Principal-Agent problems
Eric is one of the founders of Spot.coach. Prior to this, he was the CEO of Wanadoo and Venda, acquired by Orange and NetSuite, respectively. In his People Heroes newsletter, Eric writes to some of the most influential People Operations VPs about his experience managing organisations as a CEO, and helping people become happier in their worklife, as an executive coach.
Dear People Heroes,
Yesterday I read this fascinating interview of Naval Ravikant, the CEO of AngelList.
He shared his thoughts on startups, management, recruiting, scaling… Here’s an observation that I found particularly interesting:
The Principal Agent Theory
“There’s a notion in economics called the principal agent problem where the principal is the owner and the agent is the person who’s actually doing the work and getting a cut.
The principal agent problem basically says anytime you have an agent the agent optimizes for themselves rather than for the principles and interest. You just end up with all kinds of perverse behaviors.”
Startups — teams of agents
“The reason why startups are so successful compared to big companies and they’re so much more productive is because you have a small group of people who consider themselves to be principles. They are very few agents.
The more managers you add, the more agents you are adding into the startup and so I think the less efficient you’re going to be”.
Every time I discuss with fast-scaling startup CEOs, their top 1 concern is: How can I keep the same culture as we scale?
The problem with middle management?
They’re worried that middle management will, week after week, hire after hire, change the employees’ mindset, slowly drifting from proactivity and engagement to office politics.
For example, Naval has 3 main problems with management:
1/ As a manager, he hates managing
2/ The best employees don’t like being managed. You need to give them some creative freedom
3/ The moment you’re working for someone else, you lose efficiency in “meetings and mistranslations”
Feel free to take a look at AngelList CTO Joshua Slayton’s presentation on the topic.
Thanks for reading and have a great week!
Eric
At Spot.coach, we believe that the best way to tackle these challenges at scale is to empower each individual to self-manage. Read more about it → www.spot.coach
