By Christopher Mims
Something potentially momentous is happening inside startups,
and it's a practice that many of their established competitors may
be forced to copy if they wish to survive. Firms are keeping head
counts low, and even eliminating management positions, by replacing
them with something you wouldn't immediately think of as a drop-in
substitute for leaders and decision-makers: data.
"Every time people come to me and ask for new bodies it turns
out so much of that can be answered by asking the right questions
of our data and getting that in front of the decision-makers," says
James Reinhart, CEO of online secondhand clothing store thredUP. "I
think frankly it's eliminated four to five people who would
[otherwise] pull data and crunch it," he adds.
The story is the same at dozens of other startups, says Frank
Bien, CEO of Looker, a company that offers a cloud-based service
for turning a company's data into dashboards that anyone in the
firm can use. Across numerous interviews with other startups, as
well as Looker competitor RJMetrics, I heard the same themes again
and again: Startups are nimbler than they have ever been, thanks to
a fundamentally different management structure, one that pushes
decision-making out to the periphery of the organization, to the
people actually tasked with carrying out the daily business of the
company. And what makes this relatively flat hierarchy possible is
that front-line workers have essentially unlimited access to data
that used to be difficult to obtain, or required more senior
managers to interpret.
In the past, says Mr. Bien, companies were beset by "data bread
lines," in which managers had all the data they needed, but their
staffers had to get in line to get the information they needed to
make decisions. In the world of just a few years ago, in which
databases were massively expensive and "business intelligence"
software cost millions of dollars and could take months to install,
it made sense to limit access to these services to managers. But no
more.
Chubbies, a clothing startup that has achieved rapid growth by
narrowly targeting college fraternities, is practically built on
this devolution of power to its employees. Chubbies doesn't even
have a CEO; instead, it has four co-CEOs, charged with maintaining
a "church of quadfecta of management excellence," says Tom
Montgomery, one of the four. Every co-CEO is in charge of his own
business function, a structure that is repeated, fractal-like, all
the way down the company's hierarchy.
"All [our employees] have access to the same data we have access
to," says Mr. Montgomery. "When you don't have a traditional CEO
and final decision-maker, you have to trust all of these people to
make the right decisions based on what they're seeing. It takes a
while to build up that trust, but once you do you can move much
more quickly."
Before, asking questions of the (often massive) pools of data a
business like e-commerce would collect required first asking a
staff data scientist, or else requisitioning the time of developers
who should be coding. Querying a database could take time, and if
you forgot an important column of data or had further questions,
the process could stretch out over hours or days. But now,
cloud-based services that connect to or ingest whole databases mean
anyone in a company can, for example, instantly calculate the
lifetime value of a customer according to where they came from and
what they previously bought. Or a sales employee can throw as many
different considerations as needed into a calculation of the return
on investment on an advertisement.
Here's a comprehensive example: In the old days, an associate
specializing in events for clients might answer to a manager in the
marketing department who would be tasked with thinking about why a
company should be throwing events in the first place. But now, says
Mr. Montgomery, the Chubbies co-CEO, his lone event planner can use
an array of dashboards she has built to determine exactly how many
Facebook likes, Instagram posts and sales arose from a particular
event, since all these data are geo-coded and she can watch them
change in the wake of an event. It's entirely up to her to decide
where, when or whether to hold future events. If anyone were to
question her decision, she can simply back it up with data.
The spread of data to workers doesn't mean that data scientists
are any less valuable. Much of the data that goes into these
dashboards must be cleaned up and verified, and even if it's an
algorithm doing that, whoever creates it must have a deep
understanding of where this information is coming from, and
sometimes, what it might mean.
It isn't exactly news that businesses collect data and treat it
as a competitive advantage. There are dozens of firms that offer
business intelligence software, from stalwarts IBM and SAP to
relative newcomers Tableau, Qlik, GoodData and Birst. But a key
enabler for startups founded in the past five years is that it's
now affordable to store and manipulate nearly limitless pools of
data in near real-time. Amazon.com Inc.'s Redshift, a cloud-based
"data warehousing" service, embodies this trend. Just over two
years old, Amazon has said Redshift is the fastest-growing service
it has ever launched.
The result isn't really "big data," just more data, more readily
available, says Mr. Bien. The only "algorithm" processing the data
and using it to make predictions is simply the humans scanning it
for correlations. And now that every employee can have the tools to
monitor progress toward any goal, the old role of middle managers
as people who gather information and make decisions doesn't fit
into many startups. Nor do the leaders who remain need to poll
middle managers to find out how employees are doing, since
transparency and accountability are the essence of the data-driven
company.
It isn't the end of middle management, but it is an evolution.
Every company I talked to had middle and even senior managers who
operated as player-coaches, tasked with both doing things and
directing others.
"I think at this point the stuff we're talking about here is
table stakes for running an online business," says Robert Moore,
CEO of RJMetrics. "It's like Excel on steroids."
Follow @mims on Twitter or christopher.mims@wsj.com
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