Kinda working blue here — that’s the way the Boulder crowd goes.

There I am, giving my talk at Ignite Boulder on Big Organizations That Act Like Idiots.  Here are the slides.

Here’s a story he tells:

One YC startup negotiated terms for a tiny round with an angel, only to receive a 70-page agreement from his lawyer. And since the lawyer could never admit, in front of his client, that he’d screwed up, he instead had to insist on retaining all the draconian terms in it, so the deal fell through.

I had a very similar experience, years ago. My brother and I were going to buy a condo as an investment property. We hired a lawyer my brother knew, and at the time thought well of, to do the legal work for us remotely, since we were buying in Denver and at the time he lived in Connecticut and I lived in North Carolina. We found a place and started the process of making an offer; the lawyer was going out of town, so he brought his partner into the deal; the partner then brought in a junior associate, who wrote an offer that was something like 13 pages long, with all sorts of terms and conditions.

The condo was bank owned — this was during the last catastrophic, it’s never going to get better, collapse of the housing market — and the bank took one look at the contract and said, in so many words, “fuck off.” It was going to cost them hours of lawyering to decide if the contract made any sense, and it just wasn’t worth it — they wanted the condo off their hands and they had a hundred other properties to sell too.

For this exercise, the law firm billed us something like 50 hours — well over a grand. See, first they billed us for the time spent talking to me about the deal; then they billed us for both partner’s time when the one going out of town explained the issue to the one covering for him; then they billed us for the time of the second partner explaining to the junior associate; and for the junior associate’s time writing the 13 page contract. All this, to get a contract that promptly lost us the deal.

Later, we found another property, used something like a standard offer, and got what we wanted.

Here’s the lesson. First, lawyers aren’t generally paid to make a deal go — they’re paid by the hour. If you act risk-averse, they’ll be happy to bill you for making sure you never get into a risk, even if you never get where you wanted to go. (This isn’t true of all lawyers, by the way. My favorite local lawyer tells you a price up front for what you want, with the understanding that if something goes badly she’ll come back to you.) Second, lawyers like lawyering. Given the chance, they’ll do lots of it. And third, your lawyer is not necessarily your friend.

The most useful skill one can have with a lawyer is to know when to stop them in mid-argument and say “Yo. Don’t be a schmuck.”

If you aren’t happy with your current situation, then change something. If it gets worse, change back. If it gets better, keep going that direction.

People are willing to do almost anything to improve a bad situation — except change.

It’s legendary how difficult it can be to herd cats. I have observed, however, that it can be possible to convince a bunch of cats to chase the same mouse.

(Update: “Chase”, dammit. How many times did I read that over and not see the typo until now?)

If you see something stupid, always ask “Is this really stupid? What would make this the smartest possible choice under the circumstances? How is this the most rewarding option of all?”

Many times you’ll find that stupid people are smarter than you think.

The SNAFU Principle: “In any social hierarchy, the noise added to a communication between individuals in that hierarchy is directly proportional to the distance between them, and the factor of proportionality will be proportional to the perceived risk to them.”

The Multivariate Peter Principle: “In a hierarchy, every member of the hierarchy tends to be barely competent for their current task, and is often incompetent for the tasks of those below them.”

As I was talking about the GToI with him, a friend of mine, Carl Madison, noted the following corollary that follows directly from these observations:

Carl’s Corollary

In general, decisions in a hierarchy are made by people who aren’t competent to evaluate the situation, based on incomplete and insufficient information.

“In a hierarchy every employee tends to rise to his level of incompetence.”

Still, it’s been a long time since Peter’s book, so let’s just recall what he said. Consider any hierarchical system with people in it. Someone starts, say, in the mail room; as an ambitious person and a really good mail room clerk, they soon take the opportunity to move to being an accounts-payable clerk; they are good at this, and enjoy it, so they use the tuition benefits to get an accounting degree, and move into the Controllers office. Assuming they are still really good at what they do, they move up in the company, until at some point — maybe even having been promoted to Controller — they reach a limit. They aren’t so good at some part of the job to be promoted further, and so stop. This is what Peter calls the “level of incompetence.”

As with the SNAFU Principle, this is a useful insight, but not sufficiently detailed to use in a scientific fashion. Consider our ambitious controller: when he[1] stops as Controller, what stops him? It might be that he’s not a good enough accountant, but it’s relatively unlikely. It might be that he’ll never move up to be, say, CFO because he’s short and balding, and his competition for the job is tall, white-haired, and makes everyone feel confident when he comes into the room — which is actually an important quality for a CFO who will be meeting with investors and analysts. It might be that he’s never gotten an MBA, which the board thinks is essential. (This is not an unusual issue in the military: a lot of military officers retire as O-6 [Colonel, or Captain in the Navy] because there are certain kinds of duty they should have taken to be able to be promoted to flag rank, like an extended tour at the Pentagon. It doesn’t mean they weren’t good officers, but it does mean that they missed some qualification along the way.) It might be that he’s abrasive and doesn’t suffer fools gladly, and the company has a lot of fools.

The point here is not “life is so unfair” — the ability to inspire confidence, the ability to get along with people, and the technical or educational or experiential qualifications for a job are all real issues — but that there are many axes on which competence can be measured.

But now consider our ambitious controller’s competition for the CFO job. He[2] has the right looks, the right MBA, the right connections. All of these are qualifications for the CFO’s job; if he doesn’t happen to be very well qualified as an accountant, does that matter?

So we now have a situation in which the CFO is supervising someone who is more qualified in an area of their mutual interest than the CFO is. Again, this is not uncommon at all; rather the opposite. Jonathan Schwartz at Sun is certainly not as qualified as a computer scientist as James Gosling, nor as a cryptographer compared to Whit Diffie, nor as a systems architect compared to Andy Bechtolsheim.

The lesson here is that competence is multifactored, but hierarchy is not. When a person has reached their Peter level[3] they’ve very probably reached a level at which they are just barely incompetent at some aspects of their job that are considered more important, but may well be beyond their level of mere incompetence in other areas that affect them.

On this insight we can state the following:

The Multivariate Peter Principle

In a hierarchy, every member of the hierarchy tends to be barely competent for their current task, and is often incompetent for the tasks of those below them.

1. Using the convenient, if unpolitical, generic.
2. Generic again; consider if I had chosen to call either of my examples “she”.
3. One could say they’ve “Petered out”.

If a system (or people in a system) are doing something stupid and doing it consistently, it’s not stupid. Whatever it is, it’s what the system rewards them for doing.