Some novel organizational structures have emerged in recent years, especially among forward thinking tech companies. A few of the more well-known concepts include Holacracy, Sociacracy 3.0, and various other approaches that involve task forces or ‘squads’ that constantly spin up and disband. In our view, these are all interesting but unproven.
It’s worthwhile to read up on these org experiments and maybe even cherry pick a few transferrable practices. Otherwise, we suggest sticking with a more conventional, level-based framework: in most structures, priorities flow downward and accountability flows up from individual contributor to manager to executive leadership to CEO to board to shareholders. The reporting lines change as needed, but not too often.
Once your company exceeds ~50 people, you will necessarily start building out the middle layers. Certain functions need it sooner than others – this is often an “a-ha” moment for one or two leaders when re-evaluating organizational needs. When you add mid-management, beware of stifling cross-department collaboration or organizational agility.
Tips for avoiding the pitfalls of additional management layers:
The other key structural consideration as your company scales is whether to remain a functional or divisional organization. Functional organizations are organized by functions which work across all product lines. Divisional organizations are organized by product lines, each running semi-autonomously with their own P&L and dedicated functional support.
Source: Ben Thompson, Stratechery
Nearly all startups begin as functional organizations by definition because they have a single product line. As companies launch new and distinct product lines, divisional separation starts make sense. This is the typical evolution. Of course, there are notable exceptions such as Apple. (sidenote: there is an interesting history behind this, starting with Dupont Chemicals nearly a century ago. You can read that story as well as some excellent, albeit dated commentary on Apple and Microsoft’s org structures here and here).
There are many factors to consider when deciding which structure is right for your org, some of which are listed below. As you can see, functional structures are much harder to pull off at scale. Regardless of the decision you make, making it deliberately and at the appropriate crossroads will put you ahead of the pack. Most rapidly scaling companies ultimately stumble into some hybrid by accident.
|Built-in accountability and direct incentives (separate P&L)||trategy tax: decision makers for division A forced to factor benefit/harm to divisions B and C|
|Clear career advancement opportunities for generalists||More challenging to coordinate products and deliver seamless customer experience|
|Superior product coordination and more seamless customer experience (when done right)||Difficult to execute at scale (requires truly collaborative culture)|
|Cannot effectively manage too many products|
|Requires exceptional visionary overseeing everything (e.g. Jobs / Ives; these don’t grow on trees)|
We recommend sticking to a functional org structure until it hurts. For most businesses, the line is somewhere around a few hundred people (Apple is the extreme anomaly). Whichever structure you ultimately establish, ensure that accountability pervades throughout. Everyone should have someone else holding him/her accountable to their best work.