The Other Half of "Artists Ship"

One of the differences between big companies and startups is that big companies tend to have developed procedures to protect themselves against mistakes. A startup walks like a toddler, bashing into things and falling over all the time. A big company is more deliberate.

The gradual accumulation of checks in an organization is a kind of learning, based on disasters that have happened to it or others like it. After giving a contract to a supplier who goes bankrupt and fails to deliver, for example, a company might require all suppliers to prove they're solvent before submitting bids.

As companies grow they invariably get more such checks, either in response to disasters they've suffered, or (probably more often) by hiring people from bigger companies who bring with them customs for protecting against new types of disasters.

It's natural for organizations to learn from mistakes. The problem is, people who propose new checks almost never consider that the check itself has a cost.

_Every check has a cost._ For example, consider the case of making suppliers verify their solvency. Surely that's mere prudence? But in fact it could have substantial costs. There's obviously the direct cost in time of the people on both sides who supply and check proofs of the supplier's solvency. But the real costs are the ones you never hear about: the company that would be the best supplier, but doesn't bid because they can't spare the effort to get verified. Or the company that would be the best supplier, but falls just short of the threshold for solvency—which will of course have been set on the high side, since there is no apparent cost of increasing it.

Whenever someone in an organization proposes to add a new check, they should have to explain not just the benefit but the cost. No matter how bad a job they did of analyzing it, this meta-check would at least remind everyone there had to _be_ a cost, and send them looking for it.

If companies started doing that, they'd find some surprises. Joel Spolsky recently spoke at Y Combinator about selling software to corporate customers. He said that in most companies software costing up to about $1000 could be bought by individual managers without any additional approvals. Above that threshold, software purchases generally had to be approved by a committee. But babysitting this process was so expensive for software vendors that it didn't make sense to charge less than $50,000. Which means if you're making something you might otherwise have charged $5000 for, you have to sell it for $50,000 instead.

The purpose of the committee is presumably to ensure that the company doesn't waste money. And yet the result is that the company pays 10 times as much.

Checks on purchases will always be expensive, because the harder it is to sell something to you, the more it has to cost. And not merely linearly, either. If you're hard enough to sell to, the people who are best at making things don't want to bother. The only people who will sell to you are companies that specialize in selling to you. Then you've sunk to a whole new level of inefficiency. Market mechanisms no longer protect you, because the good suppliers are no longer in the market.

Such things happen constantly to the biggest organizations of all, governments. But checks instituted by governments can cause much worse problems than merely overpaying. Checks instituted by governments can cripple a country's whole economy. Up till about 1400, China was richer and more technologically advanced than Europe. One reason Europe pulled ahead was that the Chinese government restricted long trading voyages. So it was left to the Europeans to explore and eventually to dominate the rest of the world, including China.

In more recent times, Sarbanes-Oxley has practically destroyed the US IPO market. That wasn't the intention of the legislators who wrote it. They just wanted to add a few more checks on public companies. But they forgot to consider the cost. They forgot that companies about to go public are usually rather stretched, and that the weight of a few extra checks that might be easy for General Electric to bear are enough to prevent younger companies from being public at all.

Once you start to think about the cost of checks, you can start to ask other interesting questions. Is the cost increasing or decreasing? Is it higher in some areas than others? Where does it increase discontinuously? If large organizations started to ask questions like that, they'd learn some frightening things.

I think the cost of checks may actually be increasing. The reason is that software plays an increasingly important role in companies, and the people who write software are particularly harmed by checks.

Programmers are unlike many types of workers in that the best ones actually prefer to work hard. This doesn't seem to be the case in most types of work. When I worked in fast food, we didn't prefer the busy times. And when I used to mow lawns, I definitely didn't prefer it when the grass was long after a week