How Many Direct Reports Should You Have?
The number of people one person can manage matters because it explains why some businesses grow and others plateau. It’s a foundational reason why fewer than 2% of companies in the UK employ more than 50 people.
Harvard Business Review estimates the ideal range for an experienced manager is between five and nine direct reports. Inc. pegs the sweet spot for management span of control at seven. McKinsey’s reckon between 3 and 15.
They’re using the typical management span of control definition: the number of direct reports one person can manage.
But, if you’re an owner looking to scale up and create a company that can thrive without you, then you must take a different perspective. You need to think about the total number of people in your business and how you lead them (rather than directly manage them).
The Three Stages Of The Owner’s Span of Control
Whilst every business is different, you should loosely think of your company’s evolution as a series of gated stages. As you progress through each gate, your approach, your skills and what you ‘do’ must change.
Stage 1: Doers (up to 9 employees)
In stage 1, the owner directs a handful of doers.
You need people who can follow your standard operating procedures and execute. Your best employees will often be generalists who can do a lot of things reasonably well. They thrive on variety and like the feeling of getting things done.
Many owners get stuck in stage 1 because they fear delegation. Owners don’t trust employees enough to do the work without their direct oversight. However, those owners courageous enough to hire some managers will break free of the 90% of businesses stuck in stage 1 and graduate to stage 2.
Stage 2: Managers (10–50 employees)
In a Stage 2 company, the owner hires a small number of managers (usually less than five), who are paid to ensure their direct reports execute. The emphasis is on managing against the plan you give them. Good managers understand the process they are being asked to manage. They are detail-oriented and stick to the plan.
While managers may contribute to the plan, they are not usually responsible for creating it. Managers typically need the owner to supply the strategy and plan, which is why many companies stall out at stage 2. To break free from stage 2, you need to become the leader (and stop doing), and build a leadership team.
Stage 3: Leaders (50 + employees)
For our purposes here, let’s define a leader as a person who can lead a team through more than one layer of management.
Let’s imagine you have a sales leader who oversees two sales managers, each of whom has five salespeople reporting to them. The leader’s job is to set direction and to provide a vision and plan for their managers to execute. They are leading a team of twelve (two managers plus ten salespeople) while simultaneously managing two direct reports.
While most leaders can manage, the opposite is not necessarily true. Leadership requires managers to learn a new set of skills. Leaders need to be able to communicate clearly, delegate effectively, and define the strategy.
If you’re stuck at stage 2, you need to change the way you operate. You must lead, rather than do. You need to become the visionary. Defining and protecting your culture, setting the strategic direction, building a high performing leadership team, who ensure the work is done.
To build the leadership team, you have two options: either you need to hire leaders to parachute into your organisation, which risks alienating your managers, or train managers to become leaders. Both strategies are hard and time consuming, which is why few companies progress to stage 3.
Getting to Stage 3
If you’re stuck, it’s worth asking if you have the right people in place to take your business to the next stage. In the beginning, you will need managers you can trust. And to graduate to stage 3, you’ll need people who can manage and lead. Some managers may need training, while other areas of your business may need an entirely new leader to make the transition successful.
For an example of a company that successfully managed the transition to stage 3, take a look at Acceleration Partners. Started by Robert Glazer in 2007, Acceleration Partners is an agency specialising in partner marketing. Acceleration Partners is a people-centric business that helps brands reach and manage their influencer relationships.
In the beginning, Glazer began hiring people to help him manage clients and their projects. As he described on a recent episode of Built to Sell Radio, Acceleration Partners’ needs evolved as the company expanded: “Every time your company doubles in size, you outgrow half your people and half your processes.”
It’s worth repeating that, and taking a moment to think about the implications for your business: “Every time your company doubles in size, you outgrow half your people and half your processes.”
Glazer grew Acceleration Partners for 14 years, and by the time he sold it in 2021, Glazer had an entire team of leaders overseeing a group of managers who were managing the people doing the work.
What next?
In stages 1 and 2, you’ll be running around like the proverbial blue-arsed fly. Your time is never your own. You never get to have a carefree holiday, or even a carefree afternoon watching your kid’s school-play or sports day. Your phone is always on. There are emails to be checked and answered. Decisions to be make. Problems to fix.
In a mature stage 3 business, you can go on holidays and truly relax. You know your phone will only buzz or ring when there’s a real emergency that only you can deal with. And, I promise you, those seldom happen at Stage 3.
If you want to get to Stage 3, give me a shout, and I’ll help you get there, like I’ve helped these folks.
Warmly,
Richard
PS: A business that can thrive without you (ie: a Stage 3 business) is significantly more valuable than one that relies on you (a stage 1 and 2 business). To find out how much more, take the Value Builder Assessment Here and find out how much more valuable your business could be at stage 3.