The Peter Principle, formulated by Dr. Laurence J. Peter, states “In a hierarchy every employee tends to rise to his level of incompetence.”
The gist is that employees of a business or organization are normally promoted to their highest level of personal competence, after which further promotion raises them to a level at which they may become incompetent.
This is an important principle for startup founders and hiring early employees as founders must often use talent arbitrage strategies and thus are hoping employees can deliver along side a steep leanring curve.
With the Peter Principle, an employee’s incompetence is not necessarily a result of a higher-ranking position being more difficult.
Instead, the cause may be that the new position requires a completely separate skill sets the employee may not possess.
A common example is a factory worker whose excellence at his work results in he or she being promoted into a management position. However, the same skills that got them promoted in the first place are no longer of use in the new role, leading them to be let go.
Again there are many parallels to startups. Often the founders of the company, may not be best suited to run the company once it reaches a certain scale. Ironically, the scale could not have been reached without them. Uber is a classic example though I think Travis should have stayed.
The Peter Principle can also be applied to internal corporate innovation.
And in popular culture we can see the Peter Principle at play with The Office’s portrayal of Michael Scott.