Scaling Teams and the Fight Against Human Nature
moz.com
moz.com
I don't think there's an upper limit on the number of people who can function together and be decent, but there seem to be a hard limit on rate of growth. I don't think anyone has enough data to know the exact "magic number" but it's probably dependent on size. 10 to 15 in a year is fine; 100 shouldn't go past 120 in a year, in general.
What I think causes startups to fall to shit, culturally speaking, is a mix of three things:
(1) Culture is never made an explicit priority and evolution is "by default", which leads in a bad direction. Investors don't care (and shouldn't care) about company culture; founders would care but are too busy managing investors, and no one else has the power to do it, so power vacuums and fiefdoms emerge.
(2) Tiny equity slices motivate people in the wrong way. Larger profit-sharing slices are better. (http://michaelochurch.wordpress.com/2013/03/26/gervais-macle...) When the 25th engineer is offered 0.05%, vesting over 4 years, either (a) he doesn't care at all about such a puny slice, in which case you'd get more from him with a higher salary, or (b) he wants to become an executive and get a real slice. The toxic software politics (scorched-earth rewrites, calamitous tool wars) come directly from (b), as engineers bash each others' heads in to get real titles and meaningful equity. (They get hit with karma when they get there and find out that being an "executive" doesn't mean they can code but control the division of labor and take the good work for themselves, but, rather, that it means that their lives are wasted in meetings.)
(3) Sometimes without even knowing it, or without choice (VC interference) companies sell off their culture to hire external executives. The "problem" with Valve-style open allocation (e.g. employee autonomy) is that it's hard to hire the traditional entitled executive who's used to having 20 people who can't say "no". Google didn't lose its culture via executive hiring until after it grew large, but most startups begin that process much earlier.