So are open plan offices, meetings, managers, and big teams.
Last year my company grew significantly, we hired 40 people, total headcount climbed to 48. We had more humans, we were paying more money in salaries, but productivity and throughput declined.
How? How does hiring more people, paying more money in salaries, result in less stuff getting done? It baffled me. I've spent the past 6-months thinking about it, digging into the data, and figuring it out.
This video shares my findings. It's controversial, but it's the only way to scale a business. Check it out and let me know what you think in the comments?
Here's what we cover:
1. Why my company performed worse with more people and better with less.
2. Why communication is a cost and a destructive inefficiency in business.
3. Why additional team members are a "n(n-1)/2" problem. (Google sheet included).
4. Why 3-person teams operate at 95% efficiency and 10-person teams run at 18% efficiency. (mind opening stuff).
5. How to solve this problem with "Information Architecture".
6. The tree components to the solution: Context, people, and content.
7. Centralized, decentralized, and distributed systems and how they work.
8. Why open plan offices are a BAD idea and a stupid modern day corporate fashion/fad.
9. The problems with our old NYC office and my blueprints for our new LA office "The Human Collider".
Resources mentioned in this video:
1. How to create you vision, mission, and principles with examples/worksheets -- Get them here.
Check out the video and tools and let me know what you think in the comments below?
Hey, everyone. Sam Ovens here, and in today's video, I want to talk to you about the true cost of communication, and this is a topic that I'm really interested in right now because with my company, Consulting.com, we grew pretty quickly over the past two years, and we got up to the point where we had almost 50 people. We had 40-something employees, and what I had noticed is that somehow, someway, we were going a bit slower.
We were actually going considerably slower with more people than we were with less and this ... I couldn't really get my head around it. I was like, "What? If we're used to have less people and we were paying them less money because there was less of them, then how are we doing better then than we are now because we have got more people working?"
Surely, more people working means we should be getting more work done, and that wasn't the case, and so this really fascinated me, and I dug into it. I've really been researching a lot over the past six months, and I've made some pretty radical changes to my company as well, and so I just want to walk you through what I found, what my findings are, and how I used to run my company and the structure, and then what the problem was that occurred with that structure, and then how I've rectified that problem and what my plans are for the future. My hopes in doing this is that you as an entrepreneur or somebody that's starting a business and becoming an entrepreneur, when you go to hire people and form a team, you don't make the same mistake, so let's jump right into it.
Let's make this real simple. If you're just one person working on a project, well, you're just one person, and there's zero line of communication, right? But then, as soon as you've got two people, there's one line of communication because you need to talk to this person. That person might need to talk to you. There's one line, and then as soon as we've got three people, there's three lines because this person might need to talk to that person and so on, but this is where it gets interesting.
As soon as we add in four people, we get six lines. Five, we get 10. Six, we get 15. Seven, 21. Eight, 28. Nine, 36. 10, 45. By the time we get up to 14 people, there's 91 lines of communication, so this is quite interesting because when we're at one, there's zero. Two, there's one. Three, there's three, and so everything is good up until three, and then we start to get more lines here, and it gets exponential.
What really goes on here is this is what happens with teams in companies. The more people you add to the team, it's simple at first and communication is relatively easy, but the more people you add in, the more the exponential ... the more communication lines there are, and it grows exponentially, so it's not linear, and this is what kills most companies is they can't tame this thing, and it blows up.
How this really happens is ... There's a formula that you can use, so if N is people, and so if we take people, and then multiply it by people minus one, and then divide it by two, we will get the total number of lines in between the number of people. Right? Here's a formula you can use to figure out exactly how many lines of communication there will be with any number of people in a group or a team.
What I did is I plotted this out in a Google Sheet, and you can see what I did here. I plotted the number of people. Then, I figured out the number of lines using that formula, which I just showed you, and you can see it growing up here, and then the total number of hours they work, so I assumed. Let's just say these people are going to work 50 hours per week each, right?
Now, the communication hours because this is total hours that they're at the office, but communication hours. How many of those 50 hours is spent communicating? When it's just one person by themselves, there's zero. Two, there's one, and I basically just used the number of lines as the number of communication hours, but I think I ... Yeah, at 90%.
Now, obviously, this could be different, but I'm just using this to make a simple illustration, and then we've got our net hours, so the total hours that the people put in, less communication hours equals net hours, and net hours is basically the number of hours that is spent working and doing things versus just talking to people because talking isn't really doing and doing isn't talking, and so this isn't ... This is the output, net hours.
Then, the efficiency, so how many net hours is like a percentage of hours. That's the efficiency, and then what the total cost is, and so if I've got ... If these people who are working 50 hours per week are paid roughly a hundred grand per year, then 450 ... for the total cost of them for one week would be roughly that much money, $2,000, and then the cost per net hour.
If we've got one person paid a hundred grand a year, then per week, they're getting paid $1,923, and then if their communication hours is zero and their net hour is 50, and they're at 100% efficiency, then the cost per net hour is $38. Right? But look what starts to happen as we add more people to the team.
At two people, we're at 98% efficiency, and our cost per net hour has gone up by like two, and then by the time we get to three people, we're at 95% efficiency and our cost per net hour has gone up a lot, and then by the time we get down to like ... By the time we get ... There's a real steep drop-off pretty much right at the number five mark. At five people on a team, we're at 82% efficiency, but as soon as we go to six, we drop quite a lot, and then we drop again rapidly, and then it starts going really rapidly down.
By the time we're at 11 people on a team, we're at 0% efficiency, and we don't even have any net hours. At 10 people on a team, we're at 18% efficiency, and we have got a cost per net hour of $2,000, and this is actually what happens at companies, and they don't really understand how this works. To see it plotted on a chart to show you how this works is ... Here, across this X axis, we have number of people, right?
What most people think is that if we just add in additional person, then we should be able to get twice as much work done, or if a project is moving at a certain rate, if we add another person to the team, then it should move at twice the rate. That's what people think, but that isn't what work. That isn't what happens, and so here, we can see this red line is the linear increase in the number of people. But then, here, this blue line, this is the number of communication lines, and it grows exponentially in relationship to a linear addition of people.
What you really have to watch out for isn't the number of people, but the number of connections between the people because this is where the inefficiency happens and the communication happens, and this is really where all the cost gets absorbed, and so net hours, as we add more people, goes down. This is the green one. You can see. As we add more people, communication lines increase and net hours goes down, and then the yellow line, we can see efficiency, right? We start going down with this as well.
This is what happens when you add more people to a team. Your total number of lines, communication lines goes up exponentially. Your efficiency goes down the toilet, and the net hours that is spent building things goes down, and this is basically how companies blow up, and this is what I started to experience with Consulting.com. I'll give you a perfect example.
In our engineering team, as we added ... When we add one person working, we were moving pretty quick, and then we added more people to the team, and then we started going slower, and I couldn't really understand why. I was like, "What? We added more people to team. How are we going slower? This doesn't make any sense." But then, I started to look closer at what was happening, and when you add more people to a team, they have to be brought up to speed.
The person who is to bring them up to speed is the person who is productively working. Now, that person who is working has to stop and teach this other person how to work, and then if that other person they're teaching how to work eventually learns how to work and then starts working, then if they're not as talented as that first person or as productive as that first person, then all of that was just for waste because now you've distracted your productive person and you've taken everyone off their work just to teach someone else how to do it who isn't going to be able to do it as efficiently as the first person, and you're paying twice as much money, and now these two people have to communicate, and you can see what happens. Very quickly, it turns into a mess.
This is what happened at my company within some of the teams. They've gotten efficient, but then also, what I noticed is that the teams started to interact with other teams, and they all got inefficient, and I'm sure you'll probably notice this at a company. When people start saying, "Oh, we have communication problems," and, "Look, we need ... Everyone needs to communicate better," these are signs that you have this problem going on in your business, and it's not really that people should just be communicating better.
The truth is it's just damn impossible to get everybody on the same page once you've got more than about 15 people. It's impossible. Everyone would spend their entire day just telling each other what they're doing, and what they're planning on doing, and what they're thinking about doing, and everyone would just be talking the whole time, 15 of them, and still, no one would be on the same page, so it's stupid and communication is totally inefficient, and this is how most companies die because their exponential cost in communication ends up crippling them because they're spending more money, wasting more time, and delivering less work.
That's the problem, and you're probably thinking, "Well, what do you do about it?" The way to really fix this problem is with something called Information Architecture, and IA, Information Architecture, this is what I've spent a lot of my time digging into over the past six months, and there's really three main components to Information Architecture. You've got your people, your context, and your content, and so people are like the talent, the people you've got on your team, the individual people, and then how those individuals come together to form different teams, and how those different teams come together to form the overall organization structure.
Then, the physical environment that those teams sit in and work in each day, so your office whether it's open-plan or whether it's private, or virtual, or whatever, and then you've context, which is like the business vision, mission, goals, and KPIs. When you've got some people working, then they need some context like, "What are we trying to do here? What's the goal? What are we measuring?" Right?
They need to have these. They need to know like what they're actually trying to achieve, and then once they understand what they're trying to achieve, and they know what team they're in and how the whole company is structured, then they start needing content. They need specific pieces of information and feedback so that they can optimize their inputs to better achieve this KPI. Content can come from communication like asking someone else, data, looking at a report or asking someone to pull a report, and feedback, feedback from other people, customers, teams, financials. Things like that.
Really, one of the best things a CEO can do or an entrepreneur can do is engineer this properly, so how do we best engineer the communication lines, and the structure, and the architecture between people, context, and content? It's a very difficult problem, but it is so extremely important, and what I'm going to do right now is just walk you through each one of these three: people, context, content, and tell you what I've learned from my experience so far. I'm sure this will help you a lot.
With context, you want to start with context. Everything must start here. If you don't start here, you don't even know what people you should have on your team, and you don't even know what content those people need to achieve this context, right? It starts with context. Everything starts here.
Really, if we look at it from its first principle, the first thing you want to do is identify like what problem are you solving because really, at its core, a business produces solutions to a problem. Who has problems? People, so for who? Who are the people we are helping? What is their problem? Define that, and then what is the future you aim to create?
What should be ... In the short, medium, long-term, to what degree are you going to have solved this problem, and what is the future going to look like with that problem solved? What is the future you're creating? What's your company's vision and mission? Then, what principles underpin your philosophy? What philosophy do you have in the people who are going to be on your company have in order to care about this, want to solve this problem for these people, and build this future? All right? Very important.
A philosophy is a belief system built from components of principles, so you need your principles like 10 ... 5 to 10 of this. Together, this forms the philosophy. This philosophy cares about solving this problem for this person and building this future. Then, what's your Polaris Star metric? This is like your True North, your guiding star. Like what is it? Is it growth, and is it engagement? Is it revenue? Like what is that metric, and what are your company and teams' KPIs, Key Performance Indicators?
Overall, how are you going to measure the performance of your company as a whole, and then how are you going to measure the performance of the individual teams and the individuals, the people on those teams? How are you going to measure all of these different dimensions of the system?
You want to start here and really think clearly about this first, and you want to define these things, and you want to write them down. If you want more help thinking about this stuff here, if you go to the Consulting.com blog, you go to resources, I actually created a good video on this the other week called "Tools to Plan for the New Year."
In here, I ... If you scroll down, there's resources. I show you how to set your vision, mission, and principles. I give you examples, and then I also show you like our principles, vision, and mission at Consulting.com, and I also share some other tools with you to help you form this first part of the equation, the context. I'll put a link beneath this video in the resources section to that particular post that I did a few weeks ago so you can find it, and it will help you flesh out the rest of this.
Now, let's talk about people. People are a company's greatest asset, and talented people are 10 times better than average people. We've got this kind of belief that someone who's really good and really smart is only just a little bit better than someone who's average. It's not true. The difference between an A and a B ... Not in school. I'm talking about like an A-player and a B-player in real life is exponential. It's 10 times. It might be more. It might be 50 times, and I'm not joking.
Someone who is very smart is worth 50 average people in a company, and you have to learn this. You can't have any one average in your company because there's just no way it can work with mediocrity because As hire As and Bs higher Cs. If you have Bs, they're going to hire Cs, and if you've got Cs, they're probably going to hire Ds, and if you've got Ds, well, you're screwed. Actually, if you've got Bs, then you're screwed because they're going to eventually turn into an entire workforce of Ds.
Not only are talented people about 10 times better, but if you have a person who's the equivalent of 10 in one, then you also save on your communication costs because remember that we don't want to add more people to the team. We should do everything we can to not add people to the team. So then, if we want to leverage our output, then we want to leverage talent because talent gives us 10 times the people in one individual person, and it's better to have two smart people than 20 average people, and it's better to have two people working 60-hour weeks than four people working 40-hour weeks.
This is another thing because if you just have people working short amounts of time, but you have more people to make up for that, then you've got more people. Communication costs. It's better to have a smaller group of people working harder. That is more efficient because remember, the main thing is the communication costs, and the ultimate would be having extremely talented people on small teams working hard. That is the best. That's how you add a force multiplier upon a force multiplier upon a force multiplier, and that's how you make like a lot of progress and throughput happen.
When it comes to structuring teams, small teams work best. Three to five people max. Don't go more than that. If you need to have more than that, then break them out into two individual teams. Seriously, you cannot go more than three to five people on a team because it comes back to this. Remember? As soon as you get to three to five, efficiency ... At four, you're at 89%, and then at five, you're at 82%, and so you don't want to go six because you're dropping right down. It's best to actually stay three to four, at max five.
You also want to have no people managers, so never ever, ever hire people that just manage people. You only want to hire doers, and so you're probably thinking, "Well, who manages then?" Well, you get the best doer on the team to double as a team lead. Let's say you've got a team of four people. That team needs a leader. One of the doers, the best doer would be the team lead. They're not a manager. They just manage the small team as well.
You see, as soon as you go up to more people like a 10-person team, now you need a full-time manager because there's so much management to do that you can't possibly do any work, so now you've got a body on your team that doesn't do anything. They just manage, and they're also not very good at managing because all they do is manage and they don't do, so you get really screwed, but if you keep it to three to five, then you can have everyone doing and everyone managing best.
Then, your org structure. This is like your org chart. It should be decentralized and flat, and every team should have a lot of autonomy and independent decision-making ability, and you're probably ... If you're thinking, "What does decentralized and autonomy mean?" Well, here's a good way to think about it.
A lot of companies, when they're starting off, they have a centralized kind of structure, so it might be the CEO or the founder in the middle, and then they might hire a bunch of contractors around the side or maybe a couple of employees, and everything has to rout through this one person, and this works great when you first start. But then, as soon as you add a few more nodes to this thing, it just blows up, and you're in the middle of it.
Really, what you want to do is you want to use distributed or decentralized, and really, you want to start ... If you've been here, you want to go here, and here, you want to break out all the different kind of ... You want to partition your company into its different functions, so like it might be customer support, and then it might be a particular product, and then it might be ... There might be a sales team, and then there might be marketing. Right? You want to break it out into its different pieces, and then you want to appoint someone in there as the team lead.
Now, you've taken everything routing through one person, and you've broken it out like this. Now, all of these people on this marketing team can just go to the marketing team lead, and instead of everyone on the marketing team having to go to you and then everyone on the support team going to you, they just go to their team leads. Then, when you need some information or if the team lead needs something, they can come back to you. Right? This is what you want to move to.
Some more thoughts on this. When it comes to people and teams, open-plan offices are a really bad idea, and I know this because I had one of them. This was our office in New York, and you can see it's like the ... It looks cool. It looks pretty. Lots of open-plan. People looking like ... Here's Rhett talking to someone here, and it looks like really nice, and friendly, and open-plan. Nice computers and things, but it's terrible because it's just ... There's distractions.
If someone is focused working on something here, and then someone starts a conversation over here, this person is going to hear it, and now they are distracted and thinking about that, and then whatever happens in here, if one person starts talking about something, it basically takes everybody offline, and so it's very hard to focus, and people hear things that they shouldn't, and there's also very low barriers to people talking to other people because you don't have to get up or walk around somewhere. You can just say something, so this is a really bad idea to have open-plan offices.
I know this is controversial because pretty much, every company and startup these days ... It's fashion. It's the trend. "Oh, let's make everything nice and open-plan," and this was the layout of my office back in New York. We had some desks, desks, desks, and then like a couch area and a kitchen area, and then we had one meeting room, and then a private office here. This kind of worked okay, but it really didn't.
You're probably thinking, "Well, if we don't use open-plan like this, then what do we do?" I've thought about this a lot because since I've moved to L.A. over in California now, I'm looking at our next offers, and I'm really thinking how am I best going to structure it, and how can I structure it so that everyone is efficient as possible and they don't get distracted, but at the same time, there needs to be communication.
What I thought is I really need to build a hybrid, a hybrid of private and open, and so I pretty much call this project the Human Collider Project, and what it looks like is ... You just got to imagine it like this. You walk in here. There's only one entrance, one exit, so everyone must rout through this one place, and then there's a reception, and then you have a cafeteria here.
Why a cafeteria is important is because I really watched how much time people spend going out and getting lunch. It's huge, and they don't necessarily like going out and getting lunch because it involves walking, and then it involves waiting in a long line because everybody goes and gets lunch at the same time. Then, it involves spending their own money for something that might not even be very good and not good for their health, and then they got to walk back, and so I thought, "Well, at our next office, I'm definitely going to have a cafeteria and make sure we have catered lunch every single day so that people can eat healthy. They don't have to spend their own money, and they don't have to waste time waiting in lines."
I can't believe all businesses don't do this. Seriously, if you just watch how much ... Like look at how much money you pay for like talented people on your team and look at how much time they waste waiting in line. Now, they don't want to be waiting in line. That's not a good use of time, and then they have to spend their own money for food that isn't good for them, so it's all waste.
Whereas if you do it like this, it's much more efficient, and it's better for everybody, and so I thought, "There's going to be one entrance, the reception, cafeteria where everyone can eat lunch, and then conference rooms are going to be in the middle. All glass, so that ..." You want to limit the use of meeting rooms because meetings are inefficient.
I hate meetings, and I want to make sure that if anyone is every having a meeting in my company, everybody can see them, so the cafeteria, every single person in the office, and the reception, and everyone. You're fully there, and so it makes you think twice about using a conference room because meetings are a huge waste of time, and that's why I put them here.
Then, what I've done is I'm thinking of partitioning out four main areas, so there would actually be a wall here, wall here, wall here, wall here, and so when you walk through, you have to go past, and this is how you'd get into one part. Then, you'd get into another part here, and another part here, and another part here.
Why I wanted to break it out like that is because there are just some parts of the company that never really needs to talk to other parts, and so it's silly to put them together. You want to put ... In the same compartment here, you want to put like teams that have symbiosis with each other like teams that have a symbiotic nature should be close.
If two teams ... Let's say there's four teams in this special partition here, and this team and this team have a lot of symbiosis, and same with all of this together, then they should all be in one partition. Then, if this one partition has most synergy with this other partition, then they should be close to each other, but still separate, so it's all about getting each dimension of this right. How do you configure the desks? How do you configure the islands of desks, and their structure, and in different partitions, and then the conference rooms and things, and the cafeteria?
You might be thinking, "Well, if you split out these different teams and they're behind different walls, then they're not going to mix with each other, and that might cause silos," and that's true. That might happen, and so my way of combating that is to make everyone rout through a central entrance, so everyone has to come through here. Everyone has to go out through here. If you want to have a conference room, you've got to use one of these and you have ... Everybody has lunch here, so people have ... People work away in their little teams, but then they come together at these different times, and that's like why it's a human collider because you're colliding everyone in the middle, and then when they don't need to be collided, you partition them back.
Then, there's another dimension of this as well, and you can see there's a lot of these PO things like what the hell are these little PO things? Well, they're private offices, and so this is something no one does these days. Everyone does open-plan offices like this, and a lot of companies and startups, they look like this on the left here, but what I want to do with this new office, and I honestly think this is going to be a lot more productive, is teams are supposed to work out in the open-plan areas. Right? That's why everyone has an assigned desk out in the open-plan, and by default, you're supposed to be working in these open-plan areas.
However, we also have a lot of private offices. Basically, enough private offices for 70% of the people in the entire company, so that means if there's a hundred people in the company, there's 70 private offices because I don't think ever there needs to be more than 70% of the company focused solely on one task at one moment in time, so that handles that.
Now, why people went away from private offices is because they were worried about silos and people not communicating, right? But now that we have these open offices, the problem is everyone ... There's too much damn communication. Right? It's just like social media and all those crap like social media was great because a lot of people weren't communicating very often. But now, there's too much communication, and so it's productive to delete your social media.
Same sort of stuff is going on with this whole private office, open office thing, and so teams will have an assigned desk here, and when they need to focus, they will just go into one of these private offices, and no one will distract them when they're in there, and they might work in there for two days, and then come back and start sitting back out here with their team.
It's basically like when you need to be focused, and executing, and in the zone, you'll leave your workstation, you go to a private office, you close the door, and that's where you work. But when you are done with that kind of sprint, or project, or whatever, you come back to your main workstation, and so this is like a hybrid approach. We get the openness, and we also get the focus and the distraction-free, and then we partition the teams like that too, so the teams are separated from each other, but we rout everyone through one place, and they meet here for lunch, and meetings, and things like that.
This is what I'm planning for our next office, and I came up with this kind of idea from, one, having this problem at this workplace, and two, really looking at centralized, and decentralized, and distributed systems, and how they are best structured and partitioned.
When you're sitting at an open-plan office, you don't need to hear something about a department that has nothing to do with you. Hearing that piece of information distracted you from your task, and it's completely useless, and there's nothing worse than distractions because not only is the person who is distracting the other person distracting them. Now, you've got two people not doing any work, but now, if you're in an open-plan office, the whole office, all 10, all 20 people aren't doing any work, so one little trigger can set off an avalanche of distraction, and so this is why it's important to partition things, and this is why I've come up with this design.
Now, let's talk about the third component of this, and that's content. What I've learned about information, people, and communication, transparency removes the need for communication. A lot of the time, when you're communicating with someone, you're asking them a question because you need a piece of information from them that you cannot get without asking them. If people share different things and make them public with other members in your company, then they don't need to ask you for it. They can just get it. Let me give you a perfect example.
My calendar that shows what I'm doing every day in my warmup and everything, I share it with people in my company so they don't need to ask like, "Oh, hey, what are you working on at the moment?" They know, so they don't have to ask me, and then everyone in our company has access to all of our financials, and sales data, and tracking, and attribution data.
Basically, everyone has access to everything, except for a few sensitive things because you don't want everyone to have access to absolutely everything because, one, it isn't necessary, and two, it can cause some issues, but most companies hide a lot of information, and so the employees are constantly in the dark, and then they try to use communication to get out of the dark. Now, they're not working because they're communicating, and they can't get that piece of information anyway because it's hidden, and so they're all communicating with each other, trying to achieve an endless goal, and you want to make things transparent.
Instead of having an open office, just make open information like share your calendar. Share your financial data and stuff with your employees instead of making everyone sit in an open area. Most companies have adopted the open-plan office, but they still were not open with information, and this is mindless. Then, interrupting somebody is not okay. You need to set standards in your company that you're not ... If someone interrupts someone, that's not okay, especially if that person is someone that really needs to work on a particular project and get it done, and I'll give you a prime example of this.
Once, someone in my company who worked on our support team ... They don't anymore. Party, because of this. They were receiving an email from a customer, and the customers would say, "Hey, I don't want to be on this email list anymore. Can you please unsubscribe me?" What this customer support person did is they went behind through Slack without asking anyone and started messaging one of our engineers who is building product, and then was getting the engineer to unsubscribe people from this list. I asked one of our engineers, "Hey, what are you doing? What have you been working on?" He said he was spending most of his time unsubscribing people from a damn list.
Here, we have someone who's highly paid. One of the highest paid people in the company who's working on one of the most crucial, most important projects in the entire company, and he's not doing anything of value. He's just unsubscribing people from a list, and that was assigned to him from a customer support rep. When I traced it back and I looked at the email that the customer support rep was getting our engineer to unsubscribe people from, it had an unsubscribe link at the bottom, so all that support rep had to do was just reply back to that person and say, "Just click the link," but no, they had taken one of the most crucial components of our company offline.
That's a perfect example of this. You cannot have that happen. You shouldn't have customer support making your engineers unsubscribe people from a list. You shouldn't have that sort of shit going on, and I can tell you that most companies have this stuff go. It's like a viscous disease that's just ripping through that company, and you've got to make sure that people ... There's basically walls and barriers like different people aren't allowed to talk to other people and different teams aren't allowed to talk to other teams. If they are caught doing it, they're warned. If they do it again, they're gone because there is nothing more costly than interruptions in communication.
Communication must have rules and protocols, so that goes back to interrupting somebody is not okay, or if you need to get a piece of information from somebody else, you go to your team lead, and that team lead will tell the other team lead. Right? Then, that team lead will get it for you and bring it back. What you don't do is go over to another team, and interrupt all of them, and ask for something, so it needs to have rules.
Everybody doesn't need to be on the same page, and I hear this all the time, "Oh, but we need to know what's going on," or, "I need to know what's going on here," or, "Hey, why did you make that decision, Sam? You didn't tell me you're going to do that." It got to a point where I was like, "Look, calm the hell down. If I had to tell all of you what I'm going to do and what I'm thinking about doing all the damn time, then I wouldn't do anything, and you guys can just adapt like if I do something and you see that I've done it, adapt."
Like you don't need to have everyone on the same page all the time and thinking you need to is just going to end you up dead. You won't be able to innovate fast enough, move fast enough. You're dead, and so you need to make sure that teams can make decisions and act without informing others and that it's okay, and you don't have to have everyone on the same page. Different departments don't even need to know what's going on in other departments the same way you can run your business without watching the news, and that's a perfect example.
When I was a kid, I was told, "Oh, you need to watch the news, Sam." I never watch the news. It's bullshit, and I run my company quite fine without knowing what the hell is going on with the government, and so that's absolutely fine. Same way, different departments in your company can run their departments without knowing what's going on in other departments or what's going on on the news or the government. Right? It's just not important. You don't need to know.
Then, teams must adhere to and report to a single source of truth, and what I mean by this is you need to agree on some KPIs and some metrics, and you also need to agree on how you're going to calculate those KPIs and those metrics. For example, we have like a Facebook media buyer, and we have someone who buys ads on YouTube, and we also send out emails, and we also have people who refer friends. Sometimes, we have affiliates. We also do some SEO. We've got a bunch of different ways customers can buy from us.
Now, when it comes to figuring out, "Hey, where did this customer come from?" there's lots of different ways someone could do that. They could look in Google Analytics. They could look in Facebook or YouTube, and they might be like, "No, no, no. This thing says that I have it." "No, this one says I have it." Right? Big chaos, so we must adhere to a single source of truth, and we agree on what that is, so we actually have like an attribution system, and the actual arguments for that algorithm are expressed explicitly, and the person who conducts that, he doesn't audit.
Our data scientist said he doesn't audit at 10:00 a.m. every day on the previous day's sales and checks through every single attribution. Our algorithm assigns most of them, but then if there are some that aren't assigned, then he will go through and manually check them, and every single sale is personally checked by the same person at the same time using the same rules.
Then, that person assigns what the official attribution is, and then that's the single source of truth that our media buyers use for completing their reports and figuring out what their ROI is on their respective channels.
Now, that sounds complicated, and it really is. It's a real pain in the ass, and don't worry about it. You won't need to build anything like that. It's that damn complicated, but that's just an example. Right?
Then, teams must adhere to standardized language concepts and systems, and what I mean by this is if you're talking about different things in your company or different products, you should have standardized language for that like a customer is defined as this or a lead is this. Right?
Sometimes, people are talking about leads, prospects, customers, and you don't even know what the hell people are talking about. Also, what's the difference between revenue, or cash, or accounts receivable? What's a write-off? Like all of the different things, and actions, and metrics, and numbers, and objects that are in your company, you want to make sure that you come up with a standardized language, and this is important because if people start saying different things, that means that people get confused.
If you think this is one of those small little things that isn't really important, well, Elon Musk got an email from someone in his company, and they used an acronym. They took a four-letter phrase, and they turned it into a ... They took a four-word phrase and turned it into a four-letter acronym. When Elon Musk saw that acronym in that email, he sent out a broadcast saying, "This is not okay. Never ever, ever use acronyms, and the only acronyms that are approved are these," and he made a list, a master list of acronyms with what it actually means, and he said, "If anyone in this company ever wants to use an acronym, you must get written approval from me, and I will add it to our master list of acronyms."
Now, you might be thinking this is pretty crazy. Why would a CEO like Elon Musk who's building rockets care about an acronym? Because it's that important. Think about it. If someone hears an acronym in a meeting, and then that acronym is repeated throughout the company and it gets adopted, and then new employees come in and hear it, and they think something else, well, now you're going to have people hearing the same thing and perceiving it in two radically different ways, and that's how you end up with a catastrophe.
It's so important that you have standardized language, standardized concepts, and standardized systems, and a single source of truth, and a way of measuring everything, and that you partition your teams out, and all of this. All of these intricacies that I've been talking about. Content, office structures, and layouts. All of this stuff here. People, context. It is so important because all of this is how every component of your system ... and when I say system, I mean your business.
A business is really like a system, and within it, there's components, there's machines, there's information transfers, there's humans, there's customers, there's ... All of these different components. How do they all come together, and connect, and operate to form a whole? That is pretty much one of the most important things in all of business because if you get this right, then you should get everything else right, and it's something no entrepreneurs talk about. When I listen to entrepreneurs, they mostly are talking about marketing or like how to get more likes or something, but this is really important stuff.
As you grow, hire people, and form a team, remember that communication is a cost. It's something that you should avoid doing because it is a cost. Now, I'm not saying that you leave people in the dark, and then they can't do their job because they ... no one told them what to do. No, I'm not saying that. I'm saying you need to re-engineer your company so that they know what to do without being told all the damn time, and it's your job as the entrepreneur to architect the structure of everything, and as you grow, always revisit the structure of your company to ensure it remains efficient.
That's it for today's video. I just thought I'd share what I've been thinking about a lot recently, and that is how to best engineer these things. I hope this helps you on your journey, especially as you start hiring a team and trying to orchestrate all of this because it's one challenge to get started and get your first customer, and it's another whole challenge to deal with this. This one is harder than getting your first customer, but this is ... When you master this one, this is what really enables your business to fly and start scaling, and it's something that not enough people talk about.
If you enjoyed this video, just click the "Like" button and let me know what you thought in the comments section. Was all of this clear to you? Was this valuable? Did it help? Do you have any questions? Give me some feedback, and thanks for watching. I will see you in the next one next week.