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Comment by dasil003 | Hacker News Reader

Being a startup guy I come from the opposite side: one of the biggest challenges I've faced in growing startups is alignment. When you're 5 people in a room you can just kind of shout out what you're doing and everything is cool. When you get to 50 this leads to a lot of redundant effort and toe-stepping. If the culture is not evolved by 500 there's very little strategic direction at all.

I agree about the engagement part, but given that I've always worked in places where people were highly engaged, the next challenge is how to direct that engagement towards a common vision and purpose with efficient execution.

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Yeah, leading 500 is a pretty different animal then 50. New hires are probably not going to expect to be "changing the course" and more focused on stepping in and keeping it. Turns of phrase from the leadership can frequently bewilder people unintentionally.

Why do you have to go past the 50? Or even past the 5 people in the room?

Isn't it just better to keep companies small? Maybe have/work on multiple companies, have companies interact better with other ones so they can accomplish more, but keep them smaller.

In the connotation of 'startup' used in Silicon Valley and among venture capitalists (as opposed to how 'startup' is used in other places and/or by other types of investors), a startup is a company designed and striving to grow to a large size. In that context, startups are a well defined subset of new businesses.

Imagine having 5 important, large-scale customers. You need a dedicated representative per such customer. You suddenly don't have people for doing development.

Imagine you don't want to have 5 important, large-scale customers, since your company only has 5 people?

Imagine there are no companies with the need for dedicated representatives, since they are 5-people companies also.

Imagine trying to keep the lights on, without those large-scale, price insensitive customers that pay 100x what the smaller customers pay, for approximately the same amount of hassle as any other individual customer.

I get your point, you're saying that large customers are good for your pockets. Ok, go ahead, take your profit, but accept that this is totally off the point of this thread.

Ever heard of economies of scale? If you like the fact that you can buy computer chips, or clothes, or meat, for their current price and not 100x more, it's because the companies making them operate at huge scales; it takes more than 5 people.

>Maybe have/work on multiple companies, have companies interact better with other ones so they can accomplish more,

Ronald Coase[1] explains why an integrated large company can be more productive and efficient than interacting individuals (or interacting small companies). Basically, internal transactions (departments) cost less than external transactions (contracts).

E.g. there is no way for Apple to sell an iPhone for $500 or Amazon AWS to offer EC2 compute for 1 penny per hour if those 100,000+ employees were split up into thousands of smaller 5-person companies.

It seems reasonable that many entrepreneurs have ideas that require more than 5 people to execute.

[1] https://en.wikipedia.org/wiki/The_Nature_of_the_Firm

Basically, internal transactions (departments) cost less than external transactions (contracts).

It occurs to me that if we believe this, the USA as a country could make our entire economy more productive by making contracts less expensive. 5 seconds thought leads me to believe that "less expensive" might have a number of things involved, from simpler legal language that doesn't require a lawyer to understand, to a legal system that isn't set up to benefit lawyers, to less intellectual property restrictions, to a less adversarial legal system. Clearly much of this is impossible to implement.

It's not the cost of the contracts themselves that are so expensive it's the overhead of profit taking by the recipients of each contract. When you hire a contractor you avoid taking on capital expense and internal complexity overhead, but you are generally going to pay 15% or more above what it would cost you to do it in house. You accept this tradeoff with the understanding that people you contract with have to make some profit too. When you are small the complexity overhead can easily draw you off course. Month to month and on demand contracts can be paused rather easily to adjust to cash flows.

It's not the cost of drawing up the contract that adds a significant part of the cost. The contract work itself that adds overhead.

> You accept this tradeoff with the understanding that people you contract with have to make some profit too.

Of course not. You accept the tradeoff because it is in your interest to abstract away risks. Part of the costs involved in this risk taking comes from how the contracts are set up.

For example, your employee doesn't have an actual contractual obligation to fulfill such and such goals every month, while an external contracted firm may have.

Ok. It is still not the contract that is the major cost.

I didn't say the tradeoff is that other people make profit. The tradeoff is the overhead cost. Sure, that can be another tradeoff -- obliged fulfillment. Either way you're paying the contractee a little more for that.

It's not the contract itself (the legal expense) that is the major cost in a contract. Yes it is some overhead, but is it really a significant part compared to the excess you are paying to have it contracted vs in house?

The point is. It's still going to cost you more, even if the legal cost is zero.

I agree with you for companies that require physical presence. But services like Amazon AWS allows you to effectively contract 1000s of employees. A company like Netflix could be ran by 5 people.

How costly were contracts 2000 years ago? Read again, I suggested that companies start getting better interactions with others, that means innovation on contracts to make them more viable than hiring a new employee.

I wasn't trying to say that it is viable to do EVERYTHING with a 5-people company. I was trying to say it is viable to do a lot, and that it is maybe possible to make it more viable to do more.

> Isn't it just better to keep companies small?

That depends on what you're trying to achieve: the bigger the goal you're striving for, the more people you'll need for it. Yes, technology is an amazing lever, but it's not infinitely long: 5 people aren't going to make the next smartphone, electric car or rocket.

How many companies are building rockets?

Organizations also benefit from economies of scale.

Generally small companies move faster and can innovate much faster, large companies can bring those innovations to massive scale. This is why you often see the model of large companies acquiring small companies then scaling the business (think Facebook and Instagram).

I've been thinking of and recently started working on this exact problem most companies that cross the 40-50 person mark face.

Can we get coffee sometime? I'd love to exchange thoughts and ideas and just learn your perspective as well. I'm in SF (moving to Oakland soon - looked up your twitter).

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