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Well Fed and Unsatisfied
The curious case of high pay and low fulfillment in the Innovation Economy.
We live in an interesting time in tech-land these days. Even after the highly publicized layoffs in tech and finance, overall employment remains super high, compensation is super high, yet morale seems to be moving in the opposite direction. Highly competent and well-intentioned people are both burned out and disillusioned with jobs that fill the financial coffers but decreasingly provide acceptable levels of true fulfillment.
This is not simply the opinion of one unfulfilled writer - I’ve spent the last several months reconnecting with former colleagues1; several dozen at present count. These are highly capable people with whom I’ve successfully scaled businesses to hundreds of millions in revenue and valuation. And yet, with scant few exceptions, each of them repeated the same story:
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My career is on (relatively) solid footing and my compensation is great.
I would drop it in a heartbeat to do something I actually enjoyed.
I’ll be the first to admit that there’s massive selection bias here. These are, after all, representatives of my own personal network, which is not at all a generalizable sample. Yet it feels like we’re in the early earnings of a secular shift.
Perhaps this is simply the natural malaise emerging from the Mature phase of a Carlota Perez S-curve, with the information technology revolution having largely run its course and anointed its winners. The frenetic energy of the 2010s bull run has now worn off, and without an obvious “next2”, we’re simply experiencing the emotional come-down.
But this is just conjecture, and I feel fundamentally uncomfortable sitting back and hoping that the broad unfulfillment I’m witnessing - and that I myself have been feeling - will just cycle out. Because there’s no guarantee that such unfulfillment will, naturally and on an acceptable timeline, operate in this manner; not if this hollowing out of the psyche of our most innovative and productive people is a direct manifestation of organizational and structural degradation.
Here I’m talking specifically about the corporate structures that govern the vast majority of work today. Keep in mind that although corporations have technically existed for centuries (dating back at least to the Dutch East India Company), the modern corporation is but a century old.
It was and is an important evolution, but it is most certainly not the ideal final form. And at least in Silicon Valley’s version of the corporation, where so much of our historical innovation originated, we simply can’t afford to stagnate and take the mental health of our innovators for granted.
We can do better. We will do better.
What follows is a bit messier than I’m naturally comfortable with, but these are the early days of an evolution in my thinking about the impacts of organizational and systemic structures on innovation. This is my first attempt (of many) to grapple with the great search for an equilibrium between a highly challenging, value creating, fruitful career and holistic personal fulfillment.
Bureaucracy, the Motivation Killer
“One of the fundamental beliefs at CSI is that autonomy motivates people, and bureaucracy does the opposite, so we try to do as many of the important monitoring tasks with as light a touch as possible.” - Mark Leonard
The larger an organization grows, the more bureaucracy it requires to function - this is, I think, a pretty uncontroversial statement. It’s not just the sum total but the proportional time spent by the organization, and thus by each employee, that grows with increasing corporate size.
As Mark Leonard comments above, bureaucracy is an autonomy killer, and thus a motivation killer (or at least dampener, if I’m being kind). All things being equal, an engineering manager in a 50-person organization will be fundamentally more productive, and more fulfilled, than the same person in the same role in a 500 or 5,000-person organization.
Note that I’m still referring to a manager here. Even in today’s more evolved technology ecosystem, in which engineering at many (large) companies offers dual pathways of individual contribution versus management, people management continues to be the dominant form factor for career advancement in any discipline.
By definition, this means that career advancement requires a wholesale shift of one’s time and energy away from more granular, tactical, technical work to people management. Actually that’s not totally correct - as companies grow, “management” doesn’t just require a shift toward people management but bureaucracy participation.
A greater and greater proportion of said manager’s time must necessarily be spent maintaining the ship, primarily via organizational meetings. This is not necessarily an indictment of the corporation, which must build increasingly unwieldy structures to manage its increasingly complex coordination problems, but it does appear prima facie like a tremendous waste of our most precious talent resources.
I feel compelled to state that bureaucracy itself is necessary, but the volume is not. The bureaucracy ratio increases not just because of organizational complexity but because the mass tangle of internal systems automate away much of the work. Put differently, as organizations scale, fewer and fewer jobs actually require full-time work to yield acceptable results.
Most Corporate Jobs Aren’t Full-Time
For most employees, full-time employment is a badge of safety - it guarantees an income floor around which one’s life (and expenses) can revolve. But a full-time job is also a value exchange between employee and employer.
In exchange for the receipt of guaranteed, fixed compensation, an employee offers a near-monopoly of her productive capacity at a fixed weekly of value of at least 40 hours. Note that this value exchange is generally a good deal for both sides - employers better guarantee their productive capacity via higher worker retention rates, and employees establish a cash flow baseline while minimizing the (relatively wasteful) energy required to search for new employment.
Note the repeated use of “fixed” in this discussion - this is the insidious challenge we face. Because although on a long enough time horizon the average time required to achieve acceptable results may equilibrate around that 40-50 hour mark, actual necessary productivity rates for essentially ALL workers is highly variable. The appropriate workload for even a rockstar marketer may only be 10-20 hours some/many weeks, but because of the often unspoken contractual expectation, 9am to 6pm every weekday comprises work, and those hours will be filled.
This is what I tentatively call bureaucratic drift - a corporate form of entropy - and it increases with the size of the organization, especially within organizations now focused more on value capture versus value creation. This is (unfortunately) natural for the typical life cycle of a startup into corporation:
Early employees are generalists who have an always overflowing backlog of problems that need to be solved.
Companies grow, systems are built, and employees become more specialized.
Bureaucracies are constructed to cope with the increased complexity of both scale and systems.
More employees fill each discipline, removing more and more slack in the system and increasing redundancy.
Greater redundancy necessarily means that each subsequent employee is less and less individually productive - the system receives less human leverage even as the system as the whole gains greater leverage.
Lesser productivity means more hours available as part of the salary contract, which is filled with ever-growing volumes of bureaucracy.
As bureaucracy grows, individual fulfillment diminishes, even while compensation stays flat or increases.
This is, I believe, an inevitability for any company that mostly leverages salaried employees and especially that employs many times more people than the Dunbar number who are all dedicated to the same product.
As organizations grow, and as the actual time needed to complete a task decreases, this necessarily means that an increasing proportion of roles within a company should actually transition into part-time work. In practice this simply isn’t possible, however. Such a move would fundamentally violate the nature of a full-time employment contract.
The Advantage of Small
So what is one to do about this? If we again borrow from the Mark Leonard playbook, keeping companies as small as possible might be key. Constellation Software specifically asks all of its company CEOs to justify why the given company, seeking to grow beyond 100 people, wouldn’t be better served splitting into two companies to explicitly keep the company closer to the Dunbar number.
Why such a dogma-adjacent obsession with small? With fewer than 100 employees, each functional lead typically doesn’t require a team greater than 9 people, the upper bound of managerial efficacy. Once the organization extends beyond 100 people, certain groups (especially engineering) can no longer be managed well by a single functional lead, and thus sub-teams (and middle management) are necessary, which fundamentally alters and slows down productivity.
“A huge body of academic research confirms that complexity and coordination effort increase at a much faster rate than headcount in a growing organization.”
Striving to maintain organizational size around Dunbar’s number is, I think, the target if one wishes to structurally maintain productivity, autonomy, and overall employee fulfillment. The obvious criticism to a Dunbar approach to corporation building is that it necessarily restricts the types of companies that can be built. It’s simply not possible to have Amazon-like efficient shipping without a massive logistics network that requires 10,000 Dunbars.
The point here is not that larger corporations shouldn’t exist, but that many of our most talented, most productive people would be better suited not actually working within these companies. Put differently, mega corporations do not provide the appropriate structures and systems for maximizing top talent productivity nor their personal fulfillment.
“Smaller” companies provide a better foundation here, and if we are to facilitate a wholesale talent transfer out of larger companies, we necessarily require a far greater supply of high performance “small companies”. Company size, however important, is not wholly sufficient for solving the “fulfillment crisis”. We also must grapple with the very nature of full-time work.
Diversity through Forced Concentration
Given my many recent written forays into venture investing, portfolio construction is on the brain. Venture capital, like all investment portfolios, is built upon some level of diversification, dictated by power law returns.
And though almost none of us think about our work life as a portfolio, I think it’s an apt analogy. Financially, creatively, and intellectually, full-time work should be viewed as a highly concentrated work portfolio. Similarly, the rise of the side hustle can be viewed not only as a means for asserting more autonomy (given the aforementioned bureaucratic drift) but also as a mechanism for diversifying the work portfolio.
Near 100% concentration of work in a role that requires increasing bureaucratic participation should expectedly lead to lesser fulfillment, and lesser overall productivity. The converse, then, should also be true - that diversifying one’s work portfolio should, if properly constructed, yield better fulfillment and productivity. This does not mean perfect balance of time between roles. Just as a diversified investment portfolio has different weightings for different holdings, so too would one’s work portfolio.
During certain periods - say, a new product launch - one’s time allocation may approach 100% for a given role, but in the aftermath, when required capacity for that role falls to 30%, one would (ideally) fill the remaining portfolio with a cadre of different work. These natural ebbs and flows occur whether one is concentrated or diversified - the difference is how a concentrated versus diversified work portfolio handles the shifts.
The primary release valve for managing the troughs of work in a concentrated environment is vacation time. Vacations are great and necessary and more people (myself especially) should invest in “recovery” just as athletes do. But binary systems like this are brittle, at least from an individual employee perspective.
The only scaled example of companies systematically offering diversified work portfolios exists within management consulting. Though often derided, such firms offer employees with the interesting combination of a salary plus a never-ending rotation of novel work. As I’ll discuss in the next piece, the nature of this work is perhaps less fulfilling than in traditional salaried roles, but if we punt on those details for now, consulting is truly the “diversification” opportunity for those in need of salary.
Outside of this narrow band, the “diversification pathway” typically requires one to exit the realm of a salaried employee.
Persistence and Idiosyncrasy
The obvious counterpoint to salaried, full-time employment, especially if one is trying to build a more diversified work portfolio, is part-time employment. This is today the dominant model for all film productions, and it similarly undergirds the gig economy. At the high end of the compensation spectrum, this is the model for independent consulting and advising.
Rather than focusing solely on the financial aspect, which is what we do when talking about salary versus part-time, let’s instead think of these two as existing on a persistence continuum. On one end, we have a traditional full-time salaried job, perhaps even one (outside of California) that uses employment contracts to guarantee employment - fully persistent work. On the other end, we may have short-term contracts with no persistence built in - let’s call this idiosyncratic work.
Work in the gig economy is a bit challenging, as it is fully idiosyncratic from a demand perspective, but because there is typically a platform intermediating the relationship between supply and demand, there is a greater level of persistence for the given worker. I’d plot this closer to the idiosyncratic side but not at the pole.
Part-time work enables far greater flexibility, as well as “promiscuous work”, in exchange for non-guaranteed wages. Because of the variable nature of this type of employment, contract workers at the high end can make significantly more (in cash) than they otherwise would while salaried - the persistence of a salary is offered in exchange for a discount on the actual worth of the work (more on this shortly).
Though idiosyncratic work’s higher level of diversification may improve one’s fulfillment, there are obvious downsides to the model:
A significant portion of one’s time must necessarily be spent in “client acquisition” mode - selling one’s services to secure new contracts. The bureaucracy is thus replaced with hocking one’s wares, which for some is a worthy tradeoff but for many is a non-starter.
Gig economy platforms remove this acquisition step but also rob the worker of any agency and typically only operate at the lower end of the compensation spectrum.
The work tends to be project-based and (typically) less interesting for those who prefer grappling with ambiguity. I’ll cover this in far greater depth with the next piece.
Though upfront compensation may be higher, such work rarely includes back-end participation, whether that be profit sharing or equity in the product.
Although the above are all true, I think the biggest challenge with purely idiosyncratic work as it is presently constructed lies not with the work itself but within its relatively solitary nature. That is, idiosyncratic work tends to be solo, and the loss of persistent, scaled relationships with colleagues is quite challenging, especially for those of us in the middle innings of life who are further and further removed from more institutional catalysts of social relationship formation.
Capturing a Piece of Upside
A final component I’ve alluded to but not yet discussed is perhaps the most important - not just for individuals but societally as well. Inequality has inarguably grown in the past several decades, both in income:
And especially in wealth:
The wealth gap is even more pronounced if we zoom in further, as the top quintile of households are the only group to have growth their wealth since the Great Recession:
One clear takeaway from such data is that the nature of compensation matters considerably. The top quintile, and especially the top 1-5%, vastly outpaces in wealth generation not because of its salary advantages but because of the substantial tranches of growth business equity it holds.
We’ll call this participatory compensation, to contrast with the non-participatory or fixed compensation inherent to most employment, both persistent and idiosyncratic. This distinction may feel a bit odd to those who have spent their careers in the tech industry, given that salaried work is, by default, participatory - even entry-level workers are typically offered a small piece of equity in the business as part of their comp package.
Though I’ve just argued that 1% wealth can only be derived from participatory compensation, it’s important that we not assign value judgments to participatory versus fixed here - there are significant tradeoffs for each.
Outside of the absolute frothiest of domains (e.g., data scientists in an AI bubble), employees who accept comp packages including any equity participation are definitionally accepting less salary than they necessarily deserve. They are systematically devaluing this salary in exchange for a probabilistic bet (in the form of equity) that the given company will appreciate so substantially over the course of their holding period that the salary gap will be more than closed.
Transmuting fixed cash comp into probabilistic equity comp enables the company to extract a highly variable loan from employees - 0% to start, and then from 0% to an uncapped value, with the highest likelihood of this loan never being repaid. This is a bit ungenerous, of course, a bit coldly financial. Offering equity to employees literally provides them with a piece of ownership, and it does offer a convex potential windfall to employees that in most other industries could never achieve such returns.
But there are most certainly a number of challenges with this tradeoff that relatively few employees actually consider:
Standard four-year vesting cycles for stock options fixes the time commitment of that employee to that company to actually receive the full compensation package that required the degradation of their true cash value.
Venture-backed startups exist on 18-month funding cycles, such that companies restart the death clock with every funding round. For an employee who joins a company from the outset, this means that the company must successfully raise funds at least three times in order for her shares to fully vest.
The earlier the company, the greater the likelihood that that equity will be zero. Employees are compensated with this risk in the form of greater numbers of shares and at much better prices than later employees, but given that startup death rates are 60% or greater, the vast majority of early employees will definitionally accept lesser compensation than they are owed.
Equity returns are derived solely from exits, which are dependent on valuation growth and the returns of which cannot typically be recognized for several years at least.
Even if the eventual compensation achieves equivalence to the “true” salary they should garner, that compensation will come at a lower internal rate of return (IRR) because of the aforementioned time delay (typically several years)
Despite all of these challenges, it’s still a pretty enticing tradeoff! Angel investing would simply not be able to achieve its current scale without the thousands of non-founders who saw their equity stakes instantly mint them as millionaires when their respective companies exited.
I need to mention at this point that this convex (potential) upside is almost universally reserved for salaried employees. Consultants, contractors, and the like rarely if ever are eligible for participatory compensation, even if their work looks identical to an employee. This of course means that if one chooses to diversify the work portfolio by taking on a broader number of contract jobs, one is (today) eschewing any back-end participation opportunities.
Building a Work Framework
What ultimately emerges from this rough exploration is a framework to capture the relative tradeoffs inherent to modern work. We can potentially use it to better design new modalities for improving person<>work fit; to better match systems of work to one’s individual needs to help optimize for fulfillment and productivity. In such a framework, there are four “binary3” vectors:
Time Allocation: Persistent vs. Idiosyncratic
Compensation: Fixed vs. Participatory
Portfolio Type: Concentrated vs. Diversified
Organizational Size: Small vs. Large
This framework thus represents a hypothetical 16-dimensional space, but in reality just five of these dimensions represent the bulk of work within the Innovation Economy today:
Salaried Tech Worker: Persistent - Participatory - Concentrated - Small/Large
Gig Economy Worker: Idiosyncratic - Fixed - Concentrated - Small
Independent Consultant: Idiosyncratic - Fixed - Diversified - Small/Large
The combination that may offer the optimal equilibrium between fulfillment and productivity (and that I am personally most interested in) is almost completely absent in our present-day organizational structures:
Persistent - Participatory - Diversified - Small
I’m going to spend considerable energy on this vector in next week’s piece.
I’ll be honest that although I like the general direction of this framework, the base vectors still feel under-developed, and it is far from an exhaustive model. There are many other motivational factors that are intentionally left out here, both for parsimony and because my approach (for better or worse) is designed with organizational structure itself in mind.
Nevertheless, there is something satisfying about moving beyond the typical “full-time/part-time” employment dichotomy, even in its currently insufficient state. Lest I not forget the launching point for this piece - I’m very much convinced that, if we are to solve the fulfillment/productivity paradox, we will need to innovate not just with products but with the organizational structures of work. Perhaps even build new institutions.
As humans we’re bad at perceiving time in years, let alone decades or centuries, but it bears repeating that we are in the VERY early innings of operational design:
Corporations are just 400 years old.
The assembly line debuted just over a century ago.
Venture capital did not formally exist until the 1960s.
Remote work wasn’t fundamentally viable until the Dotcom crash.
Our products evolve and our technologies evolve, but so too must our systems and structures.
The pandemic was difficult on many fronts but it absolutely annihilated the secondary and especially tertiary connections that are most responsible for satisfying career (and social) opportunities. And thus I started chatting with old cronies - several dozen as of this writing - which was both satisfying (as the familiarity of a reconnection often is) and troubling.
Perhaps AI, but I'm a bit skeptical that the next cycle will necessarily emerge within the IT sector, given that every new technological irruption has been different than the last.
Not actually binary, as these are continuous variables. But we can use the pairs as shorthand given their being representative of the poles of each continuum.