The breakthrough moment came back in 2008, when Fred Wilson, the co-founder of venture capital firm Flatiron Partners, asked Jeff Lawson, the co-founder and CEO of Twilio, to sketch out Twilio's organizational chart.
Twilio, a cloud communications company, is one of the few tech companies to successfully hold an initial public offering this year. In June, the company went public at $15 per share, and was recently trading near $48.
But eight years ago, Lawson was just another confused co-founder trying to figure out why "things had stopped working the way they used to," he explained in a recent interview. "We had a certain way of setting goals, and people were just not doing it."
He went to Wilson, one of his investors, for advice, which is when Wilson asked Lawson to draw his org chart. Twilio had 15 employees. They all reported directly to Lawson.
"One of my co-founders was the CTO," recalls Lawson. "Shouldn't the engineers have reported to him?" Well, yes. But that wasn't the way Lawson had been thinking about it. He was the CEO, so when he hired someone new, he figured that person should just report to him.
That simple experience, and the conversation with Wilson that followed, led Lawson to realize that "people think they want flat management until they're not getting any time from their leadership. You can't be empowered if you're not supported."
Lawson decided on a new structure for his startup, and has held fast to that decision ever since. No team could get bigger than eight people. "When teams get too big, they lose sight of their purpose," says Lawson. "Low performers can hide. No one wants to be part of a 50-person team, just a cog in the machine."
Now, he's all about small teams. "Small teams are the ideal unit of innovation," he says. "You have a small number of people working together on a goal that they've internalized."
While it was the engineering group that initially led Lawson to his epiphany, he thinks his "small teams" principle will work for any function. It's better for sales and marketing, he says, to break into small teams and work on one aspect of the sales or marketing goals, rather than constantly changing their attention from one initiative to another. "There are huge switching costs," he says.
He doesn't intend to let his eight-person teams grow as Twilio grows. He's determined to just have more of them. Lots more. Right now, he says, Twilio's research and development group is made up of more than 50 eight-person teams.
"Small teams only get more important as the company grows larger," says Lawson. "Eight-person teams will work forever."