Back to School Edition -- Brian Armstrong's Manifesto on Scaling and the Right Outcomes
The CEO of Coinbase penned a memo you should study
The Digital Leader Newsletter — Strategies and Techniques for Change Agents, Strategists, and Innovators.
Summer is winding down. Football is starting. School buses are again running. Days are getting shorter. These are beloved parts of life that I hope are all always the same.
But…business should not be like that. In the dynamic, uber-competitive world in which we operate, one in which we hope to win through growth and innovation, we need to pursue change — changes that help us attain the outcomes we are pursuing.
Brian Armstrong, the 39-year-old founder and CEO of Coinbase, is starting to stand out in his leadership and management. His recent memo, entitled “Operating efficiently at scale”1, is a great example of that. This week, The Digital Leader Newsletter breaks down Armstrong’s recent memo.
Pay attention — your class is now in session!
(note: all quotes (the sections indented in orange) are from Brian Armstrong’s memo unless otherwise noted (such as the section from Bezos API mandate)
What does “scaling” mean? It definitely means “doing more.” BUT… that is not the end of the definition. To truly “scale” means that you are able to “do more” but also “do it better.” Better quality, better flexibility, better customer satisfaction, better nimbleness, and better unit economics. BETTER. And you should be getting “better” at “getting better.”
While most companies experience a phase of truly scaling, they typically reach a phase where they are able to “do more,” but the “getting better” aspect of scaling is left behind. They get slower instead of faster. They get more rigid instead of flexible. They get slower instead of faster. They get less efficient instead of gaining the benefits of increasing revenue.
As companies scale, they usually slow down and become less efficient. It takes more dollars, more people and more time to get anything done. Coordination headwinds increase, vetocracies emerge, risk tolerance fades, and teams become inwardly focused instead of staying focused on their customers.
While this trajectory is natural, it is not inevitable. Every great company, from Amazon to Meta to Tesla, found ways to retain their founding energy in conjunction with appropriate controls, even as they scaled to be much larger than Coinbase is today. Great companies maintain their insurgent mindset, for fear of becoming complacent and irrelevant over time.
“A vetocracy is a dysfunctional system of governance whereby no single entity can acquire enough power to make decisions and take effective charge.”2 Everyone has an opinion, everyone is a critic, but no one has the ability to create or lead something new, something with some risk to it and requiring change. This is bureaucracy, stasis, and a frozen organization. How do we create unlocks? Read on...
Decision Making Rights
Who makes what decisions in your company? Decision-making rights are an important aspect of a company’s operating model and organizational design. Most companies do not take the time to define or create clarity on what decisions get made and by whom.
…we need to adjust how we make decisions — pushing most decision making down in the org, removing bottlenecks and empowering our product leaders.
DRIs (directly responsible individual) often have the temptation to push decision making up the chain when they aren’t sure or don’t want to take risks. Sometimes they’re afraid of being fired if the decision doesn’t go well. That’s why, where possible, we are increasingly focused on identifying “single-threaded” DRIs. Single-threaded is tech jargon that simply means solely focused on a single area. The single threaded DRI is the most senior person whose only job is to run a given product or initiative, this will typically be a product management or engineering leader. They can’t be the single-threaded DRI if they are the DRI of multiple areas.
For most new products, change initiatives, or big programs, creating a “single-threaded leader” is a critical step in the making of far better, far more creative, and far quicker decisions. This also grows leaders.
Small Independent Teams
At Amazon, this concept is the “two-pizza team.” At Coinbase, they are implementing “pods.” The key isn’t just that they are “small”; it’s that they can operate largely independently. Often this means that they have a full stack of capabilities from product management, engineering, and, of course, a single-threaded leader. Independent squad units to accomplish the outcomes desired.
We’re beginning to deploy a new concept that we call “pods” to create more structure around the appropriate size of a team. Within each product, we will be defining pods of <10 people working on a specific feature or area. If a pod grows to be more than 10 people, it will be time to split it in two and assign each one a more specific goal or focus. Pods also need to have a focus, and a north star metric that ties into the overall company metrics.
Evaluate how small multi-functional teams owning an outcome can play a key role in your organization. There’s a wide variety of benefits — speed, focus, ownership, accountability, and leadership development. Small teams are fun — you deal with less bureaucracy. Appoint a CXO as a sponsor, and their job is to be a heatshield for the team by removing roadblocks and shielding distractions.
It’s easy to fall in love with “the process.” While following procedures and having well-engineered processes can be essential (for the right situation), don’t optimize for “the process”; optimize for “the outcome.”
What is an “outcome”? An outcome is a hard mission. For example, introducing a new product, completing a complex client project, or launching a new app. The definition of “smart outcomes” includes not just the outcome but a few elements describing the outcome and its impact. For example, instead of just “introduce a new product,” a “smart outcome” includes “and get customer feedback from 50 beta clients and establish ten retailer relationships for distribution”. Similar to a “balanced scorecard” concept, balance the outcome with the impact of the major outcome.
Defining the right and real outcome is often not obvious. There is mission, purpose, strategy, and execution to take into consideration. Leveraging OKRs (Objectives, Key Results) is a good starting point for defining the right outcomes, connecting them across the organization, and then understanding the progression of smaller outcomes or controllable inputs leading to this objective.
It’s hard to overstate this point. Inside companies, there are plenty of things that feel like work, but ultimately don’t improve the customer experience — from market cycles and negative press, to policy efforts, internal politics/drama, titles, and compensation. We have teams that focus on these areas, so that the vast majority of the company (80%+) can remain focused on talking to customers and building better products.
Great planning, goal setting, and connecting these to execution through OKR’s (Objectives, Key Results) is the thoughtful work to be done to get to the right outcomes. This is the type of engagement I’m fortunate to do with my clients.
If small independent teams can be formed around outcomes, capabilities, and products, one manner to focus more on “building” versus “coordinating on building” is through API’s.
In 2002, Bezos issued a similar mandate:
All teams will henceforth expose their data and functionality through service interfaces.
Teams must communicate with each other through these interfaces.
There will be no other form of inter-process communication allowed: no direct linking, no direct reads of another team’s data store, no shared-memory model, no back-doors whatsoever. The only communication allowed is via service interface calls over the network.
It doesn’t matter what technology they use.
All service interfaces, without exception, must be designed from the ground up to be externalizable. That is to say, the team must plan and design to be able to expose the interface to developers in the outside world. No exceptions.
Anyone who doesn’t do this will be fired. Thank you; have a nice day!3
In Brian Armstrong’s case, he sees the promise of “APIs instead of meetings.”
We need to move to a model where all product and engineering teams (not just shared services) publish APIs so that other teams can benefit from what they’re building without ever needing to schedule a meeting. In other words, they need to productize their services and allow other teams to use them in a self-service way.
With success, with scale, complacency inevitably seeps in. You don’t make a deliberate decision to allow it; complacency, like randomness and entropy, is just the natural orientation. Intentional focus on setting high-hard goals with the mechanisms behind them creating urgency and risk-taking is the weapon to stave off this enemy.
Ultimately, a lot of this comes down to retaining the founder mentality inside the company and acting like owners. Most companies start off by being anti-establishment, seeking to right some wrong in the world. But as they grow bigger and more successful, they start to become the new establishment. They get complacent, feeling that they’ve won, and bureaucracy sets in.
The link Armstrong gives is to Bezos, at a 2017 Amazon all-hands meeting, answering the question, “what is day 2?”
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School is back, so there’s homework to do! It’s a simple question…
What’s your plan for scaling and aligning on the right outcomes???
Email me if you need someone to review your homework (email@example.com)
Does your business need a growth & innovation strategy? But you don’t want a traditional management consulting approach?
The Growth & Innovation Catalyst Workshop — The Amazon Way might be the approach for you.
About The Digital Leader Newsletter
This is a newsletter for change agents, strategists, and innovators. The Digital Leader Newsletter is a weekly coaching session with a focus on customer-centricity, innovation, and strategy. We deliver practical theory, examples, tools, and techniques to help you build better strategies, better plans, and better solutions — but most of all, to think and communicate better.