Note: The following essay is an excerpt from the upcoming new and revised edition of Ready, Fire, Aim. 


Tribal Dynamics in Business 

 “The person who knows HOW will always have a job. The person who knows WHY will always be his boss.” – Alanis Morissette

When a start-up business grows, problems arise. Many entrepreneurs believe they can solve them by hiring additional people to deal with them. Sometimes that works. Often it doesn’t.

There are invisible challenges that come with a growing employee base – challenges that can hobble communication, reduce cash flow, and threaten profits. But if you understand the natural stages of entrepreneurial growth, you can anticipate and manage such challenges before they damage your business.

In The Tipping Point, Malcolm Gladwell looked at several anthropological studies of primitive societies that showed an interesting pattern. When tribes grew to more than 30 members, they tended to split into two smaller tribes, each with its own leader that was loyal to the original chieftain. One split into two. Two split into four. The smaller tribes were able to live and work together under the chieftain until the total size of the group exceeded about 150 individuals.

At that point, the unity of leadership broke down.

The researchers explained it this way: With no more than 30 tribe members, the chieftain has direct control over every one of them. When the group grows from 30 to 150, he can still exert significant influence over the entire group by communicating directly with his subordinates – the leaders of each smaller tribe. He maintins conrtol over the 150, but at a single degree of separation.

Once the group exceeds 150 tribe members, there is an additional degree of separation. The tribe leaders (and their followers) that report directly to him are still loyal to him. But the next level of leadership is now separated from him by three degrees. And their followers have little to no allegiance to him.

Contemporary research shows that a similar connection exists in the modern workplace. At three degrees of separation, communication breaks down.

There’s also some related research suggesting that there is an optimal number of employees that any executive can effectively manage: about six to eight.

When I first read about those studies, I was intrigued but doubtful. I was running a business that had about 300 employees. I felt sure that I was effectively managing them all. But when I took a closer look at what was actually going on, I had to admit that I was managing only six or seven people. And that I could identify, by name, fewer than 150 of our employees.

The more I observed, the more obvious it was that I was managing within that same ancient, tribal hierarchy. The success we were having was the result of making the connections between each level of leadership work. The failures we were experiencing were the result of broken links down the line of command, communication, and supervision.


Keeping on Top of the Expanding Hierarchy 

In a typical start-up business, the founder hires a handful of people to help him get it off the ground. There are seldom strict job descriptions or formal titles. Everyone is expected to do whatever needs to be done to move the company forward.

As the business grows, some sort of division of labor takes place. The founder puts one person charge of sales and marketing, another in charge of research and development, another in charge of production, another in charge of customer service, and so on.

At this point, the business may have, say, 50 employees. The founder feels no need to “manage” all 50 of them. He trusts his original team members to do that.

Although most of the employees do not report to him, he knows who these people are because he interacts with them – casually, perhaps – almost every week. These second-tier employees understand what their managers want, but they also understand what he wants. They have a sense of how he wants the business to grow. The smart ones can satisfy their own managers’ goals and also cater, in some way, to his ambitions.

But the business keeps growing. The marketing guy hires an SEO expert and a direct-response whiz. The sales gal hires six hungry salespeople. The guy in charge of customer service hires 12 reps to handle the increased volume of sales. Before long, the business has 100 or 150 employees, and some things are not running as smoothly as they were before.

Communication between the founder and his original team is still as close as it ever was. And the 40 to 50 employees that report to them are still working towards his overall agenda. But the other 50 to 100 employees have no idea what his ideas are. They rarely speak to him. They hardly know him at all.

By the time these third-tier employees move into management positions and start hiring and managing their own next-tier employees, there’s a good chance that they will be passing on their own, not the founder’s, core beliefs.

And if this continues unchecked, by the time the company has several hundred employees the “company culture” that was established by the founder is all but a distant memory.

This is not always a bad thing. If the founder is smart enough to hire superstars – smart, hardworking people that hire more superstars and pass down his ideas clearly and faithfully to them – the business can grow quickly and safely. But that is not the natural pattern of business growth. The natural pattern is entropy: starting with clarity and comprehension and then degrading into confusion and chaos.

There are traditional ways to curtail this sort of degeneration – procedures and protocols that are practiced in most large businesses and no doubt taught in most business schools. I’m referring to meetings and memos, reports and charts, training programs and employee manuals, retreats and seminars, and so on.

If you are a natural-born entrepreneur, you will loathe such solutions, as I did. But if you ignore them completely, I’m sorry to say, you will regret it.

I have spent my entire career rebuffing every effort to corportize every business I owned or ran or consulted with. And though I have had to concede that these remote-control management methods become to some extent necessary as a business grows, none of them can solve the problems caused by growth if the founder is not aware of the damage they do.

Corporate management is inherently anti-growth because it is designed for control. You cannot simply hire corporate managers and let them do what they’ve been trained to do. They will suck the marrow out of your business. They will solve the problems caused by growth by regulating, monitoring, measuring, and systemitizing everything they can get their hands on.

Of course, this is not true for every corporate manager. It is true only for nine out of 10.

So what can you do?

I don’t think you’ll find an answer in the Harvard Business Review. (I’ve been reading it for years and I haven’t seen one there.)

I’ll tell you what I have done.

First and foremost, I stay keenly aware of the primary objective of the business depending on its stage of growth. If it is proliferating products or advertising campaigns, I make sure that everyone that reports to me understands that his job is to support that primary objective, not to build out his domain in some way that suits his particular dreams.

Second, while obeying Pareto’s 80/20 Principle and giving 80% of my time and attention to the business’s primary challenge, I take responsibity for everything else.

If the business is in Stage One or Stage Two, I push hardest on cash flow and sales growth and product development. But I do not ignore or in any way denigrate operations and fulfillment and customer service and accounting. I make it clear to those that are running those departments that I expect excellence from them. I warn them that my lack of attention does not mean I don’t care what they are doing. On the contrary, I tell them, their jobs are vital to the business, and their responsibility to run those departments well is heightened by my lack of attention. I tell them that when we meet (usually once a month), I expect them to show me good numbers and be able to answer, with precision, any questions I have.

Meanwhile, no matter how strong those numbers are, I assume that their operations are falling apart, even when I have no reason to think so. I’ve been fooled before by slick reporting and positive presentations – and paid the price.

This is my personal approach. But it is based on the fact that, as I said, the natural pattern of business growth is entropy. It is nothing more or less than acknowledging that growth will always cause chaos, and that unless you constantly and continuously exert energy against chaos, entropy will out.

In other words, I obey Pareto’s Principle in my dealings with the top one or two priorities of the business at whatever stage it’s in… and I adhere to Murphy’s Law for everything else.



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