The Tech Staffing Edition

For non-paid subscribers, this piece is about how theories and narratives go viral, in this case, Sam Bankman-Fried’s SBF’s theory of developer staffing. You may draw your on conclusions given how the recent news has played out. We have sympathy for anyone touched by layoffs in the technology sector. -CJN and NRB

Noah here. A few weeks ago, amid Elon’s initial takeover of Twitter, Matt Yglesias made a very interesting point about the layoffs Musk was planning for his new company. Although it shocked many, Yglesias pointed out that the idea that tech companies were overstaffed had become a common refrain amongst the Silicon Valley cognoscenti:

I’m not exactly sure why this happened, but roughly a year ago there was a substantial vibe shift in Silicon Valley which holds that most large technology companies are massively overstaffed. Multiple CEOs of privately held tech companies have voiced this critique of their larger peers to me. They’ve also criticized the venture capital community for encouraging excessively rapid headcount growth, but some influential VCs are now saying they agree with this. And there seems to be some competition to engage in the highest possible estimates of overstaffing. Marc Andreessen says the good big companies should lay off half their staff and the bad ones are worse.

He went on to quote investor Marc Andreessen and former GitHub CEO Nat Friedman, who estimated that big tech was overstaffed by somewhere between 2x and 10x.

Why is this interesting?

I have a pet theory that’s been banging around my brain quite a lot this week that a big reason this overstaffing idea took such hold has to do with another company and entrepreneur that’s been in the news a lot this week: FTX and Sam Bankman-Fried (SBF). FTX, famously within the industry, had a tiny engineering team. Just thirty people had built the product behind what was, at one time not so long ago, a business valued at $32 billion. Fried was celebrated for his do-more-with-less attitude and talked about the FTX approach and why everyone else was wrong quite a bit. I first ran into it in a conversation he had with Stripe founder Patrick Collison. After Collison asked Bankman-Fried how many software engineers he thought he’d need if he were made CEO of Facebook, he replied (edited for readability):

The biggest part of this for me is that I just think other people are wrong. And that the way other people think about this is much more in terms of, "more headcount, good, less headcount bad." And I very strongly disagree with that. And think that very, very frequently, "more headcount bad, less headcount good." Diving into that a bit, patterns that we see over and over and over again is that it's very, very easy for a marginal employee to be a net negative. That should not be a surprising thing. In fact, at many companies, maybe most employees are. What's going on there is basically that the company has too many people. They don't actually know how to manage most of them. You have massive diffusion of responsibility—a complete mess internally. And somehow you add on another developer, and total productivity goes down—not just per person productivity, but total productivity. I think that that is the norm at most companies. I think that we look at the 25 [developers] we have and the 6000 that other companies have, and we compare features released per year, and we're releasing twice as many. It's sort of like, something's fucked there. I think that there's a lot going on there, but a big piece of this, I do think, is probably just that a lot of companies are fucking this up. And what they should be doing is only growing their dev team to the extent that they know what to do with those developers—and that they can manage them and they can integrate them successfully into the company, and feel confident that that has happened. Then, when it is time to hire more developers, think about who's going to teach them? And do we actually have the managerial capacity for it? Or are we just sort of hoping that we do? 

After that long answer, Collison pushes him to answer how many engineers he thinks he’d need at Facebook, and at first Bankman-Fried answers that he guesses the company has somewhere between 4x and 300x too many, and finally lands on 10x overstaffed. Facebook had 30,000+ software developers at one point this year, so Bankman-Fried and others think 3,000 is probably more like the right number.

On one hand, I’m interested in all this because the story of FTX/SBF is a classic narrative swing. He was celebrated as a genius as of a month ago, and now everyone wants to pretend they always thought he was a fraud. I have no real idea whether it was specifically him/FTX that initially pushed the narrative that tech companies were overstaffed, but I have no doubt the story of FTX’s tiny engineering team and giant valuation helped add fuel to the fire. (NRB)

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Thanks for reading,

Noah (NRB) & Colin (CJN)

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