In the ambiguous, fast paced world of B2B SaaS startups, determining the optimal team size for effective management is muy importante. Effectively scaling sales teams hinges on achieving a delicate balance between (are you ready?!) providing direct oversight, servant leadership, navigating growing pains, executing rapid yet discerning hiring, training and development, managing budget constraints, and preventing manager burnout, all while fostering individual and team growth AND driving revenue. That was a mouthful to say, let alone execute! Even the most capable of Sales Leaders reach a point of inefficiency.
So, how do you set your Sales Leaders up for success? The industry-standard “Rule of Seven” suggests a manager can most effectively manage between five and nine direct reports (7 people give or take 2). This guideline is supported by practical management experience and cognitive science, giving managers the ability to engage hands-on without stretching themselves too thin. Harvard Business Review analyzed the highest performing companies ratio of individual contributors to sales managers and found that the magic number is 8:1. Among lower-performing companies the data showed the ratio was greater than 10:1 or lower than 5:1. HBR stated that at more than 10 people, a manager’s capacity to effectively supervise the sales staff decreases, dragging down ROI. Managing fewer than four translates into waste of labor costs.
Andy Grove, the former CEO of Intel, provides an insightful perspective on this issue in “High Output Management.” He advocates for a managerial commitment of about an hour per report each week, which for a team of nine, occupies a quarter of the manager’s workweek. This approach highlights the tippy top limit of effective managerial span without compromising the quality due to overextension. Insert: point of diminishing returns for sales leadership.
Other successful tech companies that operate within the rule of seven include one of our longest standing clients that has seen significant growth and success, monday.com as well as Samsara.
Incorporating the “span of control” theory into this discussion offers a broader understanding of effective organizational structures. This theory emphasizes the optimal number of direct reports a manager can effectively oversee while maintaining high levels of productivity and engagement. The span of control is influenced by various factors, including the complexity of tasks, the nature of the work, the level of interaction required between manager and subordinate, and the overall organizational support structure. In the context of B2B SaaS startups, where agility and rapid decision-making are paramount, a narrow span of control can enhance focus and speed.
Variables that may sway the optimization include:
- Carrying a personal quota in addition to the team’s
- Percentage of the team fully ramped
- Maturity of sales team
- Level of ground zero playbook writing
- Covering for other vacancies on the team
Managers are encouraged to experiment within the suggested range of five to nine direct reports to find their personal and team’s optimal operational capacity.
Moreover, as startups scale, the “Rule of Seven” and “span of control” theory highlight the importance of developing leadership within the team. What a fantastic way to encourage internal growth?! Early identification and training of potential leaders can facilitate effective management distribution, ensuring the startup remains agile and scalable without diluting managerial quality. This will likely lead to increased employee satisfaction and therefore retention. Per a LinkedIn Report, a 1:7 manager to employee ratio increases staff retention by 12%. How great would it be to focus on growth hires vs backfills?
In conclusion, if you’re at the breaking point, it may be time to start considering solutions based on the “Rule of Seven” and the “span of control” theories. These guidelines offer a foundation for startups to adapt and evolve their management practices in alignment with team growth and business objectives. Reduce the flatness and start to see optimal productivity from your sales leaders, improved employee satisfaction, and retention on all fronts.
About Us:
Commodore Partners services the B2B SaaS sector, primarily focused on helping startups build out their go-to-market teams. We’ve helped 32 clients with over 500 placements since 2021. In 2024 we rolled out an official division that caters to niche and executive level roles as well as a dedicated Marketing Division. For more information, please contact Jen Barnett at Jenn@commodorepartners.com.
References:
Article from Harvard Business Review on Ratios
Zipdo Report on Deloitte and LinkedIn stats
Article from Management for Startups by Cedric Chin
Article from Omar Rabbolini- Entrepreneur and startup author
