaucracy before a company gets to this stage, but this is when it becomes a dominant force.) In the fourth of these stages, the bulk of the people begin to accept that sudden outcomes like rapid promotion or quick termination are both extremely unlikely, and therefore manage their performance to the middle in order to avoid conflict. There’s a perception that people don’t work hard in the stable stage, but that’s not really true. It just stops being expected. People who especially like their groups or the company’s mission will exert themselves in the stable stage, while understanding that it’s unlikely to produce a reward at that company. While companies are more at risk of picking up toxic and overly political employees in earlier stages, the passive ones who just want to “hide” are more common in this end stage.
What drives each evolutionary step? From the colony to legend stage, the cause of the transition is obvious: the company has to grow up and become something, and the lifestyle associated with an unproven startup is not sustainable. While there is often nostalgia directed toward the colony stage (“garage startups”) the truth is that no one can stand, financially or emotionally, to live in it for more than a couple of years. The transition from legend to stepping-stone stage occurs as necessity requires the company to hire experienced, savvy people who (quite frankly) won’t overwork themselves or accept bad deals. The extremely competent people aren’t “hard to deal with” because of their leverage (as MBAs think); rather, they became extremely competent by protecting a specialty and refusing to do standard-issue grunt work. Finally, the transition into a bureaucratic stage seems to occur once a company begins having to take on people of below-average drive in order to fill out all of its operational needs, and therefore perceives a need for systems like performance reviews to keep them in check.
The Hayflick Limit
Many cells in the human body only get to divide a finite number of times. After about sixty divisions, the cell ceases to reproduce, and dies. This is a major contributor to the aging of large organisms, like humans. The cells become less vital and virile over time, and eventually this causes the organism itself to fail.
My personal belief is that the organizations that drive corporate capitalism– in particular, the business corporations themselves– are experiencing a Hayflick phenomenon. “Startups” are not a new thing. However, I think that they’re the current rage simply because organizational senescence is accelerating. It used to take several decades for organizations to lose their ability to innovate; now it takes 10 to 20, on the outside. The good news of the 21st century has been that power has been transferred away from the large corporations themselves– that peaked near the end of the last one. The bad news has been that a substantial share of that power has been directed in a useless direction (toward wealthy, connected individuals who may or may not hold corporate employment) and that average people still largely depend on this declining corporate edifice. While there are numerous positive things that might arguably come out of an era of organizational decay, such a trend doesn’t make things good for those who rely on organizations for an income, and that’s almost everyone, at least right now.
Silicon Valley is profitable because organizational decay has become so rapid. For example, when a company’s middle-management filter begins to fail, it loses the capacity to recognize talent at the bottom, so it finds itself “acqui-hiring” often-mediocre talent just to find people that it can trust with important projects. It’s not that the organization doesn’t have talented people already; it absolutely does. It’s just unable to find them, much like a hoarder who buys a new coat every winter because he couldn’t possibly find the old one. We’re now in an era, however, where it’s not just large companies that end up behind a talent 8-ball and have to acqui-hire; often, it’s other startups that are being pushed into this move.
As a society, we are becoming worse at forming organizations that people can actually bring themselves to care about, and the ones that we do build are shorter-lived, less trustworthy, and generally less useful to the world as a whole. The upshot of this, for a small number of well-placed individuals, is that the possibility for rapid acquisition of personal wealth has never been greater. That probability is still small, and especially so for those not born into the requisite connections, but it has increased, and Silicon Valley is the best place to capitalize on this change.
End Times
I don’t like Sand Hill Road or the current Valley leadership, so it’s with some degree of pleasure that I observe that Silicon Valley itself is experiencing a Hayflick limit. Where I am starting to see weakness is in the shortening and, in some cases, the eradication of the legend stage. Some companies go immediately from a short colony stage to a stepping-stone stage; they never engender the loyalty or sense of shared vision that makes for a legend stage.
For the VC-funded startup industry, this is a critical loss. Why so? Ultimately, I’ve come to the conclusion that the source of Silicon Valley’s ethical failure is pretty simple: it’s a resource-extraction culture. I doubt that its culture is any more negative than, say, the oil or gas industries. What is this resource? There are two key resources that drive Silicon Valley. The first is the flow of passive capital into an oligarchy of careerist bureaucrats (venture capitalists) who invest other peoples’ money into supposedly technological companies. The second is self-undervaluing talent, which arrives in waves each summer in Northern California. The combination of these resources, along with optimistic overvaluation (worst of all, not only by investors but by the workers) of the companies and the career opportunities they will provide, creates an environment in which a small number of individuals can become very wealthy. The bulk of this resource extraction occurs during the legend stage, because once a company moves into its stepping-stone stage, its people are focused primarily on compensation and career advancement. It’s still quite possible (and common) to underpay and underadvance people in the later stages. The difference is that, in the legend stage, the executives get away with it. In the later stages: they don’t, because people who are undervalued tend to reciprocate by underworking. This can’t be remedied by firing people or threatening to do so (although that is often tried) and it inevitably leads to large, inefficient organizations and trust sparsity.
One of the reasons for the aggressive age discrimination, and for the more general ageist culture of open-plan offices and “Agile” micromanagement, is that founders and startup executives fear the transition from the legend stage to the stepping-stone stage, and believe that older and savvier employees will accelerate it. That’s why they drive out older engineers: it’s not about them being too expensive, but a fear that people who’ve seen the startup game’s average-case payout will scare away the young. As awareness grows that the startup game is rigged and that the new “hip” companies have all the ethical failings (and more) of the older, infamously bureaucratic, corporate system, we’re seeing the legend stage get shorter, and it may eventually disappear. Once this happens, Silicon Valley will have become a relic. There will be some players making money in it, just as in the oil and gas industries, but it won’t be exciting and it won’t draw in top technical talent. People will look at the things that it builds, as people look on oil rigs now, as tasteless monstrosities rather than marvels of the modern era.
What is the legend stage, the value-building stage, of a company ultimately made of? What resource is being extracted? It’s the good will of the American middle class. It’s the earnestness of people who believe that fair play and hard work will lead to a certain degree of economic liberation. That resource is finite, and Daniel Day Lewis has described its fate better than I can. We’re rapidly running out of it, and this is why I believe that Silicon Valley won’t survive for another economic cycle.
