Modern startup founders reject traditional hierarchies when structuring their companies. They want to run flat organizations that value collaboration and collective decision-making, but that’s hard to maintain once a company starts to grow.
Online shoe retailer Zappos hit a speed bump when it renounced all management for a flat structure. Employees reported confusion, and turnover shot up to 30 percent.
Collaboration is a necessity during the early stages of a startup. With only a few people getting the business off the ground, you want everyone’s input. But as the organization grows, it becomes more difficult to include people in the same way.
As the leader of your company, you have to steer your team through those changes, implementing discipline without building in unnecessary bureaucracy. Otherwise, the business will stagnate and die. One Sequoia-funded business in India nearly collapsed in its attempt to go public because it didn’t adapt its growth processes quickly enough. The company eventually recovered through hiring, but it nearly missed its opportunity.
Although flatness is the desired state, investors want to know you’re willing to restructure and “professionalize” as you enter the next development stage.
How to Restructure Successfully
Hiring middle managers doesn’t have to spell the end of your flat structure. Look at it as an opportunity to strengthen your team and build a hierarchy that works for your changing needs. If your original staffers are used to constant access and inclusion, they’ll probably bristle at having to answer to newcomers. But you need seasoned managers to guide the company and implement new strategies.
A proactive approach will help you transition the organization into a new phase without losing momentum. Here’s how to do it:
1. Communicate about the changes proactively.
Be open about your restructuring, and explain that middle management is there for everyone’s benefit. Your original team members will appreciate the transparency, even if they grumble a little. Create opportunities for them to ask questions, and clearly explain how these changes will affect their roles in the company.
That’s exactly what we did at my company. Founding team members were welcome to throw their hats in the ring, but many actually appreciated the opportunity to spend less time on administration and management and more on what they loved doing. By doing this, everyone was involved in our next generation of hires and readily welcomed new functional experts.
2. Anticipate churn.
Expect that perhaps 10-20 percent of your original team members will leave, even with good communication. All successful companies experience these growing pains.
Facebook lost people as it professionalized over the years, but it’s still worth $325 billion and arguably stronger than ever. The end goal is to create a scalable business, not to keep everyone happy.
3. Hire functional experts, not generalists.
Your first round of hiring should be based on passion. The second should center on expertise. As you restructure, recruit people with know-how in supply chains, business models, and other areas in which your team is lacking. Then, delegate tasks to these champions in your organization, and let your staff members know who they should report to once the shift is complete.
4. Give managers autonomy and authority.
An incoming manager has fresh eyes and can look at your business as a machine. Founders, on the other hand, may have some baggage stemming from their close relationships with the founding team. It’s normal for those teammates to bring problems to their friend and founder. But this type of back-channel communication undermines the new managers’ authority and creates tension. Maintain those longstanding relationships, but insist that everyone follow the new processes and correspond through their team leads.
We’ve found that when there’s tension between longtime employees and new hires, focus groups help get at the root of the problem. Bring everyone into alignment on what you’re collectively trying to achieve; then, reaffirm the new structure. Change is difficult, but we make everyone understand that experts were brought in for a reason. Empower them to do their jobs.
5. Build small teams with complementary skill sets.
We assign small groups of employees to different managers and make sure their skill sets blend well. This incentivizes collaboration and allows them autonomy when tackling new projects. But be mindful of personalities: Two people might have complementary skills, but their opposite dispositions could make them a disastrous fit.
Adding new managers doesn’t mean throwing in the towel on flatness, but you need creativity and communication to find a workable model. Be willing to evolve with your company’s needs, and keep fairness and collaboration at the heart of your organization. Then, you’ll be in a position to maintain your linear principles as your business scales up.