Why startups fall apart at 50 employees

Ask anyone who’s worked at more than one startup and they’ll probably tell you the same thing: Young companies start to go off the rails once they hit 50 employees. I call this the “teenager” startup phase, and I’ve been there several times, both as an employee and an executive.

What does this look like?

Employee one through 10: At a certain point, the original employees stop learning new people’s names. They won’t come right out and say it but they start to resent having to show yet another noob how to do the same simple things. Their tolerance for mistakes, even for the same mistakes they once made themselves, goes into the toilet.

Employee 10 through 25: The second tier of employees then starts to form small, protective cliques. They may occasionally drop references to the “good old days.” They place a growing importance on things like titles and status. Discussions might start to percolate about adopting the title prefix “Senior.”

Employee 26 through 39: This is the group where power plays start to happen. If the “teens” are going to form tribes, the late-twenties and thirties are going to start raising hell against the old guard.

Employees 40 through 49: WTF is going on?

While this scenario may not be true for every employee in every group, it always happens to at least a few people after a startup hits 50 employees. Like I said, I’ve been in each group and I’ve exhibited each of these behaviours, so I’m not judging here.

Well, maybe I’m judging a little. But we need to talk about what to do when your company feels like it’s going off the rails. We need to get our teenage startups out of the house and into the world like functioning adults.

Hitting chaos at 50 employees could mean several positive things. For one, it definitely means a company is growing, likely faster than planned. And as long as the growth doesn’t get too far out of hand, that’s a good problem to have.

If growth is indeed happening and it’s organic, your company has probably already developed an internal culture, lexicon, and set of operations that may not be documented but are definitely understood. Communication probably happens more on a face-to-face and on-demand basis than in memos and meetings, which means there’s likely not a lot of time wasted getting everyone on the same page.

Chaos is also a sign that your company’s executives are spending time building the product, penetrating the market, and satisfying customers. They’re probably not hung up on the structure of the company itself. But the chaos is also definitely a sign that it’s time to start paying attention to this gawky teenager of a company before it rebels and runs away.

"Even if everything goes right, things will go wrong."

As any parent knows, there’s no cure for the teenage years; we just have to wait it out. There’s an old buzz theme about the chaos that I hate: “Storming, forming, norming, performing.” It applies here, but I hate it because I don’t think it actually helps us.

We can’t cure chaos. But we can put measures in place to survive the storm. Here are the measures I’m most familiar with or intrigued by:

This is a valid option. A lot of companies do this until they start losing people. And by “do nothing,” I don’t mean doing absolutely nothing. That’s impossible because issues will come up and we can’t hide from them. Instead, “doing nothing” means proactively doing nothing and then solving each issue as it arises.

I don’t recommend this solution.

Think about what happens when we start to hand out titles like “senior” without rules for how those titles get handed out. Let’s talk about meetings. We’ll need rules as to when and how they get created. Otherwise, everyone’s calendar will eventually fill up, conference rooms will become scarce, and nothing will ever get done.

Even things like working remotely need to be considered. If we don’t have standards in place, and even if everything goes right, things will go wrong. I’m not just talking about abuse here; I’m also talking about how the rest of the team can be effective when one or more of their co-workers isn’t in the same place.

Startups are usually scared of becoming stale, corporate, or heavy-handed. And I get it: I hate those things too. But at some point, the structure becomes mandatory and it’s better to be proactive about it.

What I’d rather do: Centralize and be transparent. At the very least, create a single truth for rules, processes, guidelines, and FAQs. Make sure everyone has access to those documents. Then be transparent about why you’re doing things the way you do them. This isn’t just about rules; it’s also about the company’s overall philosophy.

This is the polar opposite of the “do nothing” strategy, and I’d compare it to using a sledgehammer to crack a nut. This strategy usually happens way too early in a company’s growth cycle. Plus, hiring more people to manage other people means wasting a lot of productivity for a little bit of order.

If we’re hiring managers from outside the company because they have experience leading teams at larger companies, they’ll have to integrate themselves and learn how we operate before they can be effective. Often these people will try to bring their older, larger company’s schema with them, which doesn’t fit.

But if we promote from within, we’re likely burdening our best people with something we didn’t hire them for. For example, often a CTO will take the best developer and say: “Here, manage the rest of your team for 50 per cent of your time.” Then the developer’s productivity bottoms out on the coding side, and the rest of their team becomes resentful on the management side.

What I’d rather do: Create owners and team leads instead of bosses. At 50 employees, people usually don’t need management. However, things and processes do. This includes the product, the front-end development, the hiring, the invoicing, and whatever else you can think of. Give various people ownership of those things or make them team leads of those processes.

I’m all for stealing smart ways of doing things and adopting them as our own. I steal bits of Agile for methodology. I nick stuff from Amazon all the time for strategy. I really like what Lyft is doing with UX. But do you remember the trend from about three years ago when several Silicon Valley companies tried to solve income disparity by making everyone’s salary public? Yeah.

That was a valid problem but there’s no way you can convince me that making every salary public was the solution. That strategy may be working for them (or not), but I don’t have any evidence that it will work for my company.

Trendy solutions come and go. Open workspaces were all the rage to promote teamwork, then earbuds happened. Unlimited vacation is starting to wane as a recruiting tool. On the other side, parental leave for work-life balance looks like it will stick. My point is that just because one, some, or even most companies are adopting a policy, that doesn’t mean it will work for you.

What I’d rather do: Divide and experiment. Take pieces of policies from different companies and run small experiments to see if they’ll work in your environment.

This strategy says: Once we hit a certain number of employees, we can stop hiring and outsource everything. This could include some clean breaks, like outsourcing all of the development, all of the human resources, or all of the support. It could also mean adding external resources to internal teams, like consultants and independent contractors, offshore teams, and third-party service providers.

This strategy will let you run a tight ship. You can expand and contract on the rocky growth road without cutting headcount. On the other hand, 50 employees is usually just a stepping stone to 100 employees or 1,000 or sometimes even more than that. There are huge risks in having all that knowledge and experience out-of-house.

This strategy is also trickier to implement than it sounds. We’ll have to make surgical cuts as we grow and once we hit the 49th employee, what happens next? What happens when we find that next awesome hire? Do we need to let someone else go, or should we wait for someone to quit?

What I’d rather do: Lease with the option to buy. A lot of startups bring on contractors and part-timers who eventually become employees—but only when there’s enough money, enough runway, and enough need for that resource. I built two of my startups that way. Do this on a larger scale as you grow, absorbing teams when it makes sense. Run each team like an independent organization within the company.

If there’s a cure for chaos at 50 employees, it might have its roots in that last solution. What if a company organizational chart didn’t flow vertically from top to bottom but rather looked like a series of pods? Those pods could have their own pods if needed. Then company leaders would exist as a single-person pod with spokes to the larger pods.

Each pod would be run independently, like its own little company within the company. Then the outsourced resources could be their own pods, and they could come, go, and be absorbed as necessary.

I don’t know if this strategy would work. It might be wild, and it’s certainly hard to put on a sheet of paper. I’m sure it comes with its own set of problems. But my point is if we want a cure for the chaos of 50 employees, we need to build a different kind of company that runs in a unique way from day one.

And until that happens, we need to keep an eye on our teenage startup until it becomes a functioning adult.

This article was originally published on Medium by Joe Procopio

Joe Procopio is a multi-exit, multi-failure entrepreneur. He is currently the Chief Product Officer at Spiffy, a startup focusing on on-demand vehicle care and maintenance. In 2015, he sold Automated Insights to Vista Equity Partners. In 2013, he sold ExitEvent to Capitol Broadcasting. Before that, he built Intrepid Media, the first social network for writers. You can read more and sign up for his newsletter at joeprocopio.com