Growing Pains
Common problems that emerge as teams grow.
After years of working closely with startups, I’ve had the opportunity to see many of the same themes emerge at different team sizes. I get asked about this a lot, so I figured it might be helpful to write it down for others to read.
The stages I see correspond nicely to what you would expect if you were following Dunbar’s number rules, so I’ll use those categories to break things down.
Dunbar’s rules
Robin Dunbar is a British anthropologist and evolutionary psychologist who is famous for positing a theory about the number of relationships that we can maintain. His original research was based on studies of primates and the structures that emerge in hunter-gatherer societies, but subsequent studies have seen the same patterns emerge in facebook groups, church congregations, online gaming and military fighting units (to name a few).
The theory goes that our brain’s capacity to hold information puts a limit on the number of people that we can know well. To know people we need to hold information about them; and the better we want to know them, the more info we need to hold. It turns out that this causes quite predictable rules to emerge regarding the number of relationships we can maintain at different levels of closeness.
Source: Robin Dunbar, Dunbar’s Number
On the far left we have our very closest connections, usually family and one or two very close friends. On the far right we have all the people whose name we might remember if we met them in the street. (If at this point you’re not sure if you believe this theory, I’d invite you to make a list of your closest people.)
Dunbar’s number is often quoted as 150. That’s because the 150 mark is the limit on the number of people we can know enough about to feel like we know them. You know, the feeling where you don’t worry that you’ll forget their name, and where you can easily recall significant information about them.
This number is particularly important for workplaces, because it’s the group size where you don’t feel totally lost. The size when someone mentions someone else, you most likely know who they are talking about, and you know enough about that person for the conversation to make sense. Beyond 150, it no longer feels possible to know everyone and most people stop trying to. But I’m getting ahead of myself.
Over the last 8 years working in and with startups, I’ve seen these numbers play out remarkably consistently. It’s so consistent that I now believe that it’s the simplest and most accurate way to think about planning your people and culture processes.
People and culture processes exist to support people to work effectively together, which is all about supporting relationships. So it makes sense that you need different types of support depending on the level of difficulty of maintaining those relationships. And the main factor that determines the level of difficulty is the number of relationships that need to be maintained. So from here, I’ll dive into what I’ve seen at each stage.
Two to Five: Intimate and simple
When your work group is in the two to five category, it can feel like a family (a well functioning one!). You can know each person very well - their strengths, weaknesses and preferences. Often you can do this without even trying. It makes it simple and clear - everyone just knows everything. And you can all have a conversation together without it feeling clunky.
At this point in a startup’s life, it often feels great. You might be dealing with big problems, but they are typically outside problems - the market, getting funding, developing your product. It feels like you are one team, and it’s you against the problems.
At this stage you don’t need much formality at all. Your brain’s capacity is plenty to hold all the information you need about each of the people, and the work. So you typically can just discuss informally, maybe sketch a basic plan, and then get on with the work. It’s often super productive and fun.
Five to fifteen: A little clunky
As you move beyond five people, it starts to get difficult to hold all the necessary info in your brain. At 7 or 8 you might still be able to do it, but it’s feeling effortful. You might find yourself feeling a bit peeved. You might not even really know why - it just doesn’t feel fun anymore. The reason is simple - you’re nearing your brain’s capacity limit. When you’re at the limit, you feel annoyed.
As you get closer to fifteen, it becomes impossible to hold everything in your brain anymore. You also can’t effectively have everyone in a single meeting anymore. Without some structure to support you, things will start to get very clunky.
In startups at this stage, I often see splits starting to emerge. For example, the tech team might start to feel separate from sales. This splitting is how we naturally reduce the group size back to a comfortable five.
Test your brain’s capacity!
Read the list of words below, then close your eyes and sing Happy Birthday.
Before you open your eyes again say all the words you can remember out loud.
Morality
Twelve
Peach
Water
Tennis
The problem with natural splitting is that without something to bring you back together, it easily ends up feeling like silos. Tensions may emerge, and it no longer feels easy to get the information you need. It’s time for some structure!
Fifteen to 35: Are we losing our soul?
Beyond fifteen, it usually becomes clear that some structure is necessary. But how much is enough? And what’s the right way to do it?
At this stage I see two main types of companies (and founders) emerge: The rebels, and the reluctant traditionalists. Founders are pretty universally non-traditional, so it’s rare to see them be happy with adding more structure. So instead I tend to see these two types emerge: The Rebels who see structure as the enemy and resist it as long as they can; and the Reluctants who don’t like it but figure there’s no other way.
For the Rebels, this is often a stage of experimentation. They don’t want to create bureaucracy, red tape, or stifle innovation so they try not to do what other companies do. They’ll often try to invent their own systems of organisation, or will add structure in the most minimal fashion possible. This can be a very challenging phase for those working with the Rebels. I often see clashes between founders and senior staff at this stage.
For the Reluctants, this is more likely a stage of sad acceptance. They also don’t want to create bureaucracy, red tape, or stifle innovation but they also see that the current lack of structure is chaotic. So they accept that more structure is needed, and tend to borrow structure from other companies. This typically means that the founders and earliest employees who were around in the two to five stage feel disappointed at the loss of fun. There might be talk about the ‘good old days’, or clashes between the old and new guard. You may start losing your old guard, or feeling like they're not what you need anymore.
Reluctants also often hire senior executives at this stage who will bring some structure with them. This can be an effective way to add structure, but if it’s done without careful thought it’s easy to add more than you need. Or for different execs to want different structures, causing silos to become entrenched and making communication difficult.
The trick at this stage is to carefully add structure: just enough and just in time.
35-80: Growing up or looping
As you get past 35 you either have enough structure to cope, or you’ll find yourself repeatedly adding more people only to lose them again, causing you to loop around between 35 and 50.
Whether you have enough structure is a visceral feeling - either your staff feel like they can get things done, or they don’t. If there’s enough structure to get things done - and your staff like each other, you, and the work they are doing - they will typically stay. If there’s not enough structure they’ll leave - even if they like you, their colleagues and the work they are doing.
Signs that you don’t have enough structure yet include:
‘Personality’ clashes: Most clashes are not really personality based, but are caused by the (lack of) structure pulling people in different directions.
Complaints and/or suggestions: your most engaged staff will typically try to solve the problem by bringing it to your attention (complaining), or by suggesting a solution.
Common suggestions include a new process or system, hiring a new employee, providing leadership training, or the founders getting a coach.
Common complaints include not knowing what’s going on, not being involved in decisions, and not knowing where we’re going next.
Errors, confusion and low performance: When you start to see mistakes (especially ones that seem silly), or when a previously high performer starts to struggle, it’s easy to think that there’s something wrong with people. Whilst that’s possible, it’s more likely that they are simply overwhelmed by the complexity of your lack of structure. Swapping them for someone else just shifts the problem to the new person (who will also struggle).
Signs that you’re looping are pretty obvious, but take a while to play through. You will find that you hire new people, only to have them leave. If you’re losing people in less than 12 months it’s a problem. If you’re losing people at a faster rate than you can hire them you have a serious problem. And if you’re losing people in their first six months, it’s dire.
Signs that you might be going to loop:
You have lost more than 2 people within 6 months of them starting
Your staff are constantly complaining that they have too much to do and need more team members
You don’t have a solid onboarding process
Your recruitment process involves only unstructured interviews
Staff you have hired in the last 3-6 months are unhappy, unproductive or feeling stressed.
80-150: Getting serious
If you’ve made it to 80, and you’re not looping, then well done - you’ve done some things right.
If you’ve made it past 80 and you have high turnover (greater than 15%) then it’s time to do a major stocktake. This usually happens when you have enough money to mask your culture problems by hiring quickly. Perhaps you have amazing product-market fit and your product is flying out the door; or (more likely) you’ve done a good job fundraising and you’re eating your capital. Either way, high turnover indicates significant problems and is well worth fixing now so it doesn’t compound over time.
If things are working well - you have low turnover (5-8%) and people indicate that they are happy, give yourself a massive pat on the back. And still start prepping for everything to break.
As you approach 150 people you will encounter a new class of problem: You won’t know everyone anymore.
What’s turnover costing you?
Replacing lost staff can cost up to 150% of their salary.
If you have 80 staff at an average wage of $120k per year, and 15% turnover it’s probably costing you:
$462,384
Not just the odd new person, but lots of people. You’ll start to not know people’s names, and you’ll start to have to rely on titles and reporting lines to figure out what people do. And if it’s bad for you (as the founder/senior exec), it’s worse for everyone else.
At 80 people you were probably still able to sit down with your exec team and review the salaries of every person. Likely someone at the table had a view on each person’s performance & could discuss that with you. It was probably getting hard and time consuming, but it wasn’t impossible.
As you approach 150 you’ll find that neither you, nor your exec team has a view on all the people in their teams. You’re starting to have to rely on the perspectives of your team leads, and you likely don’t have a clear view on each of their performance, so it becomes harder to trust their perspectives.
Importantly, you also probably don’t have a fair way of comparing performance across teams. This means you might be paying people too much because their team lead is generous; or underpaying a strong performer because their team lead isn’t effectively advocating for them. You’re also running the risk that people find out what others’ are paid and become disgruntled.
At this size, it’s no longer enough for you to think the salaries are fair. You need to be able to demonstrate to everyone that salaries are fair. So unless you want to publish all salaries (not recommended), it’s time to build some structure into your compensation, promotion and performance management approaches.
At this size you will also start to see serious productivity problems emerge if you don’t have a strong onboarding process, and solid ways of working patterns. Without a strong onboarding process new people will take at least 6 months to get up to speed; and without solid ways of working patterns most people will spend about half their time trying to figure out what to do and how to do it.
150-500: Consolidate & maintain
If you’ve made it to 150 and things are working well, breathe a sigh of relief. For a while you’ll just need to maintain the things you’ve built and protect them from entropy. Things will feel relatively settled and you’ll be able to focus. Enjoy it!
If you’ve made it to 150, but you feel like you’re limping along a bit then now is your opportunity to do the renovations you need to get things working well. The good news is that for a while you will be encountering similar problems to those you’ve seen in the past. These are the problems that you haven’t yet managed to solve for the size you’re at. When you find yourself feeling annoyed at hearing about the same old problems, take note: they will not go away on their own.
A note on mergers & acquisitions
If you reach this size (or bigger) through a merger or acquisition then the rules will apply differently.
You will have two types of problems:
The normal problems of coordinating groups of people (covered in the rest of this article)
The problems that emerge because the two old companies were doing things differently.
From a people perspective, growth through M&A is harder. Even if things were working well in both organisations when they were separate (which is unlikely), they will undoubtedly be different AND the new group will be significantly larger.
Both groups will be used to their own ways, and will believe their old way is better (because they are used to it). Problems like whether to use GSuite or Microsoft; Asana or Jira; or whether to change titles so that Director means the same thing might feel trivial. It might feel like those things shouldn’t matter very much, but they do.
Bringing two separate organisations together is really hard. Most M&A processes don’t end up delivering the benefits that were promised - in fact Clayton Christiansen says that 70-90% of them fail. They fail because the benefits only accrue after you get the new group working well together. So if you’re thinking about it, or have recently gone through it, make sure you plan for how you are going to bring people together and make it possible for them to work together.
500-1500: The final frontier
As you move from the relative calm of 500, into the bigger realm - hold onto your hat - everything is going to break again. Any unsolved problems from earlier phases will still be hurting your productivity, and now you’re likely to see a new set coming your way.
Navigating an organisation of 500 people is like navigating in a regional centre. It’s big enough that you don’t know every street, but you do know most areas and have a sense of what it’s like there. As you approach 1500, navigating will become more like a city. There will be places that you weren’t aware existed. People will not expect to know eachother and won’t really try anymore. They’ll stick to knowing their immediate groups of up to 15, but beyond that will mostly be transactional.
In this new, less personal environment trust will no longer be placed in people. It will be placed in the systems, process, structures and rules; and (ideally) your culture. If your systems and structures don’t work well enough to cope when people change roles, or new things pop up, then things will be breaking all over the place and you will be playing whack-a-mole.
At this stage it should be part of your intentional goals to make your organisation able to work without you, and without anyone else. The organisation needs to become a grown-up entity that doesn’t rely on any individual. This will inevitably mean that the senior team will feel more like figureheads and less like people. They’ll need to remember that too - people will know who they are, but won’t know them as people. They will have eyes on them all the time, but won’t get any benefit of the doubt. Which is why you’ll need rules.
Up to 150 we’re mostly able to establish trust as an individual because our behaviours are known to those around us. We’re being judged mostly on our actual behaviour (or a slice of it). Up to and beyond 500 this becomes less and less true. People in your organisation will no longer believe that they know you (or you know them), and so they simply can’t put their faith in you personally. They need to put their faith in something though, so there’s a few options:
Faith only in myself: This is a true wild west situation where only the most aggressive will survive. Co-operative and collaborative people will leave or be eaten alive. People will be working for their own personal gain, not for collective success.
Faith in people I know: Usually their team, their manager, and that person’s manager. This is ok when it’s working, but is inherently unstable. Every time people change, trust needs to be rebuilt. This is particularly difficult for changes in senior roles, because there will be a lot of people underneath them that are affected.
Faith in the structure: This is typically fairly stable, but easily becomes too stable and bureaucratic. That’s because systems, processes and rules don’t change themselves. And if people only have faith in the structure, then any attempts at change feel like pulling the rug out from under them, so they will resist.
Faith in the culture: This is the best balance. It allows for some faith in people to behave in accordance with cultural expectations; and some faith in the systems, processes and rules without becoming overly reliant on them. This is why the most successful large organisations are able to survive leadership changes, economic downturns and even big shifts in their business model. In an effective culture there is a nice balance of stability and change.
A final word on culture
Whether you managed to effectively solve the problems you’ve encountered along the way, or you’ve just done enough to get by, you will have developed a culture. It just might not be a culture that is supportive for your business.
Cultures emerge in groups of people organically. They are the result of the averages of all behaviours over time multiplied by the power of the people involved. The most powerful people in the organisation have a big effect on the culture. As do people who have been around a long time. So it’s pretty obvious that founders who are both powerful and have been around a long time have a massive effect.
Being a founder is like being a parent. You try to do your best, but it seems like everyone just picks up your worst habits. Like the four year old who swears at kindergarten because Mum and Dad swear at home, your staff will be emulating your behaviours. So, if you find yourself looking at the behaviour of your staff and feeling annoyed by it, I have good news and bad news. The bad news is that they are doing those behaviours because in your current culture those behaviours work. The good news is that if you are a founder you are in a strong position to change that.
And if you’re still early in the journey (before 150) I have great news: You are still at a size where you can change culture merely by changing your own behaviour. I’m not going to tell you that’s easy. But it is the easiest it’s going to get. Discipline and awareness you develop now will continue to pay dividends long into the future.
Feeling like you might need some help to navigate these challenges? We’ve got your back. Book a 30min free chat with Charlie.
