Every competent leader with the power to recruit and hire eventually faces an important decision regarding team size. There are two different schools of thought: (1) maximize total productivity and (2) maximize mean productivity. Maximizing total productivity implies a significantly larger group size: the leader would continue recruiting as long as there is positive marginal productivity. In contrast, maximizing mean productivity means recruiting only if marginal productivity is higher than the current mean productivity, and results in a “lean and mean” team.
I think everyone’s natural instinct is to go for (1), but lately I’ve become a big fan of (2). In pursuing (2), the leader reduces the total output of the team (be it publications or sales revenue or whatever) by maybe 1/4 to 1/2, but increases morale because every team member is surrounded by smart and competent people. Thus, I would argue that (2) is better for team health and also better for companion retention. Additionally, there are boom and bust cycles in every field and market, and (2) is much better suited to survive downturns.
Reading/watching startup-related resources, it seems that (2) is the favored path for many entrepreneurs as well — hire only when you really have to hire.
Dave Zhang's Startup Blog 