Against loose feedback loops for young professionals

Most of what we value around us has been created by people who figured out what other people want and found cost-effective ways of giving it to them. Delivering value to others is at the heart of free-market capitalism. Yet, much of it remains abstracted away from most college graduates years after they enter the workforce, sometimes forever.

I got my first job at JP Morgan primarily by being good at interviewing, which involved knowing a bunch of random facts about the world I had consolidated by reading the Wall Street Journal for six months and articulating relatively ill-informed views that demonstrated I was worldly, could do basic logic, and could sound sort of smart. In other words, the skills I was being assessed on were not only a questionable proxy for success on the job but also fairly abstracted away from the reason customers paid the company.

My job was, of course, mind-numbingly boring. I was trying to get a bunch of papers signed and pushed through the bank's compliance machine so that clients could open accounts with us and trade. At other times, I was processing papers that allowed clients to formally exit their relationship with the bank. These were all things that needed to be done, but they were several steps removed from the function we were being paid to perform.

The guys that I worked for were private bankers, but many of them certainly made more in salaries and cost to the company than the revenue they generated during my time there. Even in a sales role, feedback loops can be long and loose in large corporations. Any one employee is an insignificant proportion of the firm's revenues and costs. The selection pressure that firms face in the market loses a lot of its potency as it trickles down the various levels of hierarchy in a big company.

Even more broadly, the team's ability to make good decisions and track record of delivering value was probably not the main driver of why clients kept their money with us. Clients probably banked with us because we were a big name - and with that comes the gift of reputation. Banks like Bank of America or JP Morgan won't go out of business tomorrow and come with prestige that had been accumulated over several decades. So even the salespeople of these companies are somewhat removed from the business of delivering consumer surplus.

To be fair, big companies can be excellent places to develop specialized functional skills. For example, Google is renowned for cultivating top-tier software engineers, and large insurance firms are exceptional environments for actuaries. These organizations attract and nurture talent, offering extensive training programs and mentorship opportunities that can be invaluable for those aiming to master a specific skill set. This essay's advice is more targeted at those seeking to develop broad commercial judgment and generalist skills, rather than those looking to specialize deeply in one field.

But if you want to sharpen your commercial judgment and instincts as a generalist, working for a startup or starting a business yourself is very likely the best way. I worked as employee #4 or #5 at an early-stage startup. For a while, the macro fundraising environment can cushion startup employees from the logic of capitalism.

When I started working for this startup, the macro environment made it easy for us to raise the first few millions. We were also selling a product bundled with financing. Convincing people to take money is not hard, the trick is getting them to pay you back. For the same reason, we enjoyed spectacular growth for a few months. Accounting conventions shielded us from the brutal logic of capitalism for a while, as sales, revenues and cash flow deviated further and further away from each other.. But in a startup, the chickens come home to roost a lot sooner. VCs might ignore your poor ability to generate cash once or twice, but not forever.

As an early employee in a small company, all of this is very visible to you. The numbers on the spreadsheet are not just numbers on a spreadsheet - they'll flow through to your job security or your equity value before you know it. You won’t be forming your views about what businesses ought to do from some ivory tower using sophisticated arguments. You will develop, to the best of your cognitive ability, views on what went wrong, what could’ve gone better, how you would have handled it, and so on. Working at a startup will make you care, even if your instinctive tendency is to sit in an armchair and craft sophisticated-sounding arguments.

In a corporation, you develop the skills that your boss or your smaller team around you values. There's more than a non-trivial chance that that has nothing to do with delivering real value. If your boss is a detail-oriented control freak, if you're lucky, you'd have learned how to deal with that personality type - maybe you've learned to over-communicate, cross all your t's and dot all your i's, and so on. But is this a generalizable skill that will help deliver value to people who will pay for that value? I don't think so.

It's not that people in a startup don't matter. In fact, they matter far more. Generally, you should do a lot more due diligence before joining a startup (something I intend to write about soon). It's just that in a startup, you also matter. It matters a lot more (relative to a big company) that you contribute in a way that actually helps the firm deliver value to its customers, which makes it more likely that you’ll figure out ways in which you can be genuinely valuable.

Like Tyler Cowen, I actually like big businesses. Scale is good, and so are reputations and brand value that incentivize companies to behave in much more socially responsible ways. Working for one can be a good way to earn a good paycheck, nice benefits, and if you're lucky, even a decent work-life balance. But if what you want from your career is the ability to have outsized influence in the world or set yourself up to deliver value by creating products and services that people will pay for, consider spending time outside one for at least a few years.