Why Most Founders Can't Grow Past 25 Employees

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0:30David Rusenko:You know, another analogy that kind of a visual that made sense to me was this idea of juggling like glass balls and rubber balls. And if like a rubber ball falls, it doesn't matter. But if a glass ball falls, it shatters. And if you do a diving catch every time that glass ball is about to hit the floor, then people come to expect it and they rely on that. But if you make it clear, that's a glass ball. People treat that differently when they know you're not going to be there to save them.

1:00Richard Branson:Editor-in-Chief of Entrepreneur Magazine, and this is Problem Solvers.

1:06Richard Branson:Every founder understands that as your company grows, it changes. It naturally has to. But a lot of founders aren't prepared for this other truth, which is that as the company grows, they have to change too. They have to become a different leader, maybe even multiple times. And there is one moment in particular, according to today's guest, where the founder realizes that for the first big, hard time, which is when you hit around 20 to 25 employees. and you have to start communicating differently in a counterintuitive way. Now, this idea comes to me from David Rusenko, who is the founder of the website builder Weebly, which he grew to a 200 plus million dollars of annual revenue and increased it from 10 to 300 employees.

1:59Richard Branson:I'm so excited, David, for you to be here and talk about your own experience growing your business, how you had to rethink your own communication style, and then I'm sure how you now guide other founders to do that too. So welcome to Problem Solvers. Thanks for having me. Excited to dive in. So David, how do we begin here? I mean, maybe talk to me a little philosophically about this moment in which a founder needs to start thinking differently about communication and why. And then I'd love to hear you play that out as you experienced it.

2:32David Rusenko:Sure. So I think when you start a company, it's just a few people. It's this small group of people where everyone and especially the founder and CEO can have everything that's important about the business in their head all at once. And that's a very powerful structure for finding product market fit because that's really the first thing that any startup is doing is trying to figure out how to build something that people actually want. You answer all the customer support emails. You talk to all the users. You understand everything about how the product's being built and what the roadmap is and sort of how much money is coming in and out and you know everything.

3:09David Rusenko:And that's perfect. And then around 20 to 25 people, it just breaks. It completely breaks. It's just not possible anymore. And you actually have to flip. I think it's the hardest transition for a lot of founders. You have to just completely flip the way that you operate. It's extremely unintuitive and for a lot of people really painful.

3:26Richard Branson:And all right, maybe the way to hear that, and I want to hear what that counterintuitive shift is, is to just tell me your version of that. I mean, you know, you were really young when you built Weebly, so you may have been unprepared for that particular moment. But tell me what it was like for you as you hit that 20 to 25 employee mark.

3:47David Rusenko:Yeah, somewhere around maybe 17, 18, 20 employees, like you feel like a superhero because you're telling yourself, and it's really funny, you could see, you know, 37 Signals famously had all these posts about flat organization is best. I was like, I think I could predict almost to the employee how many people they have at the company. Because that's the feeling. It's like, oh my God, we're doing it. We're a flat organization. We're super productive. We're going to buck the trend. We're never going to need managers. And then I just remember one day looking up from my desk and there was a line of five people that were standing behind me waiting to talk to me because they needed a decision or they needed something out of me.

4:27David Rusenko:And I just like, I had felt it up into that point. But that was the moment I realized that something is really broken. And I had no idea how to fix it. And the process of fixing that was, was really difficult, actually.

4:39Richard Branson:Because at this point, you're recognizing that you're a bottleneck. And you're also recognizing that the whole company essentially lives inside of your head. And everyone has been trained to not make any major decisions without running them through you, but that's totally unsustainable.

4:57David Rusenko:Completely unsustainable. And, you know, and then it breaks and then you have to figure out how do you how do you fix that? And like you said, you know, people were trained to run decisions by you. So part of that process to fix it is you have to actively untrain them, which is a bit counterintuitive.

5:11Richard Branson:All right. So yeah, so so take me through it. What is the first step once you once you become the problem?

5:18David Rusenko:I funny enough, I was having a conversation. I just happened to be at this event and I was having dinner next to, of all people, Richard Branson, this storied entrepreneur. Yeah, good person to sit next to him. And I was, yeah, right? Especially as you're struggling through this problem. And I asked him this question. I said, this is what I'm really struggling with. You started so many companies. How have you dealt with this problem? And his answer almost felt, it wasn't glib at all, but it was, I hire the best people in the world and I trust them to do their job. And I was like, wow, that's just was powerful the way that he said it.

5:52David Rusenko:Um, and so I went back to the company and I tried to do something similar. And, um, one of the main things I realized was that I was delegating the way that I was delegating. Like, this is what I would have not expected. The way that you delegate affects the output of the work, right? The quality of the work. Um, so diving into one particular memorable story is, you know, we had this employee who was working on business development and he'd send me contracts because I had to approve all the contracts that we would sign. That makes total sense, right? And he would send me contracts that had these clauses that I thought would kill the company, like liability and various things in there.

6:29David Rusenko:And so I kept telling myself, wow, in a certain way, patting myself on the back, I'm still valuable. I'm still needed around here, right? And then in the other sense, thinking, what would happen if I wasn't here? Something terrible what would happen to the company if I wasn't here. But after that conversation, I basically had a new motto that I started telling everyone. I said, you're smart, don't F it up. It's your responsibility, I trust you. And the second you start saying that, actually the way that people think about it completely changes. So I like to think about it almost like, you know those problems you're obsessed with that you're thinking about in the shower?

7:09David Rusenko:Like people turn to that mode where I found a way that this person, Nick, said, oh, well, I have this big contract. Do you want to review it? And I said, no, you're smart. I trust you. Don't F it up. And I found a way to sneakily behind the scenes go look at the contract without him knowing. And it turns out the contract was way better once he realized it was really his responsibility that if something bad happened, it would be on his shoulders. That's what I didn't expect, the quality of work in how you delegate, the quality of work dramatically improved.

7:38Richard Branson:You know, there's a good psychological reason for that. I am obsessed with something called self-determination theory, which is a psychological concept popularized in the 1980s. Revolution has our understanding of human motivation and happiness. And it argues that all humans have the same three basic psychological needs that are required in order to be motivated and happy. And I remember them by the acronym ARC, A-R-C. So it is autonomy, relatedness, and competency. You need to feel ownership over your decisions, good relationships with those around you, and feel good at what you do. And the moment that you're talking about here makes me think of that because when you say to someone, you do the contract, I trust you, you're smart, don't F it up, what you are doing is giving them autonomy, which they didn't have before.

8:25Richard Branson:And therefore, they probably were a little less motivated to do a good job because it wasn't their thing. they didn't own it. And you are also showing them that you recognize their competency. And when they do a good job, that competency will be built further. So when you are hoarding decisions, you are also stripping the people around you of these basic needs that they need in order to be motivated to do the best work for you.

8:53David Rusenko:We're the Hartford with decades of experience, insuring millions of unique small businesses. When it comes to your small business insurance, Thank you. One size absolutely does not fit all. Get a quote or find an agent today at thehartford.com slash small business. That definitely resonates. I mean, I think another analogy that kind of a visual that made sense to me was this idea of juggling glass balls and rubber balls. And if a rubber ball falls, it doesn't matter. But if a glass ball falls, it shatters. And if you do a diving catch every time that glass ball is about to hit the floor, then people come to expect it.

9:28David Rusenko:And they rely on that. and they don't need to do anything different. But if you make it clear, like that's a glass ball and if you drop it, then it's gonna be a problem for the company. You know, people treat that differently when they know you're not gonna be there to save them.

9:42Richard Branson:Right. And it sounds like even at the very beginning, you were understanding how any gesture or reveal on your side that you either didn't trust them or you actually were going to have the final say, even though you told them that they would have the final say, was going to completely undercut this exercise. And I see that all the time. I have lived that under leaders where they tell you, I trust you, you make the decision. But then they have an opinion and they're above you. And so now you have to defer to their opinion. And so you start to not believe them when they say that they trust you. And instead, you just start to continue to, you offload back to them.

10:27Richard Branson:You don't think as much about it. You don't care as much about it because you just know that no matter what they say, it's really going to be their call. So this isn't just a matter of telling people, hey, you're smart, don't F it up. You really have to back that up by trusting them and not getting in their way, right?

10:46David Rusenko:That's right. And I think that then there's this active process going through that transition, this active process of retraining them because people have gotten trained to come to you for all the decisions. That's another part that I didn't expect. It's not enough to just sort of not be a micromanager anymore. You have to untrain people actively from treating you like a micromanager because that's who they're used to, right? And so you have to put in effort to make sure that they don't come to you with those decisions, that you push back on them actively, which is kind of unexpected and counterintuitive.

11:18David Rusenko:How do you do that? I mean, a big part of it was just not making decisions. So people would come to you for a decision and say, I'm not going to make that decision. Like you're fully capable of making that decision. You know what the right decision is, so you go make it. And little by little, people start to understand that, you know, exactly where your line is with delegation and which decisions you want them to make and which decisions you want to make yourself.

11:42Richard Branson:I can hear someone who is before this transition thinking to themselves, but I know the answer. and it's really important for me to make that decision. Or if I loosen the grip on this and I don't know exactly how it's gonna turn out, even if this person is really smart because it's still operating under my vision. So how did you start to train yourself to, even though you might've had an opinion, not express it?

12:13David Rusenko:Like, I think delegation is an art and not a science. And it's like this infinite pursuit towards perfect delegation because it rests like on a knife's edge because there is also such a thing as over-delegating because I think in a lot of these conversations it's like oh just delegate delegate right and then delegating too much is also a bad thing and um and I also remember a conversation when I was struggling with just trying to find that right balance and I was at a conference and I think I forget exactly who it was but it was a former admiral in the navy and I sort of said hey, you've dealt with these situations where if you over-delegate, then that could be a bomb exploding in the country.

12:57David Rusenko:There could be some very serious consequences if you delegate the wrong thing to the wrong person. How do you think about it? And he said, what I tell everyone who reports to me is, I'm okay with you banging up the ship a little bit, but if you're going to put a hole below the waterline, if you think you're going to put a hole below the waterline, you come and let me know first. right and I think that that was a great way to sort of express that that fine line of saying if you think this is really gonna mess things up but otherwise I'm actually okay with you banging up the boat a little bit like I don't love it but but it's also it's the price to pay for for really giving people the autonomy and the ability to make mistakes and learn yeah you know as you're

13:38Richard Branson:telling me that story I'm thinking about a moment in which I was in a bakery it's called poppy it's in Brooklyn, where I live. And I was there with the founder, Jamie, and she was walking me through how the whole operation works. And just, just to understand is probably more detail than is necessary for this point that I want to make. But anyway, she's, she's got multiple locations now. She's also got a catering business. And so there's a lot of deliveries. And so she was, we were standing at this board and this board is contains all the information for all the orders and all the deliveries. And she was explaining it.

14:11Richard Branson:And then she kind of reached this point where she was like, actually, you know what? I'm not really sure how they do it anymore. Like, this is how we set it up originally. And it seems to have changed. And I'm kind of happy that I don't know the answer to how it's being done right now. And then we moved along. But that little moment stuck with me because in there was a transition in which she had built a system and she had operated a system and then she had let go of that system. And then that system changed so much that she doesn't even know the system anymore. And she was really happy about that because that means that it had organically grown into something that works for the people who are building it now, for the people who she has delegated to.

14:50Richard Branson:And ultimately, they're the ones who are responsible for making sure that this thing works. And so it's their system. It's not hers. And I'm curious to hear your perspective on once you get past this delegation moment, what it's like to be a leader at a company that then starts to operate in ways that you hadn't crafted and that maybe you don't even feel fully aware of.

15:16David Rusenko:I mean, I think there's two things that come to mind as you're describing that story. You know, the first one, and this is a little bit later, but it took me a long time to recognize that just because it's not the way that I would do it doesn't mean it's wrong. And also just the way sometimes people behave, like some behavior is just bad behavior, but sometimes people are optimizing for different things. People optimize for relationships, behave a certain way. People optimize for execution, behave a slightly different way. Just because it's not how you would do it doesn't mean it's bad. And understanding the difference between actually bad and just different.

15:48David Rusenko:So that's one thing that took me, I think, a really long time to learn. The other one was, and this is a story I used to tell kind of younger founders who are really struggling with this kind of first delegation step. I told them, sometimes we launch features that I find about, find out about by reading about them on our blog for the first time. Like they're already launched. And like their eyes would just go huge. Like, how is that even possible? I was like, but you know what? We've never launched a feature. You've never launched a bad feature that I found out about that way. So isn't that the best actually?

16:17David Rusenko:Like not the worst. Isn't that the best thing ever to have built a system and a team and a structure that's able to repeatedly do all this stuff without you? It's very freeing. It's very empowering, right? And you You obviously don't want to delegate so much that the quality gets bad or you don't have your eye on the ball or you're not in the details in the right way. But that should be the ultimate goal is to build the right system that does all of this stuff without you.

16:39Richard Branson:I said at the very beginning that you had scaled this company to about 300 employees, Weebly. And were there other versions of this moment at different additional phases? phases? Was there a time when you hit 100 employees that you have to then rethink again how you communicate? What had happened post 25 to 30 employees?

17:04David Rusenko:Yeah, I mean, I think the next moments that really broke were around 70 employees. You know, what I jokingly say, you know, kind of humorously, but my jokes got funnier, right? There's this moment where I was sitting around the lunch table and I told a bad joke and I knew it was a bad joke and everyone laughed and cracked up about it. I was like, that's kind of messed up because I rely on this feedback to know whether my jokes are good or bad, right? And so that was the first moment where I realized people weren't doing it, you know, kind of out of bad intentions, but now they're managing you, they're managing up, they're managing the information that you get.

17:38David Rusenko:And that completely transforms the way that you have to operate inside the company. You know, the way that you perceive what people say has to be a lot more subtle, a lot more nuanced. and then I think the next one for us was maybe around 170 people when we changed our organizational structure from purely functional to more of a cross-functional kind of squads, pods type of structure. Along the way, I think you have to slowly change from relying more on one-to-one communication to relying more on one-to-many. So everything you do eventually becomes mass communication because it's not scalable to do anything otherwise.

18:13David Rusenko:And then the last kind of ongoing transition is just you first build up your first layer management, and then you build up your true executive team. Once you get to about 300, 400 people, typically you have this very experienced, very solid executive team in place, but it takes you years and years to recruit and hire and build that team.

18:33Richard Branson:Yeah. And so in the earlier days, when you're years away from building that true executive team, how did you think about the people who were closest to you? Cause I'll tell you for me, a thing that I have always valued as a leader is making sure that I've got people who will tell me that my ideas are bad. And you know, it's the opposite of that. Everyone laughs at your jokes. Like I really value that. And a lot of people are not able or willing to do it. And so I want to, I want to collect those people and I want to keep them really close and it's important. And I'm curious about how you thought about the inner circle that surrounded you as this company grew.

19:17David Rusenko:Yeah, well, it was one of the things I love about my wife is she'll tell me when my jokes are horrible. And I do also tend towards the same thing, which is I love to surround myself with people who will respectfully, of course, not in a mean way, but present a divergent viewpoint, especially when I'm wrong about something. Like a lot of things with, as the company grows and scales, these need to be active, actively managed, which I think it sounds like you do and is unintuitive in that you'd have to build that active muscle. One of the tricks that we did at All Hands or in any kind of offsite or any kind of meeting where maybe it wasn't a fully gelled team is I would plant, as maybe too strong of a word, go to someone who I knew and trusted, maybe someone who was there early at the company and say, hey, would you ask a tough question?