The Tech Industry – Which Game Are We Playing?
This week I’m going to have a few posts about the tech industry specifically that probably apply everywhere in the business world. The reason is that I’ve spent quite a lot of time reading, thinking, and listening to very smart people talk about what’s wrong with the industry. My post from last week about what I learned from Annie Duke about goals is part of that.
This video is five years old but coincidentally it randomly fell into my TikTok view this past weekend and it resonated on the topic. You may have seen or read Simon Sinek talk about the Infinite Game previously. I had seen it previously, but in rewatching it, I was taken aback at how much worse it’s become.
Simon uses football as an example of a finite game. We have known competitors playing by agreed-upon rules with an agreed-upon ending. Everyone agrees to the rules of the game, and at the end of the allotted time, the team who has scored the most wins, and the game is over. Everyone goes home until the next game starts.
But in other areas of life, that’s not at all how the game works. War, business, education, etc. are not finite games. It’s not clear who all of the competitors are, the rules change and there’s no one “score” that everyone has agreed upon. Maybe most importantly, it doesn’t end at the allocated time, it goes on and on with some of the competitors giving up over time and dropping out of the game.
The problem Simon identifies is that when the game is infinite, but you play it as if it were finite, you end up in a quagmire. (His Vietnam comparison is spot on here, by the way.)
Let’s take the example I’ve been using when talking about layoffs in the tech industry. Many tech companies saw some pretty massive growth in users, revenue, and profits in 2020-21. If the shareholders and VC funders had been viewing the game as infinite, that would have been really nice. They would have been happy to see the company moving ahead, gaining customers, and see a good opportunity to invest in ensuring the future sustainability of the company because, in an infinite game, the goal is to remain sustainable for the long term, longer than any of us will be alive to see. We do that by being profitable and making sure we have a healthy culture and solid leadership.
But when the players are playing a finite game, that’s not what happens. Grow 20% in one year and anything less than that, no matter how profitable and sustainable it is, is a catastrophe. We have watched time and time again as perfectly profitable companies have laid off thousands of workers at a time. 10-15% of the employees of organizations suddenly left to their own devices to find another job to take care of themselves and their families. The remaining employees are tasked with more and more work being piled on them as they work in fear of being next. All in search of winning a game that doesn’t exist outside of the minds of short-term rent seekers. Investors who are not interested in the long-term sustainability or the long-range mission of a company but only how much money they can make from their investment now.
They’re playing their own game and have pulled the entire tech industry into a quagmire. We aren’t changing the world and making people’s lives better, we’re enriching the very worst among us to our own detriment.
Think of how this plays out long-term if you plan on working in tech for the next 20 years.
- You join a startup, and things are good. You’ve had 10% growth in your first year there. You went from 10,000 customers to 11,000.
- Your second year’s growth is even better. You’re up 20%. 11,000 to 13,200. You’re starting to do more than break even, there’s a net profit of $500,000.
- In the third year, you add another 2,500 users. That’s slightly more users than last year, but it’s only 19% growth. Investors are starting to get nervous about this drop in customer growth. Plus, even with 19% growth, due to more investment to keep up with the growing customer base, your profit only grew 10% to $550,000.
- In year four the company is still on relatively solid footing, but the user base is growing slower, you need to find new markets to continue growing, so the company starts a massive marketing campaign. You still grow, from 15,700 to 17,000 but that’s only 12%. The profit dips down to $350,000 to account for the new marketing work. Investors are restless. Founders are feeling a lot of pressure. If this marketing campaign doesn’t bring in 3-5,000 new users next year the company will be in trouble.
- In year five, the marketing campaign only brought in 1,500 new customers. A measly 8.8% growth rate. Halfway through the year, 10% of the staff is let go to cut costs and increase the profits for the investors. By the end of the year, the investors don’t see how the company will have 20% growth again, and convince the founders to sell the product to Google, which makes most of the leftover staff redundant. The founders walked away with millions. The investors walked away with millions. You are unemployed with 6 weeks severance if you’re lucky. Let go from a company that wasn’t losing money and was growing every year. Just not enough to satisfy the finite game players who run things.
This is what the tech industry looks like. It’s a quagmire for workers. You can’t get ahead when you are constantly starting over every few years. Yet we keep playing by the same rules. There will be more on that later this week.
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