Find the arbitrage opportunities in hiring

2017-01-14 2 min read

    With the football playoffs upon us I’ve been thinking of why some teams are more successful than others. They all have approximately the same budget to allocate across a 53 person roster yet some teams are consistently dominant while others predictably fail. What’s so special about the teams that succeed? There’s obviously the coaching but I believe the bulk of the credit should go to the players. Imagine if a single team had a budget that was an order of magnitude more than the next best team: that team would be stacked with the best players and would dominate in competitions.

    The best teams are the ones that are able to find arbitrage opportunities by getting players that are much better than their salary dictates. This may involve drafting players with high potential or trading for players that are undervalued and underutilized. If everyone knows that a player is great that will be baked into the price and while that player will improve the overall quality of the team it would reduce the overall budget and make getting additional star players more difficult.

    Hiring can be the same thing. Netflix has a well known culture deck indicating that they want to view themselves a sports team with a limited number of roster spots and they’re looking to maximize the contribution of each one. While a bit extreme this is a healthy attitude for a company to have. We all have limited budgets and making each dollar go as far is it can is what separates success from failure. This is especially important in a startup which may not be profitable and is going through a limited amount of funding.