What's better than a 10x individual contributor? A 5x organization.
When you're starting with 0-15 people, talent matters enormously. Every hire shapes your trajectory. But as you grow, communication quality becomes more important than individual brilliance.
Here's why: communication channels grow exponentially using the formula n×(n-1)/2. Your 15-person startup has 105 channels. Scale to 40 people? That's 780 channels. Hit 200 people? You're managing 19,900 potential communication paths.
This mathematical reality has profound implications for how we think about organizational design and growth.
The Exponential Complexity Problem
Team effectiveness is more likely to be impaired by poor communication than by a lack of talent. You can hire 200 exceptional individuals, but if they can't communicate effectively, a well-connected team of 40 will outperform them.
The most dangerous assumption in scaling is that team output grows linearly with headcount. We expect 80 people to produce at least twice what 40 people can. In reality, they often produce less.
The Ringelmann Effect, discovered over a century ago, demonstrated this phenomenon clearly. When researcher Max Ringelmann asked people to pull on a rope, he found that individual effort decreased as group size increased. In 8-person groups, individual effort dropped to just 49% of what people exerted when pulling alone (Kravitz & Martin, 1986). This "social loafing" effect has been replicated across countless contexts and explains why doubling your team rarely doubles your output—it often reduces it.
The Research Evidence
Multiple research streams converge on the same conclusion: smaller, well-connected teams consistently outperform larger, poorly connected ones.
The Stages of Growth
Research data reveals a clear pattern in how organizations evolve:
- Early stage (0-15 people): Individual talent drives 70% of outcomes
- Growth stage (15-50 people): Communication quality becomes equally important
- Scale stage (50+ people): Communication infrastructure determines success
Software Development Studies
When QSM analyzed their database of over 1,000 software projects, they found that smaller teams dramatically outperformed larger ones. Teams of 4 or fewer people were 3-4 times less expensive and had 2-3 times fewer defects than larger teams (QSM, 2005). The researchers concluded that the coordination overhead of larger teams consumed more productivity than the additional people contributed.
Google's Project Aristotle
Perhaps the most compelling evidence comes from Google's Project Aristotle, a comprehensive study of 180 teams conducted over two years. The researchers expected to find that the best teams were composed of the best people—star engineers, top performers, and brilliant minds.
Instead, they discovered that team composition mattered far less than team dynamics. The number one factor predicting team performance wasn't the IQ of team members or their technical skills—it was psychological safety, defined as the belief that the team is safe for interpersonal risk-taking (Rozovsky, 2015).
Teams with high psychological safety showed:
- 19% higher productivity
- 31% more innovation
- 27% lower turnover
Psychological safety is fundamentally about communication quality. When team members feel safe to speak up, share ideas, and admit mistakes, information flows freely. This finding suggests that a team of average performers who communicate excellently will outperform a team of stars who don't.
The Innovation Paradox
This communication imperative explains some puzzling phenomena in organizational behavior:
- Why startups often "lose their magic" around 50 people: At this size, informal communication breaks down and formal structures haven't yet been established
- Why adding headcount sometimes reduces output: Each new person adds n-1 new communication channels, increasing complexity faster than capacity
- Why small firms produce 16x more patents per employee than large corporations (Baumol, 2008): Smaller teams have fewer communication barriers to innovation
Learning from Companies That Get It Right
Several organizations have recognized these communication limits and designed around them:
W.L. Gore & Associates
The makers of Gore-Tex have a strict rule: when any facility reaches 150 employees, they build a new one rather than expanding. This limit is based on Dunbar's number—the cognitive limit to the number of people with whom one can maintain stable social relationships (Dunbar, 1992).
By keeping facilities small, Gore maintains the informal communication networks that drive innovation. Employees know each other by name, understand each other's work, and can collaborate without bureaucratic overhead.
Basecamp
The software company Basecamp has taken an even more extreme approach, intentionally staying around 60 employees for over 25 years despite consistent profitability and growth opportunities.
As co-founder Jason Fried explains in their internal communication guide: "Five people in a room for an hour isn't a one-hour meeting, it's a five-hour meeting" (Fried & Hansson, 2018). By staying small, they avoid the exponential communication costs that come with growth.
Amazon's Two-Pizza Teams
Jeff Bezos famously instituted the "two-pizza rule" at Amazon—teams should be small enough to be fed by two pizzas, typically 5-7 people. Research supports this approach: teams of 4.6 people represent the mathematical optimum between being "too small" and "too large" for most tasks (Mueller, 2012).
Two Practices That Make the Difference
Organizations that maintain effectiveness despite growth share two key practices:
1. Continuous Feedback Loops
Not annual reviews, but continuous micro-feedback. Teams need to know immediately when alignment breaks or priorities shift. A team that knows immediately when it's off track moves faster than one that discovers it quarterly.
Research by Kluger and DeNisi (1996) found that frequent feedback interventions improved performance by 41% on average, but only when the feedback was specific, timely, and actionable. The key is reducing the lag between action and feedback to enable rapid course correction.
2. Visible Alignment Mechanisms
Clear, updated priorities that everyone feels. Not buried in documents, but visible in daily work. When 40 people know exactly what matters, they move faster than 200 people guessing.
The Allen Curve adds another dimension to this challenge. MIT researcher Thomas Allen found that communication frequency drops exponentially with physical distance. People sitting 20 meters apart communicate 75% less than those sitting 2 meters apart (Allen, 1977). Even in our digital age, this pattern persists—remote workers show similar communication decay patterns.
The Cost of Poor Communication
The financial impact of communication failures is staggering. Research by Siemens found that a business with 100 employees spends an average of 17 hours per week clarifying communication, translating to an annual cost of $528,443. Scale that to larger organizations, and poor communication costs businesses an estimated $1.2 trillion annually in the US alone (Grossman, 2011).
But the cost goes beyond dollars. McKinsey research shows that organizations with more than 7 reporting layers have 70% lower satisfaction with decision quality and 61% lower satisfaction with decision speed compared to flatter organizations (De Smet et al., 2019).
The Path Forward
Most companies try to solve scale problems by hiring more people. But adding nodes to a poorly connected network makes communication worse, not better. The marginal value of the 201st brilliant hire is negative if they increase coordination complexity without improving information flow.
If you want to scale impact without scaling headcount, the approach is clear:
- Be selective about talent when small (0-15 people)
- Invest aggressively in communication infrastructure as you grow (15-50 people)
- Treat every new hire as adding n-1 new communication channels (50+ people)
Conclusion
A 40-person team with excellent feedback loops and strong alignment will consistently outperform a 200-person team of individual stars working in isolation. This isn't speculation—it's supported by decades of research across multiple disciplines.
The limiting factor for organizational size isn't the quality of your people. It's the quality of the connections between them. Organizations that recognize this reality and design around communication limits rather than fighting them will have a sustainable competitive advantage.
As you think about your own organization's growth, ask yourself: Are you building a larger network or a better-connected one? The answer will determine not just your size, but your success.
References
Allen, T. J. (1977). Managing the flow of technology. MIT Press.
Baumol, W. J. (2008). Small firms: Why market-driven innovation can't get along without them. U.S. Small Business Administration, Office of Advocacy, 183-206.
De Smet, A., Lurie, M., & St George, A. (2019). Decision making in the age of urgency. McKinsey Global Institute.
Dunbar, R. I. M. (1992). Neocortex size as a constraint on group size in primates. Journal of Human Evolution, 22(6), 469-493.
Fried, J., & Hansson, D. H. (2018). The 37signals guide to internal communication. Basecamp.
Grossman, D. (2011). The cost of poor communications. SHRM Survey.
Kluger, A. N., & DeNisi, A. (1996). The effects of feedback interventions on performance: A historical review, a meta-analysis, and a preliminary feedback intervention theory. Psychological Bulletin, 119(2), 254-284.
Kravitz, D. A., & Martin, B. (1986). Ringelmann rediscovered: The original article. Journal of Personality and Social Psychology, 50(5), 936-941.
Mueller, J. S. (2012). Why individuals in larger teams perform worse. Organizational Behavior and Human Decision Processes, 117(1), 111-124.
QSM. (2005). Small teams deliver lower cost, higher quality. QSM Database Analysis.
Rozovsky, J. (2015). The five keys to a successful Google team. re:Work with Google.
