There are a handful of oft-cited, number-based theories around the ideal size of well-functioning collectives. Among them include:
- The Dunbar Number named after a British anthropologist who proposed that humans can only comfortably maintain 150 stable social relationships, which represents the cognitive limit given the average human’s brain size.
- Bezos’ now-famous two-pizza team, which posits that the recommended size of a team — that can balance collaboration and autonomy — is one that can be fed by two pizzas, or between six to 10 people.
- Research surfaced by organizational culture consultant Sheila Margolis that the best size of group for decision-making is 5 (actually 4.6) people, after which the number of possible social interactions begins to explode.
The quest for the critical headcount inflection point for companies continues. We, at the Review, have seen a pattern emerge over four years of asking for and sharing tactical startup advice.
Molly Graham, VP, Operations at the Chan Zuckerberg Initiative and former Quip COO, articulates it best: 30 to 50 people is where you go from being a family to being a company, and everything starts to get really hard.
“There’s something really interesting that happens when a company can’t fit around one table anymore — things just start to get a lot harder,” says Graham. “Where it used to be simple to communicate, people suddenly complain that they don’t know what’s going on anymore. They don’t know why you’re making certain decisions. They don’t know each other as well. They don’t know what they should be doing. I’ve seen so many companies really struggle in this phase.”
Turns out that other founders and functional leaders have witnessed the same discomfort when headcount enters the 30-50 employee range. We’ve decided to spotlight some of those people who’ve felt that inflection point keenly in their own careers and areas of expertise. Rather than have you search through our archives, we’ve assembled the six most valuable actions and tips to consider when your team crosses 30 employees. Here we go!
Issue 1 of 3 performance ratings for each employee.
Let’s continue with Graham. When she joined Facebook, the company already had 400 employees, but there was no official performance or compensation system in place. There had been attempts, but nothing stuck. The result: very little transparency, a lot of one-off compensation decisions, frustration and confusion. It took working closely with Sheryl Sandberg and HR chief Lori Goler to return to the basics and right the ship.
But, if startups ask, she doesn’t recommend waiting that long to start creating a more defined system around performance and compensation. One key underpinning in getting this right is establishing performance ratings early, which guides conversations around performance-based increases. (Graham believes increases shouldn’t happen before a Series B is raised, unless it’s about getting people up to market rate. See here for other choice advice from her.)
She has a related rule of thumb for early-stage companies, especially for those between 30 and 50 employees. The management team should look at the entire employee base and assign a performance rating to each employee. “You should decide on a number of performance ratings — usually 3 ratings is sufficient for a small company,” says Graham. This evaluation should take both their teamwork and individual work into account.
“Make your top rating special. Only put a small percentage of people in that bracket — like 1 to 2 people if you’re at 30 or less employees, or 1 to 5 if you’re at 50 or less,” says Graham. “Anyone who goes through this process and it’s clear that they’re ‘just doing okay’ should be on the path to getting fired — particularly if you’re in a phase where you’re scaling fast. It sounds harsh, but it’s usually right for the business.”
Give each person $30 to spend on features.
While Pandora itself was much larger, this lesson for startups draws from its engineering team, which was less than 40 engineers when it went public in 2011. At the time, then-Pandora CTO Tom Conrad (now VP, Product at Snapchat) and his skeleton crew helped Pandora build products for 70 million monthly users and which generated half a billion in revenue.
Like any lean, dynamic team, it spun out far more ideas than it could pursue. With a simple system, Conrad helped generate, triage and tackle the best ones. First, at the start of each quarter, he asked the following question:
What would be stupid for us not to do in the next 90 days?
Conrad recommends making a call for ideas as broad and wide as you want — especially if you’re a team or company that’s still in double digits. You can include everyone in this phase of the process — individual engineers, the people that work with your business partners, the people in community or customer service who hear what your consumers are saying every day.
But then what do do with all the ideas? At Pandora, this question would often produce up to about 80 ideas, but there’d be no way the company could go after all of them. How do you go from 80 ideas to a reasonable number of features that less than 40 engineers could build in 90 days? This is where Conrad’s systematized prioritization became core to the culture:
- Start by making one presentation slide for each idea. Each slide would have a heading and several bullet points defining the scope of the feature and metrics describing what success would look like and how it would impact the business.
- Calculate the scope in terms of dollar amounts. Roughly estimate how much work an idea will take and how much engineering capacity is required to ship it — and put it on the slide. To make this easy for everyone to grok, Pandora decided to express scope in terms of dollar amounts: a feature that takes one engineer a month to complete is worth $5. If it takes two engineers a month, or one engineer two months, it’s $10 — and so on.
- Pick your prioritization team. Of course, a key step of this phase of the process is to pick members of your prioritization team. Even at the earliest stage, you probably don’t want to include everyone. Most early-stage startups aren’t democracies; and the companies they grow into certainly aren't. It’s best not to pretend they are.
- Give each member $30 to “invest.” Every quarter, Conrad would print out and tape up all 80 submitted idea slides with their requisite dollar amounts. Then he’d hand out stacks of Post-It notes to each of the members in the room. Taking his example, if you have five people participating in the prioritization process and $150 in engineering capacity, you would make five stacks of stickies, each worth $5. Everyone gets six so they have $30 to “spend” on features. It’s important everyone gets the same amount whether they’re the CEO or customer service.
For more on how this system works, continue reading here.
Uplevel your analytics tools.
Segment co-founder and CEO Peter Reinhardt knows the power of the right tool at the right time. After 18 months of struggling to get traction with two product ideas, Segment turned the corner. What followed was a two-year stretch of growth from four to 60 people, thousands of new customers and $44 million over several rounds of financing. What was the trigger for such a significant inflection point? In the lead up to the sea change, Reinhardt and his team started to heavily lean into qualitative feedback tools like live chat widget Olark. It was embedded on each page and everyone from the newest hire to the co-founders were constantly learning from everyone using their product.
In his Review article, Reinhardt draws from his extensive evaluation of tools to share how and why resource-constrained startups should select them. With many recommendations, he also touches on when startups should select new tools. Here’s one for a 30-person startup to note:
“Start integrating tools for more complex analytics after you get to product-market fit. When you’re getting more granular and want a deeper understanding of, say, the conversion funnel from the homepage to the innards of your product, expand to a full funnel analysis tool like Amplitude, Mixpanel or Kissmetrics. You’ll then reach a point — likely around 30 people —- when the questions that you’re asking about your customer data become too complicated for an out-of-the-box tool. If you’re looking beyond the funnel to a more holistic analysis of your business, start considering Looker, Mode or Periscope to give you SQL Business Intelligence systems to get an operation-wide view. These tools connect to data warehouses like Redshift.”
For specific recommendations across eight categories of tools from Reinhardt, read on here.
Nail your positioning statement.
If Arielle Jackson had her druthers, you might be revisiting your positioning statement around 30 employees — not creating one — but that’s why this is an especially important checkpoint. It should be done before a company hits 30 people, but we often note that many startups don’t get to it by this point. So for those in that camp, take a page out of Jackson’s positioning playbook, honed from years at Square, Google and Cover.
So what does a positioning statement look like? A lot of good advice is contained in the foundational marketing guide Positioning, which Jackson recommends. But in particular, she cites a formula she learned from former Google Head of Marketing and Communications Christopher Escher when she was an associate product marketing manager:
For (target customer)
Who (statement of need or opportunity),
(Product name) is a (product category)
That (statement of key benefit).
Unlike (competing alternative)
(Product name)(statement of primary differentiation).
Using this framework, you can explain your product or service in as plain of English as possible. This requires some pre-work. Answering the following questions can help you get to a concrete statement:
- What’s different about the way your product/service works?
- Why do you do what you do?
- What is your broadest circle of prospective customers? Start with something like “Android users” or “people without cars,” and then try to get more specific, ending up with a profile of an individual model user.
- What pain points are these customers experiencing? Be as clear and specific as possible. What emotions do customers associate with these pain points?
- What other companies solve similar problems? Don’t just list your competitors but also their strengths and weaknesses compared to what you’re doing.
- Avoid all buzzwords. If there’s one word that describes your positioning statement, it should be “human.”
For examples of what this formula looks like for companies such as Amazon and Harley Davidson — as well as more positioning guidelines — learn more from Arielle here.
Designate someone to be in charge of security — even if part-time.
"If you have 30 employees, at least three of them are using the same password for their corporate email as they used for something that's already been compromised in the past."
That’s Dave Engberg, the CTO of Livongo and, before that, Evernote. Before those roles, he designed and developed credential validation systems for the U.S. government. If anyone in Silicon Valley knows the value of secure access and keeping information safe, it’s him.
Engberg advises taking advantage of the built-in familiarity of a small, close team. “At this point, you still have a direct relationship with everyone,” he says. “And, assuming you’ve hired people who are sort of like you, you’re still rolling mostly on personal trust. You can say, ‘I know that guy — he’s not going to do anything stupid. I don’t have to babysit every single line of code.’”
But Engberg is clear that’s not a “forever” solution. “Typically, if you’re a 25-person company, no one will care enough to attack you — which is a good defense for a while. But past this, you’ll have enough attention that people are going to at least casually try to troll you,” Engberg warns. “Keep track of low-hanging fruit software vulnerabilities.”
One easy fix? Two-factor authentication — just set it and forget it. "There are some really easy things you can do at this stage. Probably 80% of startup teams are using Google Apps for their employees’ email and calendaring. So setting up two-factor authentication for logins is just a matter of turning on that setting as an administrator. So many people know that setting is there, that it can be enforced for all employees instantly, but they still don’t do it. There’s no excuse.”
For additional tips involving good security hygiene — by stage, for companies from 3 to 300 employees — continue reading here.
Articulate your values between 20 and 40 people.
Over his career, serial entrepreneur Jeff Lawson has been an outspoken teacher — and student — of company values, whether as the founding CTO of Stubhub or a technical product manager at Amazon. Of course, for the last decade he’s flexed this expertise most at Twilio, as its CEO and co-founder. One thing he advises: don't do mission and vision early.
Be aspirational but know that the seeds of these values must already have been sown. “This is where timing comes into play. You should articulate your values not too early and not too late,” says Lawson. “Don’t establish your values right after you’ve just incorporated. Your company is not mature enough; it’s people, product and process are not known entities. But don’t do it in the company’s twilight years either.”
It’s not unlike the teenage years. The hard-earned realizations and character-defining mistakes haven’t happened yet. ”Humans need to go through the teenage years to discover themselves, to get comfortable in their skin. I believe more startups actually go through that process as well,” says Lawson. “You have to give it time to bake in order to know who you are as a company. But if you wait too long, then the values can go off in their own direction and you may not like what you find when you find them.”
Plan to articulate your values when you’re between 20-40 employees. Don’t express them when you’re three nor when you’re 500 people. Not too late, not too early.
Lawson champions a three-step process to get started: articulate your values, live your values and change your values. It’s this process that has given Twilio some of its most powerful and beloved values, from “Empower Others” to “No Shenanigans” to one of our favorites: “Draw the Owl.”
This is far from the end of the Review's wisdom on critical inflection points for early-stage startups. Check out the full articles referenced above as well as others focused on busting bureaucracy, putting CX at your core early and what to do when employees first start to leave.
Photo by D. Sharon Pruitt Pink Sherbet Photography/Getty Images Plus/Getty Images.