What is the ideal team size?

In the chapter about team structure from my book Digital Product Leadership, I gave some real-life examples of team size from Gympass, Conta Azul, and Locaweb. However, one thing that is not in that chapter is how we defined the ideal team size. So here’s an article focused on this topic, which I believe can be helpful not only in regular times but also now that VCs funding seems to be slowing down at lower valuations.

Benchmark

When I joined Gympass in 2018 the company already had 800 people but the product development team, i.e., product managers, designers, engineers, and data people, were only 32 people, i.e., 4% of the company which seems quite low. Soon after I joined the company I had to present to the board my plan to increase this team and I decided to include a slide with a benchmark of some well-known tech companies.

Benchmark of product development team sizes

I used Linkedin to get some estimates of the product development team size of these companies compared to the total number of employees. The majority is having between 24% to 40% of their workforce in the product development team. The exception is Apple, with 20%, but we need to consider that they own all of their stores, so all the sellers in the stores are their employees as well. Conta Azul, Locaweb, and Lopes are from my past experiences. Lopes, a traditional real estate company working on its digital transformation had around 11% of its workforce in product development. At Gympass we were able to bring from 4% in mid-2018 to 18% by the end of 2019.

What to do vs how much to invest

However, we can not define ideal team size only by benchmarking. We need to consider other inputs, from within the company:

  • what to do: from the company objective and the understanding of the user problems, we create our product vision and strategy. Having this clear helps us define what we need to do to execute this strategy, what are the expected results and objectives, and the team we need to execute this strategy. For instance, at Gympass, we deliver products for gyms, clients’ HRs, and employees, so we decided to have teams dedicated to each of the players in our marketplace. Besides that, we needed tools to manage payments from HRs and employees, and to the gyms so we also had a team focused on that. Those were product teams, that generated results for Gympass such as more users and less manual operational work. Besides the product teams, we had also structural teams to take care of topics such as SRE, Tools to make product teams more productive, and Data and Security, as I explained in the article about team structure. These product and structural teams had their own visions and strategies aligned with the global vision and strategy and based on that they proposed their own team structures. For instance, at Gympass, the employee-focused team decided to break it down into two teams, one focused on growth, i.e., helping employees get to know that the company offers Gympass, making employees download the app, creating an account, and subscribing to the service. The other team was focused on digital experience, i.e, helping the employee get the most out of Gympass by finding and using suitable gyms, activities, and wellness apps. So, what to do is one of the drivers to define the team structure and the team size.
  • how much to invest: onde the other hand, we need to know how much we are planning to invest in this team. Putting together a product development team costs money. Suppose that based on what we defined we want to do we created a product development team structure that requires 15 people. Let’s consider U$ 3,500 as the monthly average salary of the people of this team. So the total monthly cost of this team is U$ 52,500 or U$ 630,000 per year. It’s a lot of money. This team will bring results to the company, but sometimes the results may take longer to be generated. In all new products that we build and launch, while we haven’t launched and started to collect some revenue, this team will only generate costs. Do we have the cash to invest each month to pay the salaries of this team, while this team hasn’t generated the results? Please note that I’m only considering a monthly salary, without an annual bonus and stock options grants.

So we need to know how much we can invest and what we need to do in order to define the ideal size of our product development team.

Team size in a crisis

Some time ago we had the COVID-19 crisis and now we are facing an economic crisis that is making VCs funding slow down and generate lower valuations than we had prior to 2022. Many startups are having to make layoffs because of this situation. Even companies like Google, Meta, and Apple mentioned that they will slow down hiring.

So, what should be the product development team size in a crisis? Well, how much to invest is the input to be considered. Do we need to reduce how much we invest in our product development team? By how much? What is the impact of this reduction on what to do and the results that could be generated by this team? Having fewer people will make the team drop some balls, i.e., a decision needs to be made on what to stop doing. Some objectives and results should be de-prioritized since we will have to lay off some people and will have a smaller team. Is that simple. Less money implies in a smaller team, which implies fewer things this team will be able to do and, consequently, fewer objectives and results can be prioritized.

Summary

  • Benchmarking is a good way to understand product development team size. Through Linkedin, we can get good estimates of the number of people in product development teams compared to the number of employees for many companies.
  • However, we must also look to internal factors to define the ideal product development team size. How much we have to invest and what we need to do are the two internal factors to be considered.
  • In crisis situations, we may need to decrease the investment in the product development team, which may cause the team size to shrink. Less money implies a smaller team, which implies fewer things this team will be able to do and, consequently, fewer objectives and results can be prioritized.

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