Your Startup Needs Structure… Sort of
Scaling your startup with organizational design in mind.
Startups are a focal point of the business world, with their ability to drive innovation, create new markets, and contribute to economic growth. But how do they grow from an idea to a unicorn? How does a startup go from a single person or small group into an entire company with its own organizational structure? The lifecycle of a startup can be divided into four segments: startup, transition, scaling, and exit. The transition phase is crucial as it lays the foundation for a scalable business and requires a more structured organizational approach.
In the early stages, startups often lack organizational structure, relying on loose or non-existing authority. When startups set their aim on gaining credibility and attracting customers, a certain level of professionalism and organizational norms become necessary. This is usually when potential investors come calling. Many startups fail in this stage, often due to organizational structure issues. Successfully scaling and establishing the structure of the company at this point is crucial for its survival.
Designing the right organizational structure for your company may not be simple, especially for early-stage startups. This complexity is further magnified in IT startups, where innovation plays a central role. Balancing the need for innovation and the implementation of structure becomes critical for IT startups. At this stage, let's focus on three simplified problems for startups at this stage: task division, task allocation, and provision of rewards. Keep in mind, there is no universal solution to these problems, which leads to the need for a tailored approach to your company’s organizational design.
Division of labor is the most crucial and challenging problem in the organizational structure of startups during the transition phase. What has been found to work the best and has been seen in most successful startups is using selective vertical and horizontal decentralization to divide the labor.
What does that even mean? It means that all of the decision making doesn’t just filter down from the top. Different work units have their own (limited) authority to make decisions that ultimately impact the company. This allows for improved coordination, innovation, and adaptability, as well as granting employees autonomy, enhancing their motivation. An organic structure that promotes flexibility and adaptability is what you are looking for. However, clarity, transparency, and monitoring of task division are crucial for effective coordination. Providing employees with the necessary information and resources empowers them to make informed decisions.
Incorporating autonomy and recognition as essential components of reward systems can greatly benefit employee motivation and performance. It is important to design reward systems that differentiate between employees and teams that address the unique motivations and contributions of each individual or team. One pitfall to avoid though is awarding excessive autonomy. While granting autonomy and decision-making power to employees is important, it should be monitored to prevent excessive independence that may harm the organizational structure. Finding the right balance in division of labor and rewards for your organization is the key to your startup’s success.
