Business Thresholds

Things change suddenly and sometimes uncontrollably as businesses grow. Many of these thresholds are predictable. Managers should anticipate them and act proactively.

The rule of numbers in business 

In business there are three “numbers” that matter. None, few, and many. Many people don’t appreciate how hard it is to change form one to another.

When you and your startup partner are working in your garage to create the next Apple, relationships are known and there are established ways to deal with conflict and success. Add one employee though and everything changes. It adds an entire new dimension of training, culture building, new conflicts, and more.

One new conflict is overlooked. Numerical democracy, (2 versus 1), changes the dynamic between the founders. Some startups don’t get past that. Frequently one of them leaves. It is very difficult, even unnatural, to overcome the conflict that arises. Some do better if they wait until they can afford to bring on two people as the first hire.

Adding the first employee is not a trivial decision. Adding the third will be very easy. Few is a different numerical environment. Most of the problems are worked out with just one or two. It’s like having children. The first changes your life completely. The second following matter but do not cause fundamental change.

When few become many, other things happen. Most business build structures to manage that aspect of the business. HR department, performance reviews, managers, and supervisors. It’s not very differeerent for 100 or a thousand.

Structure replaces contact and requires the development of a particular business/employee context.

Where the number threshold applies

There are many more than employee count.

Money – when you have none or too little, there are few choices. When you have more, the decision set grows, often beyond the ability of the founders to act successfully. When it grows to where the founders have more than they need to live, what happens? Venture capital investors are very aware of the ones who may use the money to expand lifestyle rather than stay intensely involved with the business. Know your values.

Customer count РWhen you begin you have few customers and they are almost all early adaptors. They match the people who started the business and those who were hired early on. If the business grows, the next wave of customers are late adaptors and their values are different. How will the business adapt to that switch? Can early adaptor enthusiastic employees deal with them?  If they do and it is not a given, the next transition is to many and most of those are looking for something other than gadgetry and features. Maybe price, maybe fashion. How soon should the founders be positioning the business for those differences? How will they handle people who think of the product as just a commodity?

Supply chain – Things are different when you can run over to Radio Shack and buy the three pieces you are short. It’s very different when you might need 30,000 such pieces. How do you policy delivery times, price, andquality? It’s very difficult in the beginning because your orders are not big enough to get much attention. Build relationships.

Manageability changes with distance. – The image is that difficulty changes with the square of the change in distance. If it is twice as far away, it is four times harder to manage.

Fixed overhead becomes a thing РWhen you are small enough, you can accommodate change with contract employees and working more hours. As you grow the solutions to some problems become part of the overhead.  Suppose you are a construction company. How big should you be to hire an estimator? You cannot hire half of one. If business slows, you cannot lay off half of one either. Eventually structure becomes a thing that needs its own management. Small business are often very agile compared to large ones. As structure grows the agility is lost. Anticipate how you preserve what you can.

The bits to take away

A big business is not like a small business only larger. There are new structural interactions that a small business never needs to address.

More money is not the solution to every problem. It often creates new problems.

Customers and suppliers behave differently as the business grows.

Relationships are more complicated as the numbers grow. There are 5 ways to arrange 5 people into groups of 4. There are 210 ways to do it with 10 people. Interpersonal relationships become more complex as their numbers grow.

Most founders don’t have a complete skill set to run a business. The sooner they notice the better.

A problem anticipated is half solved.


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I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

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