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400 people, then 20
Luca Ferrari runs Bending Spoons, which buys software companies that lose money and asks how they can be unprofitable when software has the best gross margins there is. His question about one purchase was what its 400 people were doing all day. The company shrank to 20 and went from losing money to a cash printing machine.
A rule against complexity
Organizations drift toward adding layers and complexity, so Bending Spoons built a rule against it. Anyone in the company can raise a hand against a new piece of complexity without saying anything more. The person who wants to add it has to be the one to justify it.
Fighting bureaucracy
Peter Rahal, who hates what he calls big, fat, stupid companies, sees the same pull. The more people there are, the more the group wants to become that kind of company, so he treats fighting bureaucracy and the bullshit as part of his job.
Why do software companies earn such high margins?
Once software is written, serving one more customer costs almost nothing, because copies are free and the main costs are the people who build and run it. Subscription software companies commonly report gross margins of 70 to 80 percent or more. That leaves most revenue to cover salaries before profit, which makes headcount the main lever on profit.
Why do organizations keep adding layers?
In a 1955 essay in The Economist, British historian C. Northcote Parkinson observed that the number of Royal Navy administrators grew over decades even as the number of ships shrank. He argued that officials multiply because each wants subordinates, and the subordinates create work for one another. The essay gave the idea the name Parkinson's law.
Why does headcount slow software teams?
In The Mythical Man-Month, published in 1975, Fred Brooks noted that communication paths grow far faster than headcount. A team of 20 has 190 possible pairs of people, while a team of 400 has 79,800. Brooks's law holds that adding people to a late project makes it later.
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