Peter Thiel is one of the sharpest entrepreneurs and investors of his generation, and he has an interesting heuristic on deciding how to promote employees.
Keith Rabois, a longtime Thiel collaborator who served as COO at PayPal and went on to become a prominent venture capitalist and executive at Square, LinkedIn, and Khosla Ventures, recently shared a lesson he learned from Thiel about organizational design. The insight challenges conventional wisdom about building management hierarchies and reveals why some of Silicon Valley’s most successful companies have remained stubbornly flat for longer than traditional management theory would recommend.
“I actually learned from Peter Thiel back at PayPal that you only really want to promote someone when there’s a significant delta between that person’s performance and the next best person,” Rabois explained. “The bigger the delta, the easier it is to promote somebody. Otherwise, you’re better off as an executive leading an organization to leave things flat until the gap is just unmistakable. Then you can stitch things together.”
The reasoning behind this approach centers on preserving potential rather than imposing structure. “You don’t really want to suppress someone’s growth,” Rabois continued. “So if you have a high potential executive leading an organization and you have 11 direct reports, artificially suppressing that person’s potential by stitching them together under someone, layering them, isn’t really effective. You’re going to demoralize them. You’re never going to see how much upside they really have. And so as long as you think someone has unbounded upside, I’d be very leery of suppressing their potential.”
This philosophy has significant implications for how fast-growing companies should think about organizational structure. Rather than promoting based on tenure, title inflation, or arbitrary span-of-control rules, Thiel’s approach suggests that companies should tolerate flat structures and wide reporting relationships until a clear performance leader emerges. This prevents the common problem of premature hierarchy creation, where companies add management layers to conform to traditional organizational charts rather than in response to genuine performance differentiation. The approach also reflects a broader Silicon Valley tendency to optimize for talent density and individual impact over conventional corporate structure—a principle that has guided companies from PayPal to Stripe, where relatively flat organizations have persisted far longer than in traditional enterprises. By waiting for unmistakable performance gaps, companies avoid the dual risks of promoting the wrong person too early and capping the potential of high performers by placing them under mediocre managers.