Archive of posts with tag 'Transaction Costs'
Coordination Headwinds →
October 11, 2023 • #Transaction costs are unavoidable, and with a scaling team, these drags of coordination slow every team down. It’s a law of business physics.
Here’s Venkatesh Rao, commenting on this excellent slide deck from Alex Komoroske:
There is no villain responsible for this. Coordination simply becomes vastly more difficult far earlier along scaling trajectories than people realize. Things get worse than you expect, sooner than you expect. This is coordination headwind. It’s an exponential snowballing phenomenon.
I agree that it’s an inevitability. And that the headwinds sink their teeth earlier than you think.
One note I’d add is that some companies create coordination headwinds for themselves — trying to “play company” and “get ready for scale” too early; I describe it as “copying the worst parts of a big company without getting any of the benefits”.
Here’s Venkat again:
People routinely and radically underestimate the massive size of this effect, and misattribute it to bad management, individual incompetence, or malice, and systematically under-react to it, doing too little, too late, and letting the problem grow to crippling, existentially threatening levels before even recognizing it.
I’ve seen teams encounter these headwinds, but then rather than recognize the onset of natural coordination costs, they misdiagnose what’s causing underperformance. Without an idea of what to do, they hire consultants, begetting more coordination. A coordination headwind vortex.