Successful organizations of just one or two freelancers have very high revenue per employee, effective labor utilization and few communications problems.

And significant organizations of a hundred or a thousand people also produce enormous amounts of revenue, profit and perhaps value.

In between, though, there’s a slog.

That’s because a successful tiny organization that adds people creates communication problems. Instead of each person knowing what to do, they need to meet about it. They also require people to support their people–HR, policies, etc.

The trough is characterized by nascent specialization, and if any specialist can’t deliver, the entire entity struggles, because there’s just one specialist for each category. Many mouths to feed, but fewer farmers per capita.

In that trough, many small businesses flounder.

They had the profit or the investment to grow, but they grew too much or didn’t grow enough. Either way, they’re caught in the trough.

The trick is to understand your industry well enough to know where the trough lies.