For perhaps the first time in history, companies that reach scale today and get to employee numbers in the high hundreds (not the multi-thousands) can stay at those sizes while growing revenue dramatically — this keeps coming up when I talk to entrepreneur friends and portfolio CEOs.
Compare this to large companies — the reason they stagnate and lose the ability to innovate is not that they can’t hire great talent (they have the bankroll to do that). Rather, there’s simply too much bureaucracy.
As companies grow beyond a certain size, they get bloated with middle managers and new hires. They just can’t rapidly introduce new products or stay at the forefront of the ecosystem anymore.
The 2022 markets exposed this problem for everyone to see. This chart from Brad at Altimeter lays it out:
As we all know, the new paradigm is small and nimble — using AI and software to scale the product without scaling the team. Three reasons that immediately come to mind:
- Each function can be a bit smaller in and of itself due to heavily leveraging software and tooling instead of people growth.
- As you need less headcount, you require less managerial oversight. You don’t need as many middle managers, or as much help onboarding and training new employees.
- You end up building a company of strong individual contributors. Critically, they stick around because the culture doesn’t get stagnated by bureaucratic overhead.