In the early years of a business, a founder will wear many hats.
It’s not unusual for a founder to move between unpacking the office dishwasher, to writing the software, and then pitching for their next round of funding, all in one day. Because no-one cares more than a founder about getting ‘stuff’ done — and getting this ‘stuff’ done cheaply.
When a startup is small enough not to need people with formal qualifications filling specific roles, the person with the nearest skillset will usually take on the responsibilities. And sometimes this is very approximate. We might see the guy with the background in retail taking on recruitment because he has worked with a broad range of people. Or the woman who was a high achiever in university maths taking on the company finances, because they are most numerate.
Near enough is good enough as long as the technical, domain and commercial roles are filled with people who truly know what they are doing and can guide the growth of the business.
It is not until a Series A or B round that a business needs to start acting like a ‘grown-up’. This means moving out of the garage, standing on its own two feet and formalising what has likely been a very fluid and flexible organisational structure. Fluidity and flexibility still have a role to play, but as businesses grow, make more money, attract more customers and grow their market share, the organisational structure must evolve too.
I’m often asked by founders about the roles they should fill first, the order with which they should do this and when the right time is to put experienced and qualified people into specialist positions. Some roles, such as the chief financial officer or legal counsel, might be necessary from a governance or compliance perspective, or to ensure the protection of intellectual property, while other roles are strategically essential to the future growth of the business.
Fundraising will almost always signal the right time to review the structure of a startup as a funding round is usually undertaken at a time of growth or planning growth. New investors will need to be confident the business is appropriately positioned for this growth — expansion into new audience segments, geographies or new products. If a funding round is undertaken to enable expansion into new geographies or sectors, investors will be looking to see a sales or marketing role in place, or at least plans to fill this role with new funding.
Some startups, although far from the majority, may decide a flat organisational structure empowers employees to succeed.
Zappos is perhaps the most famous case study of this Holacracy structure, where employees are self-directed and self-governed. Zappos’ open-task marketplace allows people to look at the work that needs to be done and take on tasks they feel most motivated, able and willing to do. Zappos claims this works because people fundamentally want different things. Some just want predictable tasks, like answering the phone. Others want more complex, problem-solving tasks.
John Bunch, Zappos’ Holacracy implementation head, described the structure on the Harvard Business Review podcast: “I guess what we’re trying to do is structure our company more like cities are structured. Research shows that every time the size of a city doubles, productivity per resident goes up by 15%. But when companies double in size, actually the exact opposite thing happens, productivity per employee goes down. And part of the reason why we think that is that in cities, you are self-organised, you’re self-directed. And you have a certain level of freedom and autonomy to do what you think is right.”
The evidence suggests that, while ignoring a few blips, this structure works efficiently for a business of this nature. Employee turnover rates are lower now than when the company was founded 18 years ago, according to Forbes.
There is no ‘one-size-fits-all’ approach to organisational structure and most founders will undoubtedly feel uncomfortable with the lack of control under the Holacracy model. And while this appears to be a success for Zappos, the same success may not be seen for other businesses. Raising the important question, are there any best-practice methods of creating an organisational structure?
Typically in most instances, building small teams with clear accountability generally sets a business up for success. This is because smaller teams typically function most efficiently with one leader who is accountable to the founder, and later, to the board. The smaller team benefits from the ability to be nimble, to innovate and work closely with colleagues.
Of equal importance is fostering a clear understanding of the vision and purpose of the startup. If everyone is driving in the same direction, there will be fewer accidents. This means having the vision and purpose clearly documented, communicating this and sharing widely so all teams can see the big picture and how they are helping the company to achieve this.
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Building an organisational structure is an ongoing process that involves regular review and fine-tuning. If a founder does not restructure they will hold the business back as they do not have the right people in place to expand. Additionally, structure should not be confused, with hierarchy, which can be an enemy for innovation and an inhibitor of growth.
Founders who are restructuring their business will benefit by seeking the advice of other founders, investors, advisors and supporters who have been through a similar process.
Ultimately, flexibility and finding the right people is the most important factor in building an organisation and this will be unique to every founder.