In The Tipping Point, Malcolm Gladwell writes, “There is a concept in cognitive psychology called the channel capacity, which refers to the amount of space in our brain for certain kinds of information.” Channel capacity helps explain why so much of what we can remember falls in between six and fifteen units. There is a reason, for example, why phone numbers started out with seven digits. It turns out that studies showed people had a difficult time remembering accurately more than that without making mistakes. As Mr. Gladwell writes, “Perhaps the most interesting natural limit, however, is what might be called our social channel capacity.”
Gladwell quotes British anthropologist Robin Dunbar in that “The figure of 150 seems to represent the maximum number of individuals with whom we can have a genuinely social relationship, the kind of relationship that goes with knowing who they are and how they relate to us…it’s the number of people you would not feel embarrassed about joining uninvited for a drink if you happened to bump into them in a bar.” The Rule of 150 holds true in everything from hunter gatherer societies to armed forces fighting units. The Rule of 150 even applies to businesses, the non-military “company” as they too are a group of individuals. The Rule of 150 matters because once groups get beyond that size, people start losing the natural closeness and divisions start to occur. It matters to us because many in our space have started to come up against that imaginary barrier, and success or failure will depend on their ability to navigate through this.
The Tipping Point highlights one company that has navigated through the issue of 150, the Gore Associates, makers of Gore-Tex waterproof fabric and Glide floss to name a few. They have many more than 150 people, but behave like a small entrepreneurial start-up, and they succeed, including being consistently named one of the top companies in America for which to work. Founder, Wilbert “Bill” Gore once said, “We found again and again that things get clumsy at a hundred and fifty.” Each of their plants contains just enough space to house 150 people, and other plants can stand just a parking lot away. At Gore, when one group grows too large, it splits. It's a company that has figured out how to manage growth and continue to scale. Those in our space are not immune, and the 150/100 refers to the plateau that many seem to hit, how to grow past beyond the 150 person range and/or the 100 million in revenue mark.
The Internet advertising arena contains many companies that share a similar history. Most began during the downturn when users still came online in masses even though so many companies began to fall by the wayside, all of which equaled a rather fertile environment. Those who took this chance included the one or two co-founders who ultimately began some of today’s top performance advertising firms with little to no funding, just a belief that money existed for those willing to earn it. And judging by the results, they were right about the opportunity, and the money.
These once scrappy companies out to make a buck, now find themselves facing an even more challenging face, maturity. Besides their origin, another thing seems to define them. Each has grown over the past four to six years to, as mentioned above, roughly 150 people and has crossed the $100 million mark in revenues. And each, after heavy growth, now finds themselves facing the hardest challenge to date, finding a way to sustain the growth, i.e. finding a way to overcome the 150/100 hurdle.
I show in Part 2 three diagrams, each representing a potential scenario for those facing the 150/100.
- The Static Scenario
- The Decline Scenario
- The Growth Scenario
Each of the three scenarios has four sections
Section 1 – Growth. This is the period that happened during the first two to three years where companies increased revenues and cash flow by two plus times year over year.
Section 2 – Normalization. Here growth still outpaces the industry as a whole but it slows from the sometimes 1000% growth of periods past.
Sections 3 and 4 – Exitcution. This is where companies will either make it or they won’t. It is all about execution. Companies exit their first phase of high grown and will either flat line, decrease, or enter their next phase of growth.
Continue to Part 2 of “Exitcution” for the illustrations and conclusion.
Comments