Too Much Skin in the Game Is as Bad as Too Little

The great intellectual Nassim Nicholas Taleb introduced the concept of skin in the game: when we make decisions that affect others, we should be among the people who are affected. Otherwise, it creates a moral hazard, like the financiers and bankers who brought the world financial system to its knees in 2008 pocketing huge bonuses. Or, closer to home, people at giant companies like Google focus on their promotion instead of what’s best for the user, because they have little to gain if users are happy. Conversely, if users are unhappy, it’s not like the company will go bust causing them to lose their job. Not having skin in the game causes such perverse outcomes, as Taleb points out.

But having too much skin in the game is equally bad, in many ways:

Bad decision-making: Too much skin in the game adds stress, and people can handle only a certain amount of stress before they stop being creative. I have seen multiple founders and senior leaders like a head of engineering mentally shut down and keep making the same mistakes again and again. One person ended up being a liability rather than an asset to the company. When you’re being pursued by a lion, you run like crazy. You’ve lost the ability to think, even if that’s what will save you from the lion. These people are like that. This happened to me, too, to some extent, when I was running my startup. Now that I’m a consultant, without too much skin in the game, I’m able to bring more clarity to the table than the founders themselves have, at times.

In particular, some of us have to deal with a lot of uncertainty and unnerving situations at work. This is a certain amount of professional stress. If you have too much skin in the game, you’re layering on personal stress, which becomes hard to handle. Feeling personally secure, such as earning a high salary, and not making personal commitments one can’t keep, free us to deal with the professional uncertainty. A commando worried about not getting paid, or about being sued if the operation goes awry, won’t be an effective commando. He should remain focused on the mission.

Sacrifice of long-term growth: Skin in the game forces focus on what’s needed to help the company succeed. This is good, but too much skin in the game deprives us of the slack needed to build long-term skills, like reading books. You can develop a lot of skills when there’s an immediate need, but not all. Some skills require more time and leisure.

Character: Too much skin in the game makes people aggressive, lie to others to get what they want, make unreasonable demands of others, create a culture of blame rather than working together constructively, and so on. There are many founders I wouldn’t work with for this reason.

Health: Too much skin in the game pushes people to bad outcomes, like death at 32 due to heart attack. Another former founder I know took on so much stress that his digestion was so bad he can eat only one meal a deal — by his 30s, and that too with strong medication. Every day must be a pain for him. That’s a terrible way to live. Another has health issues at 45, and things will only get worse for him as the decades go by.

Bad journey: We need to have fun on the journey, not just the destination, and too much skin in the game can result in a bad journey.

Have skin in the game, but not too much.