Two Pizza Theory

Some time ago, back when I knew absolutely nothing (unlike today, when I merely know next-to-nothing), I allowed a number of business ideas be crushed by the fear that, once big competitors entered the market, I would be instantly destroyed.

Since then I learned about disruption and how it can provide a competitive advantage to new entrants in a market where they have no investment in the status quo.  Still, the massive resources that larger companies can bring to a project can be daunting.

Fortunately, there is a built-in upper limit to how many people can effectively collaborate together.  It seems that somewhere between 5 to 10 people productivity seems to top out.  Past that point, it starts to become necessary to formalize communications, with the unfortunate side effect of slowing everything down.  Teams below this threshold are sometimes called “Two Pizza Teams” or “ten-groups“.  At this size it’s easy to get everyone on the same page, so the “productivity-per-resource” ratio is going to be the best at this size.

The cumulative effect of this “two pizza limit” is that there’s a natural productivity resistance point at a relatively small number of people.  Beyond this point productivity drops off, consuming more and more resources for less productivity gain.  This effectively means that the playing field is somewhat evened between large and small companies, even though a larger company can, in theory, throw many more resources behind a project.

So if you are a smaller company, but have a great, disruptive idea, and between 5 to 10 people to throw at it, you can swim with the sharks.  The nature of human collaboration will provide a degree of protection against much larger competitors with more resources.