Startup founders have many biases. Some are classic cognitive biases that impact decision making, while others are specific biases that impact their product thinking.
There’s yet another founder bias whose impact is not felt for a long time. It occurs when founders assume employees think and act like them. The often repeated advice that “early startup employees wear multiple hats” is an implication of this bias. I remember I assumed that just because I was able to do multiple things (coding, design, marketing, etc.) I expected our sales folks to make their own presentations and engineers to think of new product features.
It was a bad idea.
Wearing multiple hats is dangerous
Founders are all about breadth. Early in a company’s history, when the team size is just 2 or 3 people, everyone has to do multiple things. However, as the company expands and new people come onboard, the hangover of everyone doing multiple things remains. The first marketer does everything: from AdWords to writing blogs to web analytics to developing brand guidelines. Similarly, the first salesperson is expected to find leads, qualify people’s interest, setup meetings, give demos, negotiate, write RFPs and then try converting interested prospects into customers.
New employees who’re asked to do multiple things settle into these broad roles and give some level of performance. However, this performance is mediocre and a source of frustration early on, when either you’re not growing or you’re growing, but there’s chaos and confusion all around.
This is a terrible way to grow as a company
A founder has to realize that her org chart determines the limits on her company’s growth. People give an amazing performance when they’re given one well-defined thing to do. In a company’s early days when the hiring budget is limited, I understand that the temptation to hire for generalists is ever present. But generalists don’t give you growth (they’re great at experimentation though). Real growth kickstarts when specialists are brought on to do killer execution on things that your company can benefit most from.
Org chart should implement your strategy
Right from the start, the CEO/founder should constantly be thinking about the organization design that’s required today and may be required one year after. Nobody else would do this. No employee will come and say fire me, hire a specialist instead. A CEO/founder only has few jobs to do, and one of them is company strategy and by implication, designing the company’s org chart.
I define organization design as:
What roles should be there in the company and how those roles should be related to each other.
From my experience, many entrepreneurs and CEOs (blindly) follow industry norms in hiring and so their organization chart takes a standard shape that’s indistinguishable from their competitors. That’s inefficient because each company has an essentially unique strategy and hence deserves a unique organization design that implements that strategy effectively.
In some cases, org design happens by accident because there’s no well-thought growth strategy (“we will do better than competitors” isn’t a strategy, but this is a topic for another post). A prerequisite for doing org design is clarity on strategy because if there’s no clarity, whatever org you have will automatically start determining what your strategy.
Common mistakes in organization design
To be a good organization designer, you have to be a good psychologist. You have to first learn what conditions bring out stellar performances in individuals and then design a structure where people can find themselves in such conditions. Effective org design is difficult because the temptation to underinvest and the fear of bloated org always exists.
(I’ve learned a lot on org design from this blog)
- Underinvesting in specialist roles. I heard someone say that you don’t realize how much better a job can be done until you’ve seen someone do it 10x better. This means that for every role in your company, there are people who can do parts or entirety of it 10x better than existing people. You don’t need a good marketer, what you need is someone who’s killer at AdWords when it comes to your industry. You don’t need a frontend engineer, what you need is frontend performance engineer who can speed up your app 10x and hence considerably impact user satisfaction. If there’s a job worth doing well (from the perspective of your strategy), hire a specialist.
- Having quality functions report into quantity functions. Functions such as QA and development should always be parallel in org chart and not report to one another. If you report quality oriented functions into quantity oriented ones, quality will suffer. If you report quantity into quality, speed will suffer.
- Having long-term initiatives report into people accountable for short term. Doing this is the reason why big organizations usually cannot innovate when it comes to completely new initiatives. For people who’re tasked with short-term targets, long-term initiatives are a distraction because at the start they’re simply too small or too risky to get meaningful attention or resources. Since they’re measured on short-term targets, the big and the scaled up is where their interest goes. This lack of early nurturing causes long-term initiatives to fail early, creating a vicious cycle of stagnation. To solve this, long-term initiatives (such as strategy, R&D lab or brand building) need to be put into a separate place in the org chart (perhaps under a leader who reports directly to the CEO).
- Not eliminating outdated roles and functions fast enough. The org chart should change as the strategy of the organization changes, which happens automatically as the company grows. Org chart implements the strategy, so not changing it frequently means your company will keep attempting to grow via the old ways (which may not work because market shifts constantly). So one of the jobs of the CEO and the board is to frequently assess if the org chart is aligned to strategy. This is why there are about a gazzilion books on change management because people don’t like their roles to be redefined or getting a new boss or, in the worst case, their job being replaced or made redundant.
- Promoting high performers to be managers and leaders. Super-hard to avoid in reality, but when individual contributors who’re high performers are promoted, the organization gets damaged twice: one, the person who does the specialist job really well isn’t there to perform it, second, you have a manager who is probably a mediocre one (when you could have gotten an experienced manager). If you promote your best performers to managers, ultimately your org will be full of mediocre managers. Too often org charts revolve around the availability of people (and the fear of losing high performers). The right way, however, is to be clear of what roles exist in the org chart and what types of people will perform those roles best. Don’t fit roles into people, fit people into roles.
Remember: you will lose your best performers as your company grows because their roles will become redundant as your strategy evolves. Typically, your company’s entire leadership team has to be changed 3-4 times before it becomes big (say, >$100mn).
Organization design should be a deliberate exercise as it is what’ll determine if your strategy gets executed well or not. And it should be done from first principles thinking. Most roles in history didn’t exist until someone thought of it. So if you have to invent a role, you should.