Bigger Isn't Always Better

Happy Wednesday.

Hope everyone had a good St Patty’s day weekend, and yes you can still enjoy a Guinness the other 51 weeks of the year. Today we are talking about why smaller teams, not bigger teams, are the future. 

Also of note, if you ever wanted to make an incredible dinner and have a grill I highly recommend a rosemary maple skirt steak. Made it last Friday and it was worth the $40 I spent to make it.

Here’s another picture of a great fire: 

The Great Hiring 

If you recall in 2020 and 2021, companies (mostly tech) could not hire people fast enough. It was something we had never seen before. I even got an internship for a 30 person tech startup (that’s not normal). In fact, there is a famous example of a software engineer that had 7 jobs at once and was at a $1.3m run rate in earnings. I for one am shocked that this economy didn’t do well. 

A few things happened in 2022 and 2023 that changed perspectives around this mass hiring. For one, Elon Musk bought Twitter and promptly laid off (or they quit) around 80% of the workforce. Even though there were some bumps, the app still performed as it should. Nowadays, Twitter operates with right around 2,800 employees. This is still down from the peak of 7,490. 

Let’s do some napkin math quickly. That is a difference of roughly 4,690 employees. I am going to assume that salaries and all these employees cost around $200k each (I think that’s extremely conservative). This move shaved about $980,000,000 from their operating expenses. 

The Great Firing

As the economy started to slow in 2022 and into 2023, companies shockingly realized that they didn’t need the entire population of a small city to run their company. At the same time, earnings were down, consumers were spending less, and businesses were spending less. All of a sudden, everyone needed to find a way to save money.

Now, what’s the most expensive asset a company has? People. People are incredibly expensive as we just saw above. #napkinmath. So after viewing what Musk did, or even by deciding to save on costs, we saw mass layoffs in 2023 throughout the tech landscape.

Some companies are hiring people back, but a lot realized that they can get the same work done with less employees. Companies started to call that efficiency. Meta even dubbed 2023, their “year of efficiency”. Let’s see how investors viewed this transition:

Nice, solid, up 500% from the bottom in 2022. Happy to say I was invested during this time. Ha, kidding of course I wasn’t, my dumbass was probably trying to short oil or something. 

The Future Is Small Teams

Moving on, I want to touch on the main point of this essay. Going forward, teams will be smaller. Not only to save costs, but mainly because AI has allowed us to become more efficient as individual people. We can get more done with our time. This results in higher productivity and you can now argue one person with AI can do the job of two people without AI. And yes, there is no scientific evidence behind that claim, but I would bet I am pretty close in my estimation.

At a Large Company

While Meta or Google can’t operate with 52 people, the argument here is that the teams inside these organizations will become smaller. For example, it is estimated that Youtube has thousands of employees working on its product within Google. Youtube is a complex product, but I would bet you can cut 25% of employees on that team and still have as good of a product. 

To be clear, I am not advocating for people losing their jobs. Getting laid off is one of the worst things that can happen to someone. My point is, if you start seeing larger corporations start laying off people, it could be to save money, but it also could be in an effort to become more efficient in what they are doing 

Smaller Companies 

When it comes to startups and young companies, they are already shifting this way. In the recent batch of YC companies, the average team size was 2-3. As I pointed out in an earlier article, companies with small teams are already making millions: 

I think it’s important to recognize when you need more people, but I also believe that overhiring is one of the worst things an early stage company can do. There comes a point with hiring for your team where it becomes inefficient. It acts almost as a plateau. Every person you hire from the start has a positive effect on the company and adds value to the workflow. It looks something like this: 

Alright let me explain this incredibly designed chart. From the bottom left of the chart to point A, you are efficient in your hiring and adding people to your team. Beyond point A, you are not getting anymore efficient, you are adding too many people and it is not worth the reward you are getting. At point B, there is actually a decline in efficiency because there are too many people and people start stepping on toes and getting political. 

There is a very delicate balance when hiring for a small team or early stage startups. The golden rule is never hiring unless you absolutely 100% need to. 

Final Note

What does this mean for you? Big teams will still exist. They will never go away because some companies simply can’t go back without laying off 50% of employees. Working for a big team is fine, but if you ever feel siloed in work and not able to do more than strictly your job, consider a smaller team. Smaller teams are fun. You all work toward a goal and nothing is your “job”. You have a general area you operate in, but you do whatever you need to do to accomplish the overarching goal. I work on a team of 7 now (sadly soon to be 6), and I do what needs to get done to accomplish our goal. Mostly that means building shitty designs and writing decent python. 

Song of the Week 

I listened to 62,529 minutes of music last year. Was 28,000 on one band? Yes, but I also listen to some other great tunes. 

This week we are featuring Money for Nothing by Dire Straits. You may be confused for the first minute thirty if you haven’t heard the song before, but it is incredibly worth it. The guitar solo from 1:35 to 1:50 is likely one of the best 15 seconds of music from the 1980s. This song to start a workout, long coding session, or long work project, really sets a great mood going forward.