Beyond the Org Chart: Rethinking Startup Team Structure

The Org Chart Paradox in Startups

Startups have always hinged on going against the current to offer a forward-thinking product that disrupts industries. However, their operations typically end up structured exactly like the very organizations they seek to replace. Wouldn’t someone want to try something new for once?

The Traditional Organizational Structure

The conventional tech startup organizational structure is shaped like a pyramid from top to bottom — a CEO, executives (like chief technology officer, chief sales officer, chief financial officer, and chief operating officer, among others), then departments, and finally, employees. Each department is confined to its own work, and each employee responds to a respective manager or team leader, all the way to the top.

While this type of startup team structure removes the noise and leaves decision-making to a select few, it lends itself to more rigid working environments, slow pipelines, and siloed communication (like certain potentially brilliant ideas staying confined in the in-house development team, devops team, tech team, or a single person).

This seems paradoxical to a startup’s nature: fast-paced, resource-constrained, and ever-changing. Sometimes, especially in the early stage, a pyramid isn’t the most adaptable and collaborative method for all startup team members, which companies desperately need to survive and eventually succeed.

Rethinking the Startup Team Structure

It’s only a matter of time before a startup with a traditional team structure responds to the need for speedy outcomes with slow communication, even slower decision-making, and many opportunities lost.

But change is scary and risky, and the alternatives are a gamble not everyone wants to bet on. With a clear plan and a risk management strategy, business leaders can implement structural changes that could address prominent flaws in conventional org charts and make for a more agile, resilient, and ultimately less risky organization that can effectively achieve business objectives.

The Risks of Traditional Organizational Structures in Startups

First, let’s assess how risky traditions are. What usually goes wrong in startups with a traditional startup org structure?

Slow Decision-Making

A startup’s biggest enemy is time. And, from making a decision at the top to directly executing it at the bottom, several hazardous steps can create a broken telephone effect, or simply stall progress while information is passed down.

As a result, this dynamic ends up hindering a startup’s ability to respond quickly to market changes or emerging threats.

Communications Siloes

Compartmentalizing responsibilities can be good for focus, but it might result in siloed communications within the in-house team, whether that’s a complaint, an improvement, a fresh idea, or any update at all, such as feedback from the customer support team. As such, breaking communication opportunities by leaving all reporting to one manager can thwart innovation and even create vulnerabilities within a startup team.

Lack of Adaptability

A hierarchy is meant to stay that way. Usually, it doesn’t foresee drastic changes or a disruption of the norm — think of the modus operandi of royalty, where nothing ever changed for centuries.

However, startup team structures should be able to quickly adapt to change, rapid growth, leadership or operational pivots, and unexpected challenges, whether internal or external. Anything less will make any change a traumatic experience. Imagine the sales team or legal teams facing quick industry changes, but being unable to quickly adapt to them due to slow decisions from executives; this can put the startup in peril.

Employee Disengagement

The disadvantages of a traditional startup team structure can leave employees feeling unattended and unheard, and even saturate managers as the direct link between employees and higher-ups. This stifles creativity, autonomy, and a sense of belonging that’s crucial to building a healthy company culture — ultimately affecting business objectives.

With time, this situation can reflect on high turnover and low employee morale.

Key Person Risk Amplification

In a way, a pyramidal startup team structure means putting all of your eggs in one basket, leaving a startup vulnerable if anything happens to a single executive. This lack of diversification in leadership can pose several risks, such as loss of decision-making power, uneven departmental progress, and key information being lost to an absent leader.

The Risk Management Lens

After observing the inherent pitfalls of a traditional organizational structure, it’s easy to pinpoint the potential risks a startup can face.

For instance, slow decision-making can stall market disruption and enhance competitive threats — whoever’s moving faster than you will win the race.

On the other hand, a top-to-bottom startup team structure can lead to operational inefficiencies that affect product quality, loss of talent from a lack of motivation, and even result in strategic missteps.

Exploring Alternative Startup Team Structures

As a response to the traditional organizational structure, startup team structures have evolved through the years, with companies shifting communication dynamics, responsibilities, department crossovers, and other factors that suit them best, aiming for a clear startup organizational design and structure. Let’s look at some of those.

Flat Organizations

Flat startup team structures defy everything about a hierarchical organization. Instead of a top-to-bottom approach, every member of the startup, whether the chief technical officer, chief marketing officer or a manager in a traditional startup team structure, gets equal participation in decision-making and benefits in some cases, and can lead to the right startup team structure. This way, leadership is completely decentralized and communication is made directly.

While this prioritizes fast response times and higher employee ownership, a lack of clear authority might affect how a flat org structure operates, creating confusion without defined roles.

Holacracy

This structure emphasizes agility and adaptability within a company by establishing self-organized rounds of startup teams, including a devops team, per project, called circles. A holacracy enables different points of project management authority and decision-making based on the roles allocated for each round of projects.

For example, the shoe retailer Zappos is famous for adopting a holacracy, giving each startup team the power to operate as a small business. To make teams and start projects, each team pitches their ideas and earns their budget, fostering a culture of innovation and collaboration.

Matrix Organizations

Startups with matrix structures appoint functional and project managers, allowing for power structures to be distributed and cross-functional.

This is another great way of improving collaboration, increasing efficient resource allocation, and centering innovation — provided employees draw clear lines between dual leadership roles to reduce the potential complexity of having more than one manager.

Networked Organizations

As its name suggests, networked organizations work as a web of decentralized startup teams with centralized communication and collaboration strategies. This creates a dynamic environment where employees feel heard while still focusing on specific departmental tasks. As a precaution, communication overload can overwhelm team members, making it important to provide guidelines for communication channels.

Ultimately, companies looking for alternative startup team structures don’t always stick to one of these, but rather take what works from each and tailor it to their company to craft their ideal tech startup team. Down the line, structures require some moving around to adapt to the startup’s changing needs, especially during the growth stage.

Risk Management Strategies for Alternative Startup Team Structures

Shifting to a new org structure isn’t always a smooth process, bringing risks that companies must be aware of before taking the plunge. Here are seven handy tips to avoid complexities during the transition process.

1. Clear Roles and Responsibilities

As mixed and loose as roles are in alternative startup team structures, it’s imperative to define clear roles and responsibilities to avoid confusion and missteps, and enforce accountability.

2. Robust Communication Systems

Whether in siloed or highly collaborative startup teams, make sure team members aren’t overloaded or left in the dark about important company matters. Establishing tools and processes for seamless communication and knowledge-sharing is crucial.

3. Empowerment with Accountability

When shifting authority roles, it’s vital to maintain specific team performance metrics and accountability mechanisms to keep operations afloat and avoid authority overruns.

4. Conflict Resolution Processes

Decentralized or matrixed startup team structures with fluid leadership schemes require developing a clear and fair process for conflict resolution.

5. Knowledge Management

With dynamics like holacracy, implement knowledge-sharing systems to avoid losing important information when employees move between startup teams.

6. Talent Development and Training

As many alternative structures call for employees to take on many hats at different times, invest in training them to develop the skills needed to thrive in these flexible environments.

7. Regular Evaluation and Adaptation

As people settle into clear startup team structures, evaluate team effectiveness to make improvements that reflect the positive changes you’re looking for.

The Importance of Culture

Above all, transitioning into a new organizational structure requires adherence to basic principles and a very strong company culture that supports employees through these shifts to help them better adapt. There lies the success of any alternative structure.

Insurance Implications of Different Startup Team Structures

Shaking things up from the inside doesn’t come without its hiccups, and insurance coverages should adjust to these changes in risk profile as well.

Shift in Insurance Considerations

For instance, management liability insurance, also known as Directors and Officers (D&O) insurance, will need modifications if your leadership team shifts into a matrix, flat, or other structures that radically change the executive team.

As for employees, employment practices liability insurance (EPLI) can be impacted by organizational charts like holacracy, where team members take on different roles based on projects, potentially running into issues like discrimination, wrongful termination, and more.

Similarly, workers’ compensation (which is required in most US states) coverage should also change as needed, especially in relation to human resources given that employees’ roles will transform, and so will their potential risks with every new project.

Insurance has been able to adapt to the massive evolution of work dynamics since the pandemic, with structural company changes making it into this mix. Brokers, along with your business development manager, are your closest allies in protecting your business assets, employees, directives, and other tangents as you navigate organizational alternatives that best suit your company.

Although moving away from a traditional organizational structure isn’t for everyone, being aware of other structural options can help startup leaders rethink how they operate their company and find new ways to improve it. Perhaps making slight departmental changes for cross-collaboration will elevate your product, or opening up communications to avoid silos will freshen your perspective about company culture.