A Question of Scale

A Question of Scale

 

What's the right size for your enterprise? I don't mean turnover, in this case I'm talking about the number of people who work in it on a paid basis. This is not to under-estimate the sweated labour of volunteers but that's a variable not easily built into a business plan. 

 

Clearly optimum size will vary from enterprise to enterprise, but of course many start with only one person earning an income - the entrepreneur.USbusiness scholar Michael Gerber has made a name for himself (and lots of money) expounding his simple and commonsense theory about size- the E-myth.

 

Gerber argues that whether or not a new small business goes bust depends on how quickly the entrepreneur realises what essential skills s/he hasn't got. Apart from warning that being a good baker doesn't mean you'll be able to run a good bakery, he suggests there are three essential roles for a successful small business.

 

First, there's the entrepreneur role - a dreamer with the original idea and the passion who believes there's a business opportunity to be exploited.The manager role keeps the entrepreneur grounded - the 'head' to keep the 'heart' in check - by monitoring, evaluating and planning. Finally, there's the technician - the doer working steadily and in control of the work flow.

 

Gerber suggests that the three roles (he doesn't appear to address financial management skills) are unlikely to be found in large enough quantities in one person to sustain the enterprise beyond a table-top business, probably run from home.

 

Mike Southon, co-author of 'The Beermat Entrepreneur', points to the use of virtual networks of freelancers to build an initial team - bringing in expertise as/when necessary. But he observes that, as the business grows, so does the need for a 'fixed office'. 'The Beermat Entrepreneur' book has calculated a certain staffing level which triggers a step-change in the way the business functions. That figures is 25-35 people, since made more precise by another commentator at 31. Above this figure, says Southon, people cease to know what's going on all of the time, communications break down, and rules, procedures and processes have to be obeyed.

 

If the smooth functioning of a business relies on good internal relations between employees, the next significant figure is 150 - the 'Dunbarnumber'. Named after anthropologist Robin Dunbar, he defines it as 'the theoretical cognitive limit of the number of people with whom one can maintain stable social relationships'.

 

Richard Branson has his own maximum for a company in terms of optimum social inter-action and internal communication - 300 workers. Above this figure he believes that employees are unable to feel part of a team. Apparently when the Virgin Group was sold, Sony found they'd bought a cabinet of companies with 'only' 300 employees in each.  

 

It's surprising how many chief executives don't appear to have even considered the 'right size' for their businesses. What's yours?