How big should your company be?

As companies grow and employ more staff, the dynamics change.

Everything is different when there are 25 employees as opposed to 6.  In the dot com era, the fast growing companies that were spinouts from large companies really enjoyed their freedom to act.  Then, as they grew, they found the maximum number of employees they would reach before the bureaucracy returned was around 150.  By then all the thick HR manuals and bureaucratic processes for budget approval were back in place.

Why is it so?  What are the changes that occur as the numbers grow?  How should companies organise themselves as they grow in order to maximise freedom yet keep some semblance of order?

At the top end, a good explanation is given by the work of Robin Dunbar and Dunbar’s number. It is our Brains that limit us. As the employee figure rises, it gets to a point where people cannot recognise, or know, every other person within the company.  If the people are not all in one location, this ‘tipping point’ can occur sooner as remote contact is harder.

As the employee count rises above 80, the amount of time the organisation spends communicating and keeping everyone involved and engaged rises.

According to research, terrorist groups (i.e. people disrupting the status quo) tend to work well when they are 9 or 10 strong. However they are vulnerable when they attempt to grow until they reach about 50 in size.  They are hard to maintain above that size unless they are in one location.  The New York Mafia families never really got above 130 in size.

Parkinson’s Law and his other work contribute some ideas as well.  In his findings it seemed that leadership groups of up to 6 worked well, but if the cabinet grew above around 20 it started to lose power.

Solutions

Initially, a business can be run in one location as a “family” with everyone knowing what is going on and being totally committed to the cause. This is up to around the 10-15 employees mark. Interestingly, this is the maximum size of sports teams too.

After this point there is breakdown in cohesion and more effort is required to keep the group together.  The business is vulnerable unless things change.  There are more rules, more artificial communication activities, regular reporting and specialisation.  Indeed, if the number goes beyond around 25 with no changes taking place, it can go horribly wrong.  By now, there can be people in the organisation who are not committed to the cause – to them it is just a job.  It is not surprising that studies of small businesses with small numbers of employees suggest that sales and funding are the biggest issues, however as they grow, organisation and management become more important.

So what is recommended? 

  • It is a variable landscape. If the firm is all in one place, you should put in place a leadership team that meets regularly (probably weekly) before you reach 20 employees.
  • As organisations grow, the need to specialise and have in-house access to special skills increases. The appointment of a Finance Director as well as IT and HR specialists usually occurs before there are 50 employees. Specialists should be managing groups of maximum 15 – but ideally smaller.
  • Keep open boundaries between departments. Try to maintain good relations between individuals in the admin departments such as Accounts, HR and IT. This encourages innovation.
  • Try to keep production teams self-managed and down below 10. They are more likely to act cohesively.
  • Keep the organisation flat. Split up into divisions when your employee count exceeds the 50-80 mark.  If the organisation is more widespread, it may split into “divisions” naturally based on geography or special sectors.  The more widespread geographically, the more effort is required.  Remotely located staff, especially those at customer premises, can go “native”.  They will have the customer’s interests as their focus.
  • Ideally your decision making group should never get above 6. The supervising board should never get above around 20.

By looking at team size, specialisms and governance you can design a structure/system that results in minimum bureaucracy, therefore enabling profitable growth.

 

If you have any questions or would simply like some more information/advice on this topic, please don’t hesitate to get in touch with Norman on enquiry@w-l-p.co.uk.