The Scale Anticipation Fallacy

The other day, I was talking to a couple friends of mine, one a VC and the other a CEO. During the meeting, we were discussing one of the executives at the CEO’s company. The executive in question performs exceptionally, but lacks experience managing at larger scale. My friend the VC innocently advised the CEO to carefully consider whether the executive would scale to meet the company’s needs in the future. I responded swiftly, aggressively, and loudly saying, “That’s a horrible idea and makes no sense at all.” Both of my friends startled at my outburst. Normally, I am disciplined enough to refrain from letting my feelings pass straight through my mouth without stopping at my brain for review. Why the outburst? Here is my answer.

As CEO, you must constantly evaluate all of the members of your team. However, evaluating people against the future needs of the company based on a theoretical view of how they will perform is counterproductive for the following reasons:

  • Managing at scale is a learned skill rather than a natural ability–Nobody comes out of the womb knowing how to manage a thousand people. Everybody learns at some point.
  • It’s nearly impossible to make the judgment in advance–How do you tell in advance if an executive can scale? Was it obvious that Bill Gates would learn how to scale when he was a Harvard dropout? How do you go about making that decision?
  • The act of judging people in advance will retard their development–If you make a judgment that someone is incapable of doing something such as running a larger organization, then will it make sense to teach those skills or even point out the anticipated deficiencies? Probably not. You’ve already decided that the person in question can’t do it.
  • Hiring scalable execs too early is a horrible mistake–There is no such thing as a great executive. There is only a great executive for a specific company at a specific point in time. Mark Zuckerberg is a phenomenal CEO for Facebook. He would not be a good CEO for HP (HPQ). Similarly, Mark Hurd does a terrific job at HP, but he would not be the right person to manage Facebook. If you judge your team in advance and have a high sense of urgency, you will bring in executives that can manage at high scale in advance of needing them. Unfortunately, you will probably ignore their ability to do the job for the next 12 months, which is the only relevant measure. As a result, you will swap out good executives for worse ones.
  • You still have to make the judgment at the actual point in time when you hit the higher level of scale–Even if you avoid the trap of hiring a scalable executive too early or retarding the new executive’s development, you still haven’t actually bought yourself anything by making the prejudgment. Regardless of what you decided at point-in-time A, you still have to evaluate the situation with far better data at point-in-time B.
  • It’s no way to live your life or run an organization–Deciding (with woefully incomplete data) that someone who works his or her butt off, does a terrific job, and loyally contributes to your mission won’t be with you three years from now takes you to a dark place. It’s a place of information hiding, dishonesty, and stilted communication. It’s a place where prejudice substitutes for judgment. It’s a place where judgment replaces teaching. It’s a place where teamwork becomes internal warfare. Don’t go there.
  • So, if you don’t prejudge people’s ability to scale, how do you make the judgment? You should evaluate your team at least once a quarter on all dimensions. Two keys can help you avoid the scale anticipation trap:

    • Don’t separate scale from the rest of the evaluation–The relevant question isn’t whether an executive can scale; it’s whether the executive can do the job at the current scale. You should evaluate holistically and this will prevent you from separating scale, which often leads to a prediction of future performance.
    • Make the judgment on a relative rather than an absolute scale–Asking yourself whether or not an executive is great can be extremely difficult to answer. A better question is: For this company at this exact point in time, does there exist an executive I can hire who will be better? If my biggest competitor hires that person, how will that impact our ability to win?

    In summary, predicting whether or not an executive can scale corrupts your ability to manage, is unfair, and doesn’t work.


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