Once you are past the startup stage in your venture and you start building your organization there’s a new challenge that you may have run into if you’ve worked in a large organization. That’s how you manage promotions.
The best way to avoid the tangles of promotions is to have a very flat organization: as few levels of management as possible. Each manager has a relatively large number of direct reports – perhaps as many as 15 or 20. This avoids layers of bureaucracy. Managing that many direct reports requires skill and discipline. But with online tools like Slack and Trulio and others it can and is done.
But eventually you will have a management job opening to fill. Say director of customer support. All job openings should be posted internally first, to give your current staff the chance to apply before you look at recruiting outside the company. Growing your own, recruiting from within, provides a career path for your staff and removes a major risk with new hires: cultural fit.
But there’s a real danger lurking when you promote from within. It’s called the “Peter Principle.”
The Peter principle is a concept in management developed by Laurence J. Peter, which observes that people in a hierarchy tend to rise to their “level of incompetence”. In other words, an employee is promoted based on their success in previous jobs until they reach a level at which they are no longer competent, as skills in one job do not necessarily translate to another. The concept was elucidated in the 1969 book The Peter Principle by Peter and Raymond Hull.
I’ve seen the Peter Principle at work in two places: sales and software engineering. Perhaps it is because it is so difficult to manage these two functions that, for example, a very successful sales rep gets promoted to manage a sales territory. Sales people are great at selling themselves, so you have to go beyond the traditional interview to know if they are really suited for the position they are applying for. Otherwise you risk losing a great sales person and gaining a lousy manager! I’ve found a similar problem with software engineering. Not being an engineer I lack the technical background to thoroughly vet an engineer applying for an engineering management job. Microsoft very early in its history recognized why great engineers applied for management jobs and how to avoid the Peter Principle. The reason engineers apply for management jobs is that they pay a lot better, in both salary and stock! So Microsoft and Apple created parallel individual contributor tracks where great engineers could get promoted to “higher levels” and receive the concomitant compensation similar to managers or directors, but didn’t need to take on any management responsibility. Thus great engineers were rewarded and not lost to management. Besides all engineers hate managers!
There’s a similar phenomena to the Peter Principle amongst the newly rich. The New York Times article You’ve Become Rich. That Doesn’t Mean You’re Great at Everything by Sendhil Mullainathan is a great picture of how new found wealth can have unintended consequences. Just because you have become wealthy in one area, typically technology these days, doesn’t mean that you have the skills and ability in another.
A hedge fund manager who buys a newspaper has the power to decide what constitutes news. A rich app developer who starts a foundation can decide which philanthropic projects are worthwhile. A real estate developer who donates heavily to a local theater may have considerable influence over which plays will come to life.
People tend to think because they have been successful in one area, playing a sport for example, means that this great talent can be applied in another area, running a restaurant or even a sports team. And there are many examples of the latter, the best known being basketball player Michael Jordan, now owner of the the Charlotte Hornets basketball team, which has yet to reach the heights of success Mr. Jordan achieved on the court.
If you really want to dig into the Peter Principle you can read the journal article by three academics, Promotions and the Peter Principle. Or just read the Times article. We all enjoy watching the rich and famous stumble, right?
And may your startup be so successful that you run the danger of the Peter Principle yourself!