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Why Things Break at 20 Employees (and How to Fix It)

Have you noticed something weird happens when a company hits around 20 people?

I’ve interviewed over 400 founders and noticed that when a company reaches a couple dozen employees, the company starts to face some new challenges.

Some founders decide to sell. Others soldier on.

For those that stick it out, many struggle leading a larger team and often revert back to the 20-employee mark like it’s a form of gravity pulling them back to Earth.

This week, I saw another example of an entrepreneur who struggled to make the leap.

How Peerfit Overcame the 20-Employee Trap

In 2010 Ed Buckley started Peerfit, which allowed companies to offer fitness classes as part of their employee benefits package. In the beginning, Buckley was involved in every aspect of the business and encouraged his employees to come to him with their questions.

By 2016 he had grown the team to 20 people and decided he needed to start recruiting managers rather than having everyone report directly to him.

Buckley tried to empower his new leaders but found his original staff continued to look to him for direction. As he told John Warrillow in a recent Built to Sell Radio episode, every time he answered his legacy employees directly, he undermined the authority of his new managers.

Fighting between honoring the loyalty of his founding team and not diminishing his managers’ authority, Buckley decided to adopt a more formal management system. Instead of answering his employees’ questions directly, he began redirecting them to their managers. Although a few egos were bruised, his new system worked.

By 2022 Buckley had grown a workforce of more than 150 people when he received an acquisition offer for almost $100 million from a major fitness brand widely reported to be Peloton. Buckley retained some of the IP, which, in a strange twist, he was able to sell in another eight-figure exit months later to FitOn.

Why Separating Yourself from the Founding Team Is so Hard

Founders often feel a deep sense of loyalty to their original team. They are the people that believed in the owner when no one else did. That can make weaning yourself off them difficult, but I’ve noticed it’s the sacrifice required to bust through the 20-employee plateau.

Buckley did it by starting to treat his founding team like his other staff. He began respecting the reporting hierarchy he had created, which was the price he needed to pay to support Peerfit’s growth.

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