Diminishing Returns

Here’s something you learn when building teams: at a certain point, growing the team adds to its capabilities by frustratingly less than you thought.

Richard Branson is fully aware of this fact, which is why Virgin companies have historically grown from startup until about 100 people, and then undergone cell division that left 50 in the old venture, and 50 in the new one. The founders of Basecamp know it too, and have aimed to keep their team size around 50 people, refusing venture capital along the way because of the demands on turbocharged growth it brings.

As a heuristic, each addition to the team brings marginally less increase to the overall productivity. Take a team of five, hire another five helpers, and the productivity of the new ten person team will be something less than double what it was. Keep expanding, and the marginal increase in productivity keeps declining asymptotically:

(This graph is illustrative, not perfectly accurate. It’s not clear how steep the actual curve is in real life situations, and it probably varies depending on a number of factors.)

Why Does This Happen?

Any manager who has made a new hire and seems to be getting less value for it than they thought has racked their brain over this. They assign blame to that person for being less qualified, or to their superiors for doing a bad job on-boarding.

But they are contending with certain physical laws. Each additional person increases the total cognitive overhead of the team. More people create more complexity, and make it harder to communicate across the whole group. A real-life experience of diminishing returns.

Combinatorial Explosion

Mathematically, this is called a combinatorial explosion. Imagine four people in a room. How many one on one relationships are co-existing in that very moment? For the eager, you can find a simple formula here. For all others, I’ll save you the headache…it’s 6. Now double the room to eight people. How many one on one relationships are there? 28. The number of people doubled, but the number of relationships nearly quintupled.

Imagine this in real life. Each one on one relationship needs some kind of care and requires each person in the twosome to produce some effort in their brain to compute every time they encounter each other. Put everyone in a room together, and the brain is consumed by managing a flood of one on one relationship dynamics.

Add to that frenzied soup the fact that most of modern work in the knowledge economy is based on everyone being able to imagine the same future vision in their head simultaneously. Consider how many times you have innocent miscommunications with just one other person about simple things, and now scale up the complexity and number of participating imagineers to the size of a whole organization, and the taxing nature of communication becomes ever clearer.

How We Deal

To accommodate for the difficulty of this task we spend our hours in meetings, conference calls, email chains, etc., each requiring its own scheduling, prep, facilitation and follow-up. It’s almost tiring to just write about it. And yet the parade of tasks to manage the way we manage marches on.

The situation becomes untenable and beckons for subdivision. We respond with working groups, departments, super secret special teams and the like, each of which begins to develop its own subculture, binding them closer together but putting up another wall of vocabulary, implicit understandings and shared biases that present a hurdle to translation with other sub teams. The bottleneck of productivity is no longer equally distributed in the organization — it eases in the centre of each working group and moves to the edge zones where working groups collide with each other.

Described this way, it begins to sound like a naturally occurring form of entropy that plagues human organizations. And just like entropy in a thermodynamic sense, it can be abated/staved off only with infusions of new energy (talent, attention, enthusiasm, capital, etc.). Of course, that new energy has a cost (usually a financial one).

If we accept this fact, we can use a few heuristics to navigate:

  • Keep teams small
  • Expect communication breakdowns and bottlenecks will be strongest where two teams/subcultures interact
  • Invest a whole lot in common language & culture
  • Invest a whole lot in aligning incentives across the organization

The bottom line here is that there are no free lunches, no brilliant hacks. Sorry. You can take two approaches, and they’re pretty conventional, boring ones. You can constantly search out new sources of energy, or you can make communication systems more efficient in the organization.

This is the inherent productivity cost of growth, but if you anticipate it, it doesn’t have to cost you your sanity.

This article was originally posted on Medium. Assaf is a member of Founder’s Only and occasionally guest-posts here.

Written by Assaf.