We’re still relatively new at this running our own business thing but we’ve been doing it long enough to be able to notice some patterns as well as compare and contrast them with patterns we’ve seen working at big companies. And when it comes to what’s hidden, this is one area where the size of the company doesn’t appear to necessarily be the high order bit.

“You can’t measure what you can’t see” or so the expression goes. The problem of course is that there isn’t a correlation between the measurability (did I just invent a word?) of something and its importance in running your organization.

There are simple examples of this. Right now on a local startup mailing list I’m on there is a discussion about saving money. The conversation has devolved for the most part into a discussion of saving money on coffee. And while (IMHO) any software business whose bottom line is seriously affected by their spending on coffee is a software business with margins that are way too low, I imagine that some of the comments were made tongue-in-cheek. One of the comments was that there’s a local coffee shop where the manager will give new customers a free sampler of coffee if they say the right things (an $18 value!). The only key is that a new employee has to sweet talk the manager each time. Think about it: you can hire a new dev every week at an average 100k per year fully burdened cost and save $18! Of course, the more people you hire, the faster the coffee will be consumed so you’ll have to pick up the pace on hiring. OK. I know, this suggestion doesn’t deserve all this analysis, but what about the actual time your employees are spending going to get the coffee instead of writing code? I bet they get paid more than $18 for the time they’re spending getting the freebie. Even if this poster was kidding, there are plenty of examples of this type of thinking in real organizations where people don’t factor in how much an employee’s time is worth. I believe the phrase for this is “penny-wise, pound-foolish”.

Let’s go to a more serious example at big companies. Many folks at big companies have noticed the following scenario (I know I have). Some executive at the company works for some long amount of time. They do well for awhile. But eventually, they fall out of favor and the bulk of their responsibilities are moved to others. They fade into obscurity but they aren’t fired and they don’t leave for some time. Eventually they do “retire” or leave to “spend more time with family” and this usually coincides with some critical vesting date. On the one hand, the costs of this are obvious – the amount of money you’re paying the exec for the time they stay past their usefulness. And you could argue that the effort is even noble. After all, this person dedicated years to the company, don’t they deserve some gentle treatment on the way out? If the company has the money, what’s the big deal? The big deal is that this type of soft exit is usually reserved for only the most senior people in the organization. What message does this send to the legions of worker bees who will never get to just coast to some vesting date? The hidden cost here is the shattered illusion that you were working in a purportedly merit-based organization. The hidden cost here is the amount of credibility the leadership team has lost with the folks on the front lines.

How about promoting the best developer to manage all the other developers? Never mind that the best person at a specific discipline doesn’t necessarily make for a good leader or teacher of other people in that discipline. They often don’t. But even when they do… are you really getting your money’s worth? On paper, maybe three junior engineers will be more productive and cost less than one senior engineer. But even if you calculate all the time the senior engineer is no longer coding, are the junior engineers in danger of writing as high quality code as the senior engineer any time in the near future? Is three times as much crappy code more valuable to you than a third the amount of good code? (And likely the ratio is even worse as the senior engineer will be more productive than the junior folks.) And how much time will you spend fixing the junior engineer code? These things are very difficult to quantify. And most often they aren’t. Even worse, how happy is your senior engineer? Will you retain them now that they’re managing folks instead of writing code (which is what they like to do)? I’ve seen situations where the best engineer says they want to be a manager, but often they really don’t. This is because in many companies (despite their protestations to the contrary) the surest way to career advancement and compensation improvements is becoming a manager of other people. These companies create a system where their best engineers are incentivized to do less and less actual engineering.

And since we’re talking about engineers, how about the cost of vacillating and unfocused leadership? Specifically I’m talking about the hidden costs of not shipping. I would imagine this happens more at larger companies, but is not exclusive to them. Engineers are dispatched to work on a feature or a product that not everyone is behind. The investment seems small so the team is allowed to move forward to “prove” out their hypothesis. Of course, the team doesn’t think they’re testing an idea, they’re trying to ship software. No matter how much a software developer says they understand their code might not ship, believe me, their goal is to make it so great that you have no choice but to ship it. Of course, in many cases it doesn’t. After all, launching a product costs money – operations, marketing, support, strategic clarity, etc. But not launching costs money too. I believe most leaders only consider the sunk employee costs in a project that doesn’t get off the ground. But the grinding of those employees’ gears is the hidden cost. I know canceling projected is not entirely unavoidable. But it feels to me like many companies have come to rely on writing code they’ll never ship as a delaying tactic while they battle over strategy instead of an exception of last resort. At some point the engineers will ask themselves: “why am I wasting my life writing code that will never ship?”.

There are countless examples of these types of situations. I don’t think the answer is black and white in any of them. I do think however that if more leaders recognized more of the hidden costs in all of their decisions (and shone a bright light on them when talking about these decisions) that companies would experience more balance, more harmony, and do a better job retaining their best people.

Ultimately, I believe, that the biggest hidden costs in business come at the expense of the employees of the company. Unfortunately, we don’t walk around with obviously colored health, charisma, and morale meters floating above our heads. This means that leaders have to develop skills at reading the not always obvious indicators that everyone exhibits. And even more importantly, they have to be able to put themselves in the shoes of their employees and try and avoid some of these hidden costs before they occur. Even once you’re looking it’s still very difficult.

As I mentioned earlier, the crux of the problem (and the opportunity) is that the visibility of a cost doesn’t correlate in its ability to affect your business in serious way. People who focus primarily on the obviously measurable are ignoring key factors at their peril. In the tech industry we’re rife with folks who get really uncomfortable with things that can’t be measured (easily/consistently/mathematically). They don’t like “foofiness”. This makes us extra susceptible to having blind spots around hidden costs.