David Merkel

Investing… A Fidelity study found their best performing clients were those who had passed away. Their accounts, untouched and forgotten followed a strict buy-and-hold strategy. No panic selling, no market timing. Just steady growth over time. The second-best group? Clients still alive who forgot their accounts existed. Like the deceased, they didn’t meddle, letting their investments compound without interference.

Beware of companies that have labor turnover rates that are too high or too low. 3-10%/year is best. If you have really low turnover, people can be fat, dumb & happy. Too high, and you lose expertise. Shape of the turnover curve matters as well. I worked for a company that had

The 40 Percent Rule: How Organizations Quietly Lose Competence There is a rule of thumb that has been passed around operations and turnaround circles for decades. It is rarely taught in business school anymore, but those of us who have watched organizations get gutted by private equity or aggressive cost, outsourcing, and offshoring have seen it play out repeatedly. We are all witnessing it ...because Financial folks aren't aware of it and think a warm body is all an org chart needs. It starts with layoffs justified for financial reasons. About three months later the first cracks appear. The experienced people who kept systems running through undocumented workarounds and tribal knowledge are gone. The new staff assumed those tasks were obvious. The organization hobbles along at first, but the clock has started. Then the 40 percent rule kicks in. Any organization that replaces more than 40 percent of its core technical and operational personnel within a 3 yr period, typically crosses into intellectual bankruptcy roughly two years later. By year three the loss of institutional know-how becomes irreversible. The company breaks down into silos that spend most of their time firefighting until competitors take their customers or the organization slowly decomposes. This pattern is not theoretical. It has been observed across multiple large corporations over the last century whenever finance or HR fully takes over hiring and firing decisions. Amazon is currently tracking this trajectory in real time. Microsoft appears to have passed the point several years ago. From an engineering perspective this is straightforward systems failure analysis. Tacit knowledge - the undocumented glue that holds complex operations together, cannot be transferred or recreated at the same speed it is removed. When you lose too much of it too quickly, the remaining staff no longer have enough context to rebuild what is missing. The decay then becomes self-reinforcing. This explains why so many organizations that looked healthy on paper suddenly begin missing deadlines, burning cash, and losing market position two to three years after major workforce reductions. Downtime events, meetings to say- we cant do that any longer (as if it were intentional). The balance sheet improved for now. The institutional competence did not. Yes the balance sheet always improves because it takes a while for customers to find a new source and for the new companies to form to take the business. Engineers usually see the warning signs first because we are the ones forced to keep undocumented systems alive long after the experienced people are gone. Real question for the engineers, operators, techs and turnaround people reading this: What was the earliest operational signal you noticed when your organization crossed the 40 percent threshold? Comment if you have experienced similar below. No names needed - just the signs you saw on the ground. Bookmark this if you have watched a once-strong company slowly lose its ability to execute after heavy cuts. Tech Wednesday