Cultural Competence

What is Cultural Competence?

Core competence is a factor that cannot be easily replicated and gives the business a competitive advantage in delivering their product or service to customers. Core competencies are how a business does something.

Cultural Competence is the lens through which opportunities are identified and evaluated. Cultural competencies are how a business figures out what to do. [1]

Implications

Every business, no matter the size, has cultural competencies.

  • Cultural competencies are a reflection of the founders’ personalities. It’s no coincidence that Google was started and led by Ph.Ds, Apple by a designer-perfectionist, and Amazon by a quant from a hedge fund.
  • Cultural competencies are directionally set as you go from 0-20 people. If you achieve product-market fit, you will only deepen your cultural competencies. You can inject new culture via new (strong) leadership, but the existing leadership has to be receptive. The larger the organization, the harder this is.
  • Product market fit is easier to achieve if you work with your cultural competencies, not against them. Often times when a company builds the wrong product, the market they are pursuing does not align with their cultural competencies.
  • If you understand your cultural competencies, filtering potential opportunities becomes much easier. Be honest about whether or not the market you are pursuing can be won given your cultural competencies.
  • Don’t emulate another company’s cultural competencies, as many do against Apple. Pursue a market through your own cultural competencies to create a differentiated (and more successful) offering, as Amazon has done with Kindle Fire.

How do Cultural Competencies develop?

Cultural competencies are an emergent property of people in an organization. It starts with founders who pursue ideas and markets they understand. If they get traction, they hire a team that thinks about the opportunity similarly (belief in the vision). If they achieve product market fit, they hire more people. These people then pursue scaling a business in the way that has worked best thus far, reinforcing the cultural competencies and world view. This yields more revenue, which results in more people hired to support that core business. At each iteration, the new hires cause a deepening of existing cultural competencies.

An example: Amazon vs. Google

Amazon and Google share core competencies. They’re focused on large data problems, machine learning, exploiting massive infrastructure, experiment driven monetization, and more. They have non-overlapping core competencies, as well. Amazon has phenomenal customer support and logistics, while Google has deep expertise in search and performance-based advertising.

Given their similar core competencies, no one should be surprised that Google and Amazon both pursue the smartphone and tablet markets. However, their approaches are dramatically different because of their different cultural competencies.

Google’s cultural competence sees the world as signal and noise that must be filtered. A minority of the signal is commercially useful, and Google monetizes the shit out of it. This is how they manage to make money on search, email, and maps when few others can.

Amazon’s cultural competence sees the world as a series of transactions on which it can build a platform. Amazon pursues opportunities that will facilitate repeated transactions and then builds the platform to own all of these transactions. The Kindle was made to drive the sale of digital books. Free Shipping and Amazon Prime are levers to drive more sales on Amazon. It’s all about increasing and owning transactions.

How Cultural Competence Skews Perspective

For Google, Android is the key to owning mobile search and ads. Google’s cultural competence perceives Android as a moat for Google’s castle — search and ads. For Amazon, Android is about selling more video content, pushing Amazon Prime (which results in more sales on Amazon.com), and the Amazon Android Market (a digital goods store). Amazon’s cultural competence sees Android as a platform to enable more commerce and monetize directly.

Same platform, yet dramatically different perspectives, and ultimately different ways to extract value out of the ecosystem.

How Cultural Competence Impacts Product Success

It is not a surprise that Google makes a small amount of money directly from Android. Google’s cultural competence does not align with what the market demands from a direct monetization product — Google Wallet, Checkout, and the Play Market are examples of how Google fails because their cultural competence prevents them from building the right product.

For example, Google has rich analytics in the Android Developer Console and has search baked into the core Android experience. Given their cultural competence, it makes sense Google would prioritize these features. At the same time, the platform has no subscription billing and has yet to create a seamless integration of apps and content, 9 years after iTunes revolutionized digital content delivery. Google’s cultural lens has led them to either build the wrong product or be unable to come to a decision about what the right product is for a direct monetization market.

Meanwhile, Amazon has had no problem defining a transaction platform because of their cultural competence, and they execute on this market opportunity efficiently because their core competence is building transaction based products. Amazon has demonstrated this in multiple markets.[2]

Google’s lack of direct monetization from Android is not a surprise. Apple’s lack of monetization via iAds is not a surprise. Amazon’s lack of monetization through auctions is not a surprise. [3]

Credits

Thanks to Elad GilCurtis Spencer, Aditya KoolwalDan Siroker and Yin Yin Wu for reading drafts and providing input.

Appendix


1 – I just created the term “cultural competence” to apply to something that people have talked about informally for a long time, so the definition will likely evolve. The concept itself has been floating around in lots of brains for a long time. Edit: Turns out it’s been used in the HR world to mean something different (see comments below). So the definition in this post is more of a “secondary definition” than an “invention”


2 – Another Amazon vs Google example
Hosting platforms are another great example of how cultural competence skews outcomes. Amazon looked at Amazon Web Services the way they look at their retail site. Find the simplest set of things people will buy, then broadening out to related offerings. They manage inventory, demand, and have efficient pricing. Amazon figured out what developers wanted (S3 and EC2), sold it to them, and then expanded the offerings.

Google’s cultural lens skewed their perspective towards thinking that what developers want is the most efficient way to manage large amounts of data and not worry about scaling. Most businesses don’t have Google scale problems and don’t want Google’s internal platform approach to manage their non-Google problems. They need something that works with existing (open source) systems and leaves them the freedom to customize infrastructure. Google tried to apply it’s cultural lens to a market, rather than find a market where it’s cultural competence would give it a competitive advantage.

Hosting is fundamentally a retail problem, not a signal vs. noise problem. Amazon Web Services does $1 Billion in revenue and Google has been tweaking App Engine for years. This is a prime example of how to filter opportunities and pursue ones that align with your cultural competence.

3 – Examples of Cultural Competence Failure
Companies that have a strong cultural lens will stay focused and thrive. Those that dilute their cultural competence die because they lose a very important filter for which ideas to pursue and how. Companies that try to build outside their cultural competence tend to fail as well.

  • Apple – Apple’s cultural competence is finding large industries full of geeky products and Apple’s core competence is building simple, cool status symbols in their place. Laptops, desktops, phones, and music players are all examples. Ping (their music social network), MobileMe, Pages/Keynote/Numbers, and iTunes are great examples of where if the product succeeds by piggybacking on their hardware business, not because it’s a great in its own right.
  • Facebook – Facebook’s cultural competencies lie in identifying opportunities to enable sharing. Every software, app, or platform upgrade is about fostering more connections and data flow between people. Facebook sees markets as an opportunity to get users to share more, find out more about their friends/connections, and elicit relationships (family, friends, worked with, who likes whom) that were previously unknown. When they try to extend this into another area, like daily deals, they don’t do well. Daily deals are not about the relationships between peers, they’re mostly about Facebook’s relationships with merchants.
  • eBay – has core competencies in peer-to-peer transactions (sometimes with goods changing hands). eBay’s cultural competence is around bringing groups of people together into a marketplace and getting them to trust each other and the marketplace. When they diverged from this (Skype, StumbleUpon) they failed. When Skype and StumbleUpon spun out from this cultural lens, they thrived. When eBay applied their cultural competence to Paypal, it worked beautifully because Paypal is fundamentally a trust network.
  • HP – has core competencies in manufacturing, distribution, and enterprise sales. What is their cultural lens? How does HP decide what opportunities to pursue and how to leverage its core competencies? They’ve floundered on this for quite some time.
  • Microsoft – has core competencies around desktop software, business applications, and selling through enterprise distribution channels. Their cultural competence has always been finding ways to make businesses more efficient with their PCs. They make a healthy profit in their servers and tools division since this aligns nicely with their cultural lens. Every time they stray away from this cultural competence, they struggle. Signal vs Noise businesses (Bing) burn cash and Entertainment (Zune, Xbox) operates at break even.

How Badass Entrepreneurs Deal With Cease and Desists

A friend recently received a cease and desist letter from a company (let’s call them SillyCo) that felt his product infringed SillyCo’s trademark. Instead of calling his lawyer or freaking out, he went over to SillyCo’s headquarters. He walked into the building (security fail on SillyCo’s part), went into the CEO’s office, and said “Your company is threatening to sue mine. We should talk about why this is a stupid idea.” The CEO was caught off guard and my friend seized the opportunity.

My friend explained why he was not infringing SillyCo’s trademark and said, “Clearly this happened without your knowledge because the person that did this is an idiot and doesn’t understand trademarks or copyrights.” The CEO, who had full knowledge of the c&d, was able to save face and said “You know, sometimes when you’re scaling a company, people take actions that you wouldn’t have taken yourself. I’ll look into it for you.”

Two days later, SillyCo’s lawyers sent an email to my friend: “We consider this matter resolved.”

Why do serial entrepreneurs exist

There’s a great talk from Robert Sapolsky about what makes us human (available on Hulu). It’s worth watching. After watching the talk, I had an insight into serial entrepreneurs — people who start multiple companies, even after they’ve made many millions of dollars. And some do it multiple times without ever making any money.

Working long hours, for little pay, for years (especially if  you have millions of dollars) doesn’t make sense to most people. But dopamine, a reward chemical in the brain, helps explain why these people exist.

How Dopamine Works

The way you might expect dopamine to work, is you would be rewarded for doing work with a nice big shot of dopamine.

Turns out, this is not how dopamine works. As with lots of fun discoveries, scientists ran an experiment on some chimps. The experiment involved having a monkey pull a lever (work) that would release some food (reward). The studies showed that dopamine is released before the chimp does the work, in anticipation of a reward. As soon as there is a signal to do work, dopamine spikes.

And if there is an element of uncertainty in receiving the reward after doing work, the dopamine spikes even higher!

Are humans like chimps?

From a neuro-chemical perspective, we’re very similar to chimps – we crave behaviors, such as eating, that release dopamine. And behaviors such as gambling that involve uncertainty are particularly gratifying and addictive. But as Dr. Sapolsky explains, we humans are uniquely gifted in our ability to extend the period of time between doing the work and receiving the reward. For most animals the reward needs to be near immediate. Humans, however, can delay receiving our reward for days, weeks, or years. And entrepreneurs seem to be uniquely gifted among humans in their ability to delay a reward for years. During this period of delay, entrepreneurs can continue to have dopamine spikes in the anticipation of a reward.

What does this teach us about serial entrepreneurs?
  • Dopamine is released by the anticipation of reward. Not when receiving the reward.
  • Dopamine spikes higher if there is uncertainty involved.
  • We crave actions that release dopamine (to the point of addiction)
  • The period of time between work and reward can be great, and entrepreneurs seem to be particularly gifted at delayed gratification

Put all of this together and it’s a recipe for the serial entrepreneur.

After an entrepreneur sells a company and makes millions, they’ve received a tremendous reward. But after the reality of the reward sets in, there’s a huge let-down. The dopamine disappears because there’s no more anticipation. And the uncertainty involved in entrepreneurship means the (now successful) entrepreneur is used to very high levels of dopamine, which is now gone. This person is uniquely well suited to waiting for years to receive a reward. A new venture allows the entrepreneur to release tremendous amounts of dopamine due to uncertainty for extended periods of time in anticipation of some, even greater reward than the last time around.

Of course, this is a descriptive observation and not everyone behaves this way. Some people make a lot of money and hang out on a beach for the rest of their lives. But so many entrepreneurs do it again and again that there’s some reason why serial entrepreneurs exist — my money is on the fact that we aren’t that different from chimps.

Dr. Sopolsky’s talks is one of my favorite videos on Hulu (and I’ve seen a lot). Check it out
http://www.hulu.com/embed/MZh6hHfrMrvCICjfzYGNuw?shared_ad_id=68930

Presentation on the skills college students need to thrive

Ken O’Donnell, Associate Dean of Academic Programs and Policy for the California State University system is giving a talk tonight at the Association of American Colleges and Universities 2012 Conference on the skills we should teach college students, in the context of modern labor needs. There’s a lot of very interesting stuff in his presentation, including a discussion of the 10x team strategy, how other companies use this approach, a brief history of the labor markets, and how educators should synthesize all of this history in preparing students for post-college work and civic life.

Good resumes vs. Great resumes

Below are three traits I’ve noticed all great resumes exhibit. This is not an exhaustive list and applies to the for-profit and non-profit sectors. Academia, art/music, and other fields likely exhibit other dynamics. I’m hoping to be helpful by sharing some tips I haven’t seen mentioned before.

Great resumes:

  1. Quantify accomplishments
  2. Focus on skills acquired and required, not activity
  3. Think about a career stepwise

1. Quantify accomplishments

Quantifying accomplishments allows others to understand impact and demonstrates that you measure things. People who are in the mindset of measuring are the ones who improve most over time. And if you aren’t measuring yourself, then you probably aren’t measuring other day-to-day things like your team’s progress or your employees’ progress. Using numbers is a nice way to have the data stand out from the surrounding text and save space.

2. Focus on skills acquired and required, not activity

Most people talk about what they did instead of what they had to learn and how they learned it. Great companies look for someone who will excel at the required job, but who can grow into a larger role as well. Since there is rarely a perfect candidate, finding someone who can do 85% of a role and can grow into the other 15% is often the best hiring strategy. The best indicator of how you will grow is how you have already grown.

3. Think about a career stepwise

The jobs you’ve held should be the steps to reaching your dreams and ambitions. The best candidates think of the job for which they’ve applied as a stepping stone to these goals. Show how each position you’ve held built on the previous positions and it should be clear very quickly to someone scanning your resume that you’ve purposefully developed skills and progressed over a career.

You should also project this forward. Why is the job you’re applying for a natural extension of what you’re currently doing?

Examples

Not Great:

  • Work with a team to provide reliable tracking of users (Flurry, Mixpanel and custom tracking tools) and to analyze customer behavior through frequent analysis of usage statistics and power users.

Better:

  • Implemented user-metrics tracking that resulted in 50% faster resolution of support issues and a 25% drop in in-bound customer support requests.
  • Analyzed customer behavior to proactively identify power users, resulting in 10% faster conversion of free users to paid and was part of an effort that increased sales $250,000/year.

Not Great:

    Some University (Sweden), Bachelor, Software Technology Programme, 2009

  • Awarded President’s Scholarship
  • Bachelor Thesis: Comparative Analysis of Development Frameworks

Better:

    Some University (Sweden), Bachelor, Software Technology Programme, 2009

  • Awarded 100% scholarship, offered to 5 students per year
  • Bachelor Thesis: Comparative Analysis of Web Development Frameworks, available at: http://www.someURL.com

Not Great:

  • Developed websites for clients. Included database design and implementation, use of the Model-View-Controller methodology and creation of unit tests. Involved extensive use of PHP / CakePHP and MySQL, HTML, CSS, XML, Ajax and JavaScript.

Better:

  • Designed, architected, and developed websites for 12 clients in 6 months.
  • Learned Model-View-Controller paradigm using CakePHP, MySQL, HTML, CSS, and Javascript in 2 weeks to launch our first client’s website.
  • Developed a custom unit testing framework in 1 month which resulted in a 25% reduction in bugs per client over the life of a project.

Not Great:

  • Led several projects and initiatives involving the automation of previously manually tested functionality and migration of data to a database.

Better:

  • Led team that automated testing tasks that previously took 50 hours per launch, saving 5000 hours/year.
  • Promoted to database administration team after 6 months. Self-learned SQL and helped migration to scalable database systems that could handle 10x more load.

Not thinking about a career stepwise:

  • Company1  – Premiere Field Engineer (Sept 2009 – Sept 2011)
    • Engineered some project and worked on a team that did something
  • Self Employed – Independent Consultant (Sept 2007 –  Sept 2009)
    • Technical consulting in IT and security projects
    • Trainer in courses for MCSE and MCSA
  • Company3 – Trainer & Engineer (June 2004 – June 2007)
    • Trainer for Microsoft certified Systems Engineering courses
  • Self Employed – Independent Consultant and Engineer (June 2002 – June 2004)
    • Security Consultant
    • Trainer and Consultant with deployment software

Stepwise positioning, with a clear building and career progression:

  • Company1  – Premiere Field Engineer (Sept 2009 – Sept 2011)
    • Engineered some project and worked on a team that did something
    • Led Europe’s leading IT support company in initiatives to educate and train 450 support staff in Microsoft technologies
  • Self Employed – Independent Consultant (Sept 2007 –  Sept 2009)
    • Started consulting business to train others for MCSE, MCT, MCSA
    • Consulted 45 companies on best practices for IT, security, & Citrix projects with an average class size of 23 trainees
  • Company3 – Trainer & Engineer (June 2004 – June 2007)
    • Earned MCSE, MCT, MCSA certifications
    • Promoted to train others in the company on Microsoft certifications
    • Developed xyz things for the company
  • Self Employed – Independent Consultant and Engineer (June 2002 – June 2004)
    • Security consultant focused on training new engineers on best practices for building secure software

A realization about writing

Since I’ve been writing I’ve found that I focus a lot better during the week. There’s a bunch of stuff just rattling around in my head and I just get antsy if I don’t get it out. If my head were a room, writing would be like making my bed and vacuuming…the room just feels cleaner and walking around for the next week in the room just feels better.

10 years ago I would talk to people who wrote and they would talk about how they just needed to write to get stuff out of their heads. I didn’t understand what that meant till I started writing.

Focus on building 10x teams, not on hiring 10x developers

There are a lot of posts out there about identifying and hiring 10x engineers. And a lot of discussion about whether or not these people even exist. At Spool, we’ve taken a very different approach. We focused on building a 10x team.

We believe that the effort spent trying to hire five 10x developers is better spent building one 10x team.

10x matters because of the Economics of Superstars

The “Economics of Superstars” observes that in some industries, marginally more talented people/groups generate exponentially more value [0]

The Economics of Superstars phenomenon requires a distribution channel to move a large volume of goods. For superstar athletes, television enables endorsements and merchandise sales. For software developers, the Internet enables scalable distribution of digital goods.

Finding a way to be 10x better than median can now generate exponentially more value for people who make digital goods.

In software, the superstar is the team, not the individual

In the Economics of Superstars, if an individual has tremendous control over the outcome (points scored in a basketball game), that individual is the beneficiary. So Kobe gets a big chunk of the value he generates for the team, stadium, and advertisers.

Software development, however, is more like rowing. It’s a team sport that requires skill and synchronization. This applies at all scales. On a three-person boat, one person out of sync will stall your boat. As you get bigger, no single developer can impact your team’s performance, so again synchronization is key.

Making your team as efficient as possible is what determines long-term success. [1]

A bunch of 10x people != A 10x team

Most hiring processes assume that if you find a great developer and put them on a great team, the individual and team will do well. Good teams try to nail down “culture fit” but this is usually only based on whether the candidate gets along with the team.

Throwing together a bunch of great developers who get along does not make for a 10x team.

How to Think About Building a 10x Team

Building a 10x team is a different task than trying to make an existing team 10x more efficient. The hardest part about building a 10x team is that who you need next is a moving target because it’s a function of who is already on the team.

The following are the top three non-technical questions we (Spool) ask ourselves when considering a candidate:

  • Does this person extend the team’s one strategic advantage? Successful startups do NOT have world class design, engineering, sales, and marketing all at once. They tend to be phenomenal at one thing and competent at the rest. Eventually they upgrade talent for “the rest.” For example, Zynga first nailed virality with crappy graphics, then later upgraded their art teams.
  • Is there enough shared culture? – Communication overhead will cripple most teams. Hiring people with a common culture is the simplest way to solve this problem. For example, alums of a university tend to use the same  jargon, think similarly, know the same programming languages, etc.. They will communicate naturally and are free to focus on higher order problems. It’s not a surprise that Paypal was mostly UIUC, for example. At Spool we’ve consciously hired mostly Stanford alums because Curtis and I are Stanford grads. Update: I apologize if I gave the impression that we don’t value diversity. As you can read in the comments, we’ve gone out of our way to build a diverse team. But there are many things that don’t impact your success early that you can short-circuit by picking people who have a similar enough background. Goldilocks Principle ftw 🙂
  • Does this person make other people better? A friend once told me that the best hire he made was a mistake. Had he properly screened this candidate’s technical ability, he wouldn’t have hired the candidate. But it turned out this engineer was so driven that he immediately made everyone else on the team more driven. Just by hiring him, the team became more productive, which far outweighed that individual being an average engineer. It’s sometimes worth trading off some technical ability to get a multiplier for your whole team.

What sorts of people make other people better?

When we were building Spool’s founding team, we looked for people who were technically solid but especially good at making other people around them better. The following are the types of people we identified that do this. There are probably others.

  • The Lead Engineer  sets the technical standard. She will conduct the hardest interviews and will generally work technical magic. She will raise everyone’s technical bar. This is usually what someone says when they mean 10x developer.
  • The Hustler will bend the rules a little when need be, find loopholes in a system, find people you need to find, hack together systems to extract data, and set the standard for just getting things done. She challenges everyone’s thinking about how to get things done.
  • The Little Engine That Could refuses to lose. She manages to do great things through sheer determination. Sometimes she will tell you about this in an interview, but many times you will need to dig into someone’s background to get a read on this. She makes everyone else more driven, focused, and makes them believe great things are possible.
  • The Teacher soaks up and disseminates information. A teacher is constantly learning new technologies or synthesizing large amounts of information. She then distills the critical points and actively shares them with others. She makes everyone more productive almost immediately. This adds up tremendously over the years.
  • The Anti-Pinochio  is willing to call b.s. on anyone, including the CEO. She is great at spotting b.s. and willing to ask questions of anyone. This keeps a team honest and a company transparent. This is different from being an asshole or a heretic.
  • The Energizer Bunny throws herself into a task fully and doesn’t have an off switch. She gets everyone to give 100% and is so enthused that everyone else becomes enthused. She sets the bar for effort and make everyone want to work harder just so they don’t disappoint her. This extends outside work too. She’ll be the first person at the party, the last one to leave, and will make everyone have more fun every day. Happy, enthusiastic teams are productive teams.
  • The Heart – this is the person on the team that everyone misses when she’s not around. She’ll bring cookies in for the office, she will remember birthdays, she will make people feel better when they’re down, and she will make people do great things because she’s just so lovable. People want to come to work to see this person everyday. Just having people look forward to showing up every day is a huge productivity boost.
In the following diagram, each color is a team-member rated from 1-10 on these characteristics. You can see that there’s a big hole with no color. I would gladly say no to a traditional 10x engineer to get one person with tremendous grit/determination on this team.

These personalities all play off each other. For example, a Teacher loves working with an Energizer Bunny because there is someone around to soak up all of that knowledge she shares. Or a Hustler and Lead Engineer can combine to uncover a new distribution channel because they iterate fast and are ruthless. As a result of having these people, you get massive productivity gains from complementary personalities and abilities. Combine these with your favorite/appropriate software development methodologies and you’ve got a killer team.

I’m sure there are other people who have techniques for building 10x teams. And the dynamics of what makes for a great team are going to be different across industries and stages of company. If you’re reading this and have thoughts, please do leave a comment. I’d love to incorporate it into our hiring practices.

Footnotes

Thanks to Curtis SpencerChristine TieuAditya Koolwal, Chandra Patni, Daniel WitteShazad Mohamed, Blake Scholl for reading drafts of this and providing input.

[0] – More on the Economics of Superstars

For example, Kobe Bryant is in the 99.999th percentile of ability, while the median NBA player is in the 99.99th percentile. For that small percentile improvement in ability, Kobe Bryant generates millions more in ticket sales, merchandise, concessions, and tv advertising for his team. This pattern repeats every where and is starting to appear with software development teams and startups. If you’re good, you can be Facebook, Google, Dropbox, etc. If you’re not, you can’t get a series A to get off the ground.


[1] Evidence building 10x teams matters more than finding 10x individuals

[2] – “Crazy” offers from Google/Twitter/Facebook/etc.

Historically, engineer/product manager/designer salaries have been relatively constrained (red line below). This is because we lacked an efficient distribution mechanism to take advantage of their special talents, so teams had to be very large to achieve scale and no individual could easily have massive impact.

But we are experiencing the beginnings of a world where the Economics of Superstars applies for small 10x teams because a small team can use Internet distribution as leverage. What is really interesting is that retention packages now are not about the individual. They are about keeping 10x teams together. The people who are really getting great retention bonuses are the people who make 10x teams possible. They are either the leaders in a product or engineering organization that know how to build 10x organizations, or they are the employees who make everyone around them better, or they are key employees whose departure would be seen as a signal that the team is no longer a 10x team. These packages are also a defensive move to prevent competitors from acquiring the building blocks that enable 10x teams. Losing key members of a team will result in other members leaving, and will enable the competitor to aggregate a team that operates like a 10x team. It’s not about the individual; it’s about team dynamics.

Another example from Google is how well they reward great teams and keep them together. Google’s Founder Awards disproportionately reward the best teams internally for exceptional accomplishments.

It seems like we’re moving to a world where a great team of developers can make $300k+/year each. But not by just walking in the front door — it really messes with team dynamics and manager-employee dynamics to hire people with those sorts of salaries. But rewarding a team and keeping great teams together is much easier to justify.

How the Economics of Superstars will play out for 10x Teams

[3] – More on Talent Acquisitions: Talent acquisitions are like record contracts

Startups eliminate the guess work that a large organization has in identifying teams with 10x ability. The startup ecosystem is as close to a meritocracy as we have — no bureaucracy, no legal department, no recruiting pipeline, minimal funding required to get started, etc. If a five-person team manages to build something and get any traction, they’ve accomplished something tremendous.

Identifying startups with 10x teams, is like a scout going through YouTube to find the next great band. If you find raw talent and give it the right platform (publicity, marketing, new instruments), you can turn that talent into something huge. Industries that have recognized their industry operates under the economics of superstars take these bets regularly – think about the English Premiere League, NBA, music industry, film industry, publishing industry, etc. If a bet pays off, you get Ronaldinho or The Beatles. Would you have given the following talented band $1 million/year and have full rights to all of the revenue they generated?

The Beatles before they were The Beatles

(This is The Beatles before they were The Beatles)

Again, because software is complex and you need teams to execute, the value aggregates in the team, not the individual. You rarely see Google hiring random individuals for $2.5 million over 4 years. Google, Facebook, Twitter, Groupon, etc. are paying to keep teams together and working on the things they’ve developed expertise in. These acquirers understand that it’s about finding 10x teams and giving them the resources of a bigger company. $10 million for four people over 4 years is worth it for many acquirers, because the incoming team has to be marginally better and the result will be exponential value generated for the acquiring company .

For-profit education lobbying “waters down” new legislation

Sad and unfortunate.

“Robert Shireman, a former Education Department official who helped shape that original plan, said the intense politics surrounding the issue played a part in “watering down” the final result.”

“The joke in Washington, however, was that the industry effort to defeat the plan mainly ensured “gainful employment” for the capital’s Democratic lobbyists and political consultants.”

“The final standards leave a maximum of 5 percent of schools facing financial sanctions at the start; the original plan would have meant penalties against an estimated 16 percent. The rules also pushed back the penalties to 2015 from 2012, while requiring schools to disclose more data about loans, defaults and job placement.”

“Donald Heller, a Penn State education professor who studied the plan, said the industry did largely what it set out to do.”

A simple test for passion

If you’re working on something you’re passionate about, you should be able to do it for the next 10 years, making just enough to survive, without an expectation of a big pay day. No big acquisition. No press. No glory. Just work for the sake of work.

This works for knowing if you love your team too. Would you work with these people every day for the next 10 years and be happy to come to work every day just to hang out with these people?

Fortunately for me, the answer is yes on both. I work on Spool, with Curtis, Dan, Christine, Chandra, and Aditya, every day, with no expectation of a big payout, and am very happy. I would gladly do it for the next ten years.