Building products and adverse selection
2/∞: Lemons, incentives and eye rolls.
Right. Looks like I am on track to keeping the streak going after all. So yaayyy me?! Although I wouldn’t bet on myself :P
The problem of Lemons is often cited with regards to purchase decisions and the impact that information asymmetry has on marketplaces. And I not sure if I have expounded on the impact of remote working and its effect on propagating information asymmetry in organisation. But one of the many surprising ways that I find adverse selection taking place is with product building teams (the entire trifecta of product, design and engineering).
There are a whole plethora of think pieces and books being written about how teams have become feature factories and suggestions to avoid the same. But feature factories are symptomatic of a larger malaise - one which is reflective of entire teams and organisations looking and working at a Q-o-Q timeline. It is also reflective of the vague, heterogenous (every person on the team has a different comprehension of what the long-term goal/vision is; In a lot of instances, the actual boots on the grounds don’t even know why they are being asked to do something) and generic long-term goals which are often forgotten in light of clear actionable short-term execution plans.
Gamblers have always made for fine examples in economics, so I shall use the same. Imagine two gamblers - A and B. Both gamblers have same risk appetites, same starting capital of say $5 and have access to same information about the odds. The key difference between these gamblers is that B has a clear understanding and discipline of what his exit looks like, while A just wants to win as much as possible. This difference stems from the manner in which the two gamblers are being incentivised. Gambler A is incentivised on the number of bets he/she makes - the more bets they place, the better the incentive. Gambler B is incentivised for making the right bets.
As a side bet - who would you be putting your money on?
My bet? Gambler B
Why?
For starters, the incentives look right. Which also means that gambler B is more likely to be a SME. While gambler A is most likely to be facing gamblers’ ruin far earlier than B.
How does this track to the product trifecta? Any team which is building consumer products / experiences which prefers to go with its guts and intuition and prefers to build-ship-iterate will incur higher operating costs (losses) (like gambler A). The incentive structure doesn’t allow teams to go deep, which means that any success that the team may encounter cannot be replicated.
Obviously, no org/team wants to be just a feature factory. But the information asymmetry which percolates the organisational layers fuelled by misaligned incentives makes it so.
There are plenty of ways to address this problem - each with its own merits, but there is no way to stop this problem from resurfacing. Anytime incentives differ across organizational layers, adverse selection is bound to happen - for e.g., if the P&L owner is incentivised to show X dollars in revenue, the head of product is incentivised to show Y number of things they have built, and design and engineering is incentivised on how fast they design and ship things - adverse selection will happen.
And information asymmetry will persist because none of the team members will be made aware of the different incentives at play. Each will be operating to maximising their own which will be counterproductive.
So, next time you find yourself in a room where a new feature is being brainstormed, take a moment and ask yourself - “Do I know the incentive for everybody in this room for doing this feature?”
Bulls, Bears and Other Beasts - Read like a college professor droning on about the history of BSE
Botchan - Japanese version of Houlden Caulfield which makes it tad more tolerable.
Revenge of the tipping point - pop fiction; Some fun stories in there.
Blue Box - a LOT like Hiyokko. Absolute sucker for stories like these.
Spy Schools - not as fun as it looks.
Buckingham Murders - Should have been a 6/8 episode show instead of a movie. Broadchurch with Kareena.
Bhool Bhuliyaa 3: FFwd the songs and let it play in the background while you do laundry.
Singham: You will be surprised at how much and how far your eyes can roll.
Paul vs Tyson: Anything boxing related, sign me up! Also, loved the Katie Taylor documentary.