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General organizational development

Rapidly growing startups often experience growing pains in several dimensions, but shaping the organizational structure to accommodate growth is probably the most frequent one. It is therefore a key task for startup management teams to plan well ahead on how the organization should be structured, which new roles should be introduced at which point, and which development measures are needed to help people grow with the organization.

Growth Organization Archetypes

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As a startup goes through different stages of growth, it periodically reconfigures how its employees work together, how control flows and how people play different roles.

Hoffman and Yeh use the metaphor of human organizations in other domains to explain the characteristics of these stages. According to this framework, a startup goes through the following stages:

  1. Family: 1-20 people. Roles are well understood, with the founders clearly being the "parents". The hierarchy is very flat and communication is very direct. Most employees feel that they are involved in most important decisions.
  2. Tribe: 20-100 people. The organization reconfigures itself to a more specific hierarchy. Often there is a new layer of management that becomes necessary. Interaction is not as direct as before, and people have to find their new role and position in the organization. Frequently, startups go through major growing pains when they have about 50 people since at that point the reconfiguration of the structure is most substantial. Management lines are not yet very formal, so there are a lot of grey areas.
  3. Village: 100s of people. The organization needs further specialization and additional layers of management (or similar structures). There are distinct departments that have less and less overlap, so collaboration has to be organized differently. Communication has to be more formalized. The organization reaches a size where it is not possible for founders to know everybody personally anymore, so the direct influence of the founders changes to a more indirect model.
  4. City: 1000s of people. Further differentiation of management structures. At this stage many companies change from a functional organization to a business unit model to accommodate the growing complexity better. The majority of the executive team is likely not founders and early employees anymore, but professional executives with experience in this stage.
  5. Nation: 10000s of people. Typically companies at this size are public, which means that they underlie a different and more complex governance structure. The company is likely to sell multiple product lines, often built and provided by independent business units that themselves can employ thousands of employees and have their own executive structure and subcultures.

Organizational Structure Types

Somewhere around 20-30 people, most startups start implementing a more formal organizational structure. There are different ways to do this, depending on the growth stage.

Smaller companies with fewer than a couple of hundred people typically use a functional structure. The departments are focused on a particular task or domain, e.g. engineering, marketing, sales, finance. They are led by a VP-level person who tends to be a specialist in the respective topic, i.e. an experienced engineering lead who will manage the engineering organization.

Example for a functional organization in a software company
Example for a functional organization in a software company

Depending on the nature of the business and the priorities that the company is setting, functional units can be structured differently. For example:

  • Product management, engineering and customer success could be unified in a single product division, but these functions could also report directly to the CEO in smaller organizations. Product organizations often go through different configurations as the company grows.
  • Sales and Marketing can be separate, but some companies unify them under a Chief Revenue Officer.

Larger companies tend to be organized in a divisional or business unit structure. This is particularly necessary as soon as the company starts selling multiple products that might not have a huge degree of overlap in terms of the technology or customer base.

Example for Product based divisional organization
Example for Product based divisional organization

Divisional organizations often have staff functions (such as the CFO) that are reporting directly to the CEO. There could also be centralized units such as foundational R&D that serve all units. The big challenge in this structure is to avoid too much duplication of efforts and resources between divisions. There is often an additional layer of collaboration needed, e.g. in the form of matrix organization elements, communities of practice and similar structures.

Useful Resources

Hoffman and Yeh: Blitzscaling

A comprehensive guide on how to run a hyper-growth startup

Varnish: Scaling Up

Excellent guide from the founder of the Entrepreneurs' Organization

Eisenmann: Why Startups Fail

Not as negative as it sounds — many useful tips for how to shape your strategy and execution

Sacks: The SaaS Org Chart

How to organize a SaaS company by financing stage