Hire Slow and Fire Fast

by May 2, 2023Culture, Decision Making, Entrepreneur, HR, Talent

There’s usually only a handful of people doing most of the actual work in most organizations.  I’ve found this to be especially true in nonprofit organizations. Years ago, I remember being involved in the Jaycees in Hartford, Connecticut, a volunteer service organization. There was something like 400 people on the membership rolls. But, when you looked closely, you realized that only 20 to 40 people were doing all the work.

It turns out that something called Price’s law offers a lens to look at this dynamic.

Price’s law states that when you take the square root of the number of employees in an organization, that tells you how many people are doing half the work. This is slightly different than Pareto’s law, which says 80 percent of the work is done by 20 percent of the people. In this model, the size of the company matters.

We can use this law to help us better understand why it’s harder to keep employees productive as an organization scales up.

Let me explain.

Understanding Price’s Law

We can use Price’s law to help us better understand how efficient (or inefficient, as it were) an organization is.

Let’s look at an example where a small business has 64 employees. The square root of 64 is 8. That means 8 people, or 12.5 percent of the workforce, account for 50 percent of its productivity. That’s pretty good. We would probably recognize all these people as A-players.

But now, let’s look at a much bigger organization with 10,000 employees. Applying Price’s law, we learn that just 100 people are doing 50 percent of the work. That means that just 5 percent of the payroll accounts for 50 percent of the company’s productivity. That’s a scary result because so much of the work is done by so few people–your A-players. As leaders, we need to know who they are and ensure they don’t leave.

Incompetence grows exponentially

There’s a corollary lesson to be learned here: The number of employees who contribute to an organization grows linearly. In contrast, the number of non-productive and incompetent employees grows exponentially.

Put another way, the more a company grows and adds people, the less productive most new people hired on become.

If you’re wondering how companies like Amazon and Facebook can lay off thousands of employees at a time and still function at a high level, here is your answer.

Let’s say I had a 10,000-person company. Using Price’s law, I calculated that only 100 people did half the work. That means 9,900 people are doing the other half of the work. If I let 1,000 employees go (10 percent of the workforce), I only lose 5 percent of my productivity.

That’s a decent trade, but it also speaks to the issue of having so many unproductive people on the payroll. If you have ever led a large or small company, you have seen this effect first-hand.

Hire slow and fire fast

The only way to avoid this issue is by focusing even more intently on how and who you hire. You must be very careful about who you let into the organization–regardless of how many open positions you might be trying to fill.

Not spending the time to find the right and the best person for the job likely means you’re simply boosting headcount with a very limited impact on productivity.

You also need to be extremely vigilant in removing employees who have proved their incompetence. You can’t afford to keep them around.

The solution, in other words, is to hire slowly and fire fast.

The key, however, is that you are letting go of the people who truly aren’t doing the work. Make sure you celebrate and reward your A-players. Because without them, your productivity would be at risk.