The most common questions I hear from startup founders and team members are, “What are the best practices? What lessons have others learned? What’s coming next?”
The purpose of the Maturity Framework Series is to help startup founders and teams to anticipate what is coming next. This post will specifically look at the Dunbar Stage, when a company grows beyond 150 employees.
Company Stages by Number of Employees
Links to full posts detailing the Early Stage, Momentum Stage, Expansion Stage, Growth Stage, and Scale Stage.
Dunbar Stage: 150+ employees
I’ve intentionally left no limit to the capacity of the next stage, no end state or upper bound. It starts at 150 employees and grows from there. I’ve done this for two reasons. First, the density of the USV portfolio companies hover between 30 – 150 employees, we have the most network knowledge in this company size. Second, there are changes that need to happen at this size of an organization that will continuously be required. I intentionally did not include pre-IPO company requirements here as it has less to do with employee headcount, and more with other factors. If you’re interested in what’s required of a pre-IPO company, you can read more here.
Now, what is the Dunbar number and how will it influence our company structure once we have over 150 employees?
“Dunbar’s number is a suggested cognitive limit to the number of people with whom one can maintain stable social relationships. These are relationships in which an individual knows who each person is and how each person relates to every other person. This number was first proposed in the 1990s by British anthropologist Robin Dunbar, who found a correlation between primate brain size and average social group size.[7] By using the average human brain size and extrapolating from the results of primates, he proposed that humans can only comfortably maintain 150 stable relationships.[8] Proponents assert that numbers larger than this generally require more restrictive rules, laws, and enforced norms to maintain a stable, cohesive group.” (Read more on Wikipedia)
The TL:DR version is, our brains can only sustain 150 meaningful relationships at one time. Now, there are many questions as to whether the actual limit is 150, look at Facebook or LinkedIn connections, with some users maintaining 250+ contacts, but when we focus on individuals within an organization, all working together, this number is a typical break point. Fast growing startups may feel this break point between somewhere between 125 and 225, but we’ll use 150.
Before we get into the specifics of the Dunbar stage, let’s take one minute to step back to think about the scale of 150 people. Think about sitting in your living room with 15 people, and let’s say they invite 15 more people. You’re now standing because you don’t have seating for 30. Now the party next door comes over with their 30 people, people are clumping in smaller groups to have a conversation and you’re worried about the line for the bathroom but with 60 people, you can still look around the room and recognize faces. Now imagine the restaurant down the street invites all 75 of their guests to your party. People are elbow to elbow, it’s impossible to hear the person next to you because the noise of the crowd is so loud. You now have 135 people at your house and your 15 best friends just showed up. You let the chaos bubble around and hope that no disagreement occurs. At one point you try to make a toast, but your attempts at quieting the crowd leads nowhere. Time to make room for the new guests soon on their way.
150 people is a large group, that requires a certain physical amount of space to be comfortable, and that doesn’t touch on the social constructs required. As an employee, even if you know everyone’s name still, you can no longer know exactly what everyone is working on, and when. The politics of each team are now local, not team-wide. You have blind-spots. Just like at a party, you can’t see how everyone is interacting at once. That’s okay. That’s the point, to scale with trust and distributed decision-making.
A successful organization requires new structures, policies and organizing principles to build the trust required to function at this size. As a CEO, you need to trust your management to drive their part of the business, take care of their teams, escalate any issues, and provide feedback as a whole. Your organization will be a collection of smaller organizations working together, not just a collection of individuals. It’s a society now, be mindful as to whether you’re building it like a democracy or a dictatorship.
Depending on the business model, early success, and senior leadership, the scales may be working in your business unit’s favor. For example, in an engineering-focused company, the early team might be 50-75% engineers. Resources, headcount, and positioning efforts always favored engineering. As the company grows, the demand for additional engineers may slow, but the demand for sales may grow. At 150, the team may be 50% sales people, 30% engineering. Resources will flow accordingly.
Shifts in team focus are not a good or bad thing, just a shift that should be addressed, acknowledged and not ignored. Folks on those respective teams will see that shift in power and it may ruffle feathers. Ex:
“Why does marketing get more resources now?”
“I want to work on the sales team instead of BD, they have more engineering resources since they’re bringing in revenue.”
The new team structure is not bad, but the change from how ‘things were’ won’t go unnoticed. Address them, communicate and react accordingly. The danger occurs when this information is passed only in back-channels and it creates uncertainty. You will have uncertainty, be open about it in order to align on what is actually uncertain. Like a rumor, if you let it out of your hands, you lose control of the message.
Leadership needs to err on the side of more communication and teams need to build more process. I can hear it now, “Process? Yuck! That’s only for big companies, that’s why I joined a startup, to get away from process.” You will face this, the default for most startup companies is to reject process in favor of innovation. The often overlooked point is that good process enables faster innovation.
Early companies have process, they just don’t label it that way. An engineer may build a prototype on their own, bring it to lunch to get some feedback, and make improvements afterwards. That is a process. There aren’t many parts to it, but it is a process, something that doesn’t sustain over time, or just gets sloppy. Imagine 10 engineers all clamoring for feedback on their prototypes each day at lunch. It’ll get noisy, you’ll need to double the length of lunch. It’s sloppy process.
Scaling a company requires elegant process, the kind that is barely noticeable. If you are a fan of watching Apple Keynotes or engineering talks, you’ll notice the phrases like, “We looked at the landscape of what was out there and decided…”, and “Our team spent a year developing this new product” These individuals are describing their process in it’s elegance. They aren’t saying:
“We had 2 PMs that prioritized this item in Jira for 4 months, we had to get feedback from engineering and senior management to push it forward in Q4. We had input from marketing, customer support, and HR to ensure we weren’t having any conflicts with external events that may delay or change our timeline. Then, we brought the idea back to the team, created sprint cycles for the next 6 weeks, making sure our backlog wasn’t creating roadblocks. Oh, and we also had to kill a lot of other things along the way to make it happen, there were disagreements and back-and forth emails among sales, product and engineering. Our CEO believed in it but actually wanted it 6 months earlier. But hey, here we are now.”
Process can be daunting to setup, as it’s never done. New components will come up that change what you need to do. App store review timelines have changed a number of times, each time it happens, everyone who has a mobile app has to consider the impact to their process. It used to take 24 hours for an app review and now it takes 7 days? Time to make sure you let communications know, so they know the press release will go out a week later. Don’t let the need for flexibility, stop you from putting process into place.
The advantage startups have over other companies is that change is part of the DNA. Building iterative products to serve customers is core to how the team works. Leverage that mindset for process, that it’s iterative, great products make people happy and things easier. Positioning critical process as ‘internal tools’ or ‘business products’ can change the perspective. These are products that serve customers, those customers just happen to be employees of this company. As you did with the company, make sure you’re staffing correctly to enable internal tools teams to successfully deliver.
So how does a company at 150 or 300 evaluate their success? Take a look at three things:
- How do decisions get made?
- How does positive information flow?
- How does negative information flow?
These will help identify some of the largest organizational challenges as you scale. You will iterate on the ‘ideal’ outcome for each of these questions constantly. Build the communication and processes to make it easier to identify challenges and improve over time.
Current state of the organization:
- You know what you stand for
- Stable, but constantly changing
Things you’re doing for the first time:
- Hiring Executive coaches for your leadership team
- More management tiers
- Expansion in new markets or languages
- Reaching or settling into profitability
- Building teams that take care of your teams, like a learning and development team
- Introducing support roles in Sales or HR that are more focused on execution
- Build roles that are deeper, less wide.
- Increasing the strength of your finance and security teams.
- Thinking about IPO or late stage financing.
- Paying market rates for talent, once you’ve evaluated title-fit
What you’ve already solved:
- Better knowledge of your company’s ‘core focus’
- You know what you’re doing, your title may actually reflect what’s expected
- You continue to double down on profit generating parts of your business: engineering, product or sales.
- Expectations that team structure will change
- Right-sizing titles to fit the teams
If you have something to add to this list, please share in the comments or send me a line on Twitter.
To subscribe to weekly email updates, sign up here.
Footnotes:
*Please note, this outline is based off of trends I’ve seen in venture-backed startups. It very easily could apply to bootstrapped or non-venture funded companies, but not necessarily. In this outline I assume the company has taken funding.
**We’ve invested in a number of companies mentioned in this note. For a full list, visit our Portfolio Page or find opportunities with them through the USV jobs page.
