The magic number: this is what happens when companies hit a certain number of employees

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The dynamics of companies change fundamentally when they exceed roughly 150 people, in ways that startup founders can struggle to address.

“It’s one of the magic numbers in group sizes,” contends Facebook chief product officer Chris Cox, who joined in 2005 when the internet company had fewer than 100 employees. “I’ve talked to so many startup CEOs that after they pass this number, weird stuff starts to happen,” Cox said at the Aspen Ideas Festival this summer. “The weird stuff means the company needs more structure for communications and decision-making.”

This is familiar to us here at Quartz, the four-year-old media startup that I cofounded. Within the past 12 months, our employee count rose above 150. With that growth, the organization has changed in ways that we didn’t anticipate.

In retrospect, it’s easy to see why our flat management structure, with limited hierarchical levels and consensus-based decision-making, ceased being as effective as it once was. Too often, our staff was stalled because it wasn’t clear who was responsible for moving a decision forward. Employees craved more feedback and career development than managers in the flat structure had bandwidth to provide. Also, information about and ownership of our strategy, norms, and values weren’t spread adequately across our staff, as our ad hoc approach to internal communications showed its limitations.

These weren’t just the conclusions of our leadership. Quartz’s staff highlighted all of these issues in one way or another in anonymous internal surveys that we conducted. While we had heard some of these concerns earlier, they really came to a head as the company reached 150 people.

One likely reason is that for just about any group, the dynamics fundamentally change when the group grows beyond that size.

Recognizing the signs

Oxford University evolutionary psychology professor Robin Dunbar has theorized that humans can only really maintain personalized relationships with 150 people. He found this seemingly magic number “in the typical community size of hunter-gatherer societies, in the average village size in county after county in the Domesday book, as well as in 18th-century England; it is the average parish size among the Hutterites and the Amish.” The so-called Dunbar’s number also is found in the size of military companies, and was the basis for the social network Path to limit any member’s sharing to 150 people.

“There is no question that the dynamics of organizations change once they exceed about 150 or so,” says Dunbar. “The Hutterites deliberately split their communities at this size in order to avoid having to have both hierarchies and a police force. Keeping things below 150 means you can manage the system by peer pressure, whereas above 150 you need some kind of top down, discipline-based management system.”

At a startup, once the staff exceeds 150 people, employees are no longer the single, cohesive, culture-reinforcing unit they were during the company’s earliest days. Staffers become more specialized and entrenched with their teams, which are probably sprawled across an office, perhaps on multiple floors or in several locations.

“It’s a conversation I’ve had with every single CEO I know who’s had a company that’s moved from 150 to 300 people,” says Patty McCord, who was chief talent officer at Netflix from 1998 to 2012, having joined when the video-streaming company was just about 30 people.

“I call it the stand-on-a-chair number,” says McCord, who coauthored an excellent deck on talent and culture at Netflix and now consults for companies such as Warby Parker, Square, and HubSpot, on leadership and organizational structure. Once a startup leader gets up on a chair to address the staff and someone yells out, “We can’t hear you,” she says, it’s time to start rethinking how you’re communicating.

McCord advises that once a company grows beyond the 150-employee mark, it’s all the more crucial that leaders “be able to articulate on a pretty regular basis where we’re going, what we’re doing, what we’re not doing.” For employees, she says, this is when company culture and identity become less about being part of a single tribe of co-workers and, ideally, more about the customers they serve.

What happens at the tipping point

As companies grow, they add process and often start requiring more sign-offs for employees to get things done. McCord says it’s this type of bureaucracy that kills companies. Instead, she thinks leaders need to focus on sharing the business context—including analytics on what’s working and not—so that staff can find the right solutions themselves. Netflix, for example, abandoned its policy for allotting vacation days and tracking them, believing it was more efficient to entrust employees to behave responsibly. For expenses, entertainment, gifts, and travel, its policy was “act in Netflix’s best interest.”

W.L. Gore & Associates, the maker of Gore-Tex fabric, has an unconventional approach to managing the changing dynamics that come with growth. The privately held manufacturer, which has more than 10,000 employees, generally doesn’t allow the staff at any of its factories to exceed 150 people before building another, self-contained factory next to it. That’s because founder Bill Gore felt that when a unit of workers got big enough, “we decided” became “they decided,” as management writer Gary Hamel, who has studied the company, explains it.

Gore died in 1986, several years before Dunbar would publish his work on Dunbar’s number. But Gore understood that workers in a 150-person unit could all know one another, and share a commitment to group goals and values—and that any growth beyond that would change those dynamics.

“That feels like about the right number,” says John Foley, the co-founder and CEO of New York-based fitness startup Peloton, which now has about 375 employees. “It was great when there was 50 people and I was a big enough personality and influence and we sat all together. The core nucleus of the founding team could create the culture. Now as we’re adding more and more people, that doesn’t scale.”

Managing growth at Quartz

At Quartz, we streamlined our leadership structure earlier this year so a smaller number of people had clearer responsibility for different parts of the business. We created a 10-person operating committee of top managers to meet weekly to share information about the health of the company and decide matters affecting multiple parts of the organization. We spent time talking about our values and goals with staff, wrote down a company history to share with all new employees, and started scheduling more regular all-hands staff meetings to discuss the business. Our mission—to “be a guide to the new global economy”—helps define Quartz in terms of how we serve readers. Ultimately, this should be a bigger, more powerful influence on our culture than the sense of tribe we cultivated early on as a staff.

Quartz now has about 200 employees, scattered in locations around the world, and we plan to expand significantly beyond that in 2017. Our structure and communication undoubtedly could be improved. I myself find that it remains an ongoing challenge to add structure without crimping the creativity, speed, and individual empowerment responsible for our success to date.

McCord says such changes in culture as companies get bigger are often positive, even if they’re disorienting. She recounts a conversation with a Netflix engineer who was concerned about the company’s culture. “We do understand what is going on and things are different. Do you know why?” she recalls telling him. “Because we’re successful.”