I’d love to see the AI transformation drive a flourishing in physical engineering innovation.
AI is minimizing the need for early stage VC funding. What used to cost $500K in salaries is starting to be done for a $50 subscription. That’s bound to throw off the dynamics of the software market!
We’ve had a paucity of hardware improvements in recent decades in part because the money in software attracted so many capable people.
Does it make sense to go get a computer science degree today? The world will need software developers in the future, but not as many. AI will replace the long-tail of of developer demand. Where do those technically-minded kids go?
Do they go into engineering disciplines? Do nuclear and mechanical and aerospace engineering ranks get a boost?
VCs have capital they need to deploy. If software startups don’t need that capital, and hardware startups certainly do - do VCs rotate more to hardware along with the kids going into school?
I’d love that. I don’t need a flying car, but I’d love to see what more smart kids and capital could do to physical innovation and materials science.
This week marks the end of summer for the Nobles. As of this morning, the kids are back in school. My intern is gone, and I'm back to a business of one.
Small seasons of life are interesting. I’ve had three months to get used to a summer schedule, then it gets upended and I go into a period of transition.
I slowly start to internalize the new school and sports schedules. I’m so used to having the kids around me during the day, but now they’ll be gone. The mornings will get a little busier, but the mid-day will be a lot quieter.
It reminds me of the saying, “this, too, shall pass.” Good or bad, life is transient. What we experience today won’t be here tomorrow.
Whatever season you’ve had or are having, it’s a small reminder to be present for it because it’ll be gone before you know it.
Kevin
A Quote
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Beliefs can be their own form of prison, and we often don’t know how imprisoned our minds are until we see the world from a variety of different perspectives.
This book has a great message, is short, and easy to read. The title is the premise; some things are useful, but not true. It’s a book about reframing and perspective shifts. What matters most is your behaviors, and thoughts can be useful to drive effective behavior, even if they’re not true. “Your first thought is an obstacle you need to get past by realizing no thoughts are necessarily true. After your initial impulse, consider other perspectives, then choose the thought that’s more useful to you — the one that makes you take effective actions.”
Yes, I wear an Oura ring and a Garmin watch. I was frustrated at Oura for years because I didn’t like that they charged a subscription after paying $400 for a ring. Mine sat in a drawer. Earlier this year I decided to experiment and see whether the information was worth it, and it is. The sleep tracking is more accurate than Garmin, for example. On the flip side, it’s not a good fitness tracker. I’ll wear it to Crossfit and Oura doesn’t even register an activity!
I loved Jack Weatherford’s book on Genghis Khan, but had read it three years ago and some of the finer points I’d forgotten. It was fun to revisit all the details of Genghis Khan’s life on this four hour podcast. Genghis Khan is a fascinating character; if you don’t know much about him, give it a listen.
(please enjoy this 6️⃣ minute read)
Deep Dive On the Rule of 3 and 10
The Rule of 3 and 10 is a pattern observed in business, and it says that everything changes when you triple in size. Your systems, processes, org. design, etc. need to keep pace with the organization’s growth.
The hiring process you used with three people is no longer the most effective process when you’re 10 or 30 people!
I experienced first hand as I was scaling at Atlassian. My own team grew from two people to 135. That’s four separate stages of tripling!
The same kind of growth was going on Atlassian-wide, and we tore down and rebuilt things along the way.
I love this concept so much that it was an input to starting Group 18. I’ve experienced what it’s like to go through the “creative destruction” of triplings, and I wanted to help other companies go through their transitions quickly with minimal negativity.
Today I will walk you through why this pattern exists, the cost of ignoring it, and how to get ahead of it.
Communication Channels Scale Exponentially
Big companies have a reputation for being stodgy and lazy. Small companies have a reputation for being energizing and nimble. Can’t we just run all companies like they’re a startup?
The short answer is no. One of the reasons is “organizational physics,” which is a term I use to describe systems of people. Organizational physics has laws governing behavior, just like real physics.
For example, communication channels scale exponentially. When people are added to a company, communication becomes complex quickly.
One person has zero communication channels (they talk to themselves in their head). Two people have one channel. Three people have three. At 10 people, there are 45 channels. By the time you get to 30 people, it’s up to 435!
Then we have the natural limits on the effectiveness of leaders at different spans of control (aka how many people report to them). As someone who has, at times, directly led 18 people, I can attest that it’s less effective than when I directly led 3-4. Managers need to be added as you grow.
Small teams can operate through high-context communication, shared mental models, and implicit understanding. New team members can’t stay in this high context group - again, because of organizational physics. There is not enough overlap in time between people to keep tight alignment going beyond the small initial team.
So you start to grow, then start to add managers, all of which is exponentially increasing your communication pathways, and the natural shared understanding falls away. Suddenly you can’t run the team like a small team anymore.
Everything changes when you triple in size.
Everything worked fine when it was two people!
Ignore at Your Own Peril
Just like technical debt accrues for software teams as their code grows, organizational debt grows for businesses who ignore or avoid the Rule of 3 and 10. We can define organizational debt as the accumulated cost of using inadequate organizational systems.
The failure modes of increasing organizational debt are the following:
Decision Bottlenecks When you’re small, having the leader make every decision is fine, but as you get bigger, this becomes a constraint that throttles the entire team. I’ve seen hundreds of people idle waiting for a decision to get through a leader’s queue.
Quality is Inconsistent Without formal processes or clear standards, output quality depends entirely on individual judgment and informal knowledge transfer. As new people join, they lack the context that made the informal system work, causing errors and rework.
Key Knowledge is Trapped or Leaves Critical information doesn’t get documented or systematized because “everyone just knows” how things work. When people leave or are unavailable, entire capabilities disappear.
The Telephone Game Information gets filtered through informal networks, arriving distorted or incomplete. Your people make decisions based on outdated or incorrect information because no systematic communication channels exist.
The implications of these failure modes on the business are costly:
Talented People Leave High performers get frustrated by the chaos and inefficiency. They can see how much better things could work with proper systems, and when those systems don’t materialize, they find opportunities elsewhere.
Customer Experience Degrades Inconsistent processes and unclear accountability create unreliable service delivery. Customers notice when promises aren’t kept or when they receive different answers from different team members.
Innovation Stagnates Everyone’s energy goes toward fighting the internal chaos instead of directing it toward customer benefit. The organization becomes reactive rather than proactive as bandwidth is consumed by internal friction.
Don't ignore organizational debt (credit to KC Green's original comic for this meme).
If you’ve seen a business start falling off a cliff and wonder what happened, it’s very likely that they didn’t stay on top of their scale, accumulated organizational debt, and started to fall apart.
This happened at Amazon under Jeff Bezos. They scaled 5x in two years and chaos ensued. Instead of ignoring it and continuing to grow, they paused to focus on building the new internal operating methods for a business of their current size.
“At the same time, rising investor skepticism and the pleadings of nervous senior executives finally convinced Bezos to shift gears. Instead of Get Big Fast, the company adopted a new operating mantra: Get Our House in Order. The watchwords were discipline, efficiency, and eliminating waste. The company had exploded from 1,500 employees in 1998 to 7,600 at the beginning of 2000, and now, even Bezos agreed, it needed to take a breath.” - Brad Stone in “The Everything Store”
The irony is that leaders often resist structure to preserve agility and culture, but end up with neither! They end up with all the downsides of bureaucracy and none of the benefits of clear systems. The informal relationships that made success possible in the beginning become the obstacles preventing growth gonig forward.
So how do companies get ahead of this?
How do you stay ahead of scale?
If you know everything will break when you triple in size, the smart thing to do is start solving it in advance, when things are still going well.
It’s tough because human nature tends to wait, but this is why great ops people are so helpful. They literally love to think about this and will help ensure your company has a smooth growth curve.
Design Organizational Structure Before You Need It Most leaders wait until dysfunction forces change. Instead, anticipate these transitions and implement structure while the team is still functioning well in its current form.
Invest in Systems and Processes What feels like bureaucratic overhead at 5 people becomes essential infrastructure at 15. The art is to know when to design and implement a new system or processes, and the time is before you desperately need it. It takes time to become aware, design, and deploy something new - all the while your team and customer is suffering if you wait.
Build A Management Layer Earlier than Feels Natural Poor middle managers get a bad rap 😁 Hired well with good processes, they’re the layer that allows organizations to scale effectively. Research shows it can take 18 months to get a leader really onboarded into the culture and system, so start earlier than you need.
If this all seems expensive to do in advance, think about how costly that organizational debt is! Remember that coordination channels increase exponentially, not linearly. A process that was smooth one day can become a log-jam when two more people are added. You don’t want to lose staff, customers, or your innovation edge because you avoided operational scale, do you?
Adding a few new people can create a log-jam in a process that was previously working just fine.
Call to Action
Do an assessment of your operations, in whatever form ops takes for your business or team. What’s slow? What feels harder than it used to be?
Do you have frustrated staff or higher attrition in any areas? What about negative customer feedback?
Work with your team to do a deep dive into the processes, systems, and organizational structure to uncover organizational debt.
Then get after it!
Kevin 🛠️❤️
PS - Interestingly, I would call today’s framework “useful, not true,” connecting to the book in today’s Three Things. Everything in a business doesn’t change, and triple is not exact (meaning, it’s not like at 2.95x things are fine, then it rolls to 3.00x and everything breaks). But it’s a really useful framework to think about keeping processes effective as you scale. I hope learning this drives new behaviors for you!
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