This guide is an excerpt from Elad’s book, High Growth Handbook, published by Stripe Press. It presents a playbook for navigating the most complex challenges that startups face.
First-time CEOs and entrepreneurs often call me to discuss how to structure their organizations. Common questions include: Should I hire a COO or not? Who should the VP marketing report to? How should I split up product and engineering? Should our international arm build out its own functions or be matrixed with U.S. headquarters?
There is often fear in the mind of the entrepreneur that there is a “right” answer to how to structure an organization—and that if she screws it up by doing the “wrong” thing, the implications could be disastrous. This is an incorrect perspective. Most of the time there is no “right” answer and org structure is really an exercise in pragmatism. That is, what is the right structure given the talent available to your company, the set of initiatives you need to pursue, and your company’s 12 to 18 month time horizon?
Here are a few key takeaways and things to keep in mind about org structure:
If you are growing fast, you have a different company every 6-12 months
When I joined Google, it grew from around 1,500 to 15,000 people in three-and-a-half years. After my startup was acquired by Twitter, Twitter grew from about 90 to 1,500 people in less than three years. A company that grows that rapidly is literally a different company every six months. This means that every 6–12 months the company’s org structure may change.
When choosing an organizational structure for your high-growth startup, focus on the next 6–12 months. Don’t try to find the “long-term” solution, as in the long term your company will be completely different and have radically different needs. Eventually, your executive team will start to stabilize but the teams under them will have more frequent re-orgs as each organization ramps in size.
There is no “right” answer
Often there is no one answer to how to structure your organization. Rather, it is a series of tradeoffs. Two different structures may be equally “good” and “bad.” Don’t sweat it too much—ultimately if you make a mistake, it will be painful but you can undo it.
Communicate to the team that as your company grows quickly, things will shift around. Make it clear that it is normal for that to happen—it’s a sign of your success—and that other companies that grow fast do the same thing.
Sometimes bandwidth matters more than perfect fit
Executive bandwidth may be more important than a traditional reporting chain. For example, Alex Macgillivray, the talented former general counsel at Twitter, had user support, trust and safety, corporate development/M&A, and other areas reporting to him at various times, in addition to legal. Many of these departments normally would not report to a GC, but Alex was talented enough to take on more in the absence of other executives with bandwidth to own these areas. As new executives were hired or promoted, things then transferred over to them from Alex.
As CEO, you should look at your team and allocate functional areas based in part on who has the time and skill set to focus on and make that area succeed. This does not mean the chosen executive needs to manage that area forever. Remember, nothing needs to be permanent. There are also some cases that don’t make sense from a tiebreaking or skill set perspective—e.g., your VP engineering should probably not run sales in addition to engineering. However, if needed, your VP engineering could potentially manage the design or product teams in the short term or, if it makes sense to do so, even longer term.
Org structure is often about tie-breaking
Reporting chains are ultimately about decision-making. For example, there is a natural tension between engineering and product management, so where do you want most decisions to be taken if the two groups disagree? The person who both functions report to ultimately functions as the tiebreaker between the orgs. This is a good heuristic to keep in mind when thinking about org structure.
Hire executives for the next 12-18 months, not eternity
As an exhausted founder/CEO, the temptation is to try to hire an executive for a role who will last for the remaining history of the company. This leads to over-hiring, or hiring someone who will likely be ineffectual at your current scale. For example, you do not need a VP engineering who has run a 10,000-person organization when you only have 20 engineers. Instead, hire someone who has led a 50 to 100-person team and can scale up your org to the right level over the next 12–18 months. Either that person will grow with the team or you will need to hire someone new in the future. Ben Horowitz has a good perspective on this in his book, The Hard Thing About Hard Things.
Of course, if the executives you hire do grow with the company, all the better; a stable management team is a big positive for a company. Even if the executive team evolves only slightly over time, though, you should realize that your org structure may still change more rapidly.
There is no perfect organizational structure for a company. A company is a living, breathing thing and will change with time—as will the organizational scaffolding on which it is built. As CEO, focus on a pragmatic solution for the next 6–12 months of the company’s life, rather than the perfect long-term solution.
Doing a re-organization
When your company is in hypergrowth, you will be doubling the team every 6–12 months on average. At that pace you could go from 20 to ~300 people in two years and to 500 or 1,000 people in four years. You will be adding new functions rapidly (finance, HR, legal), potentially expanding internationally, while product road maps will expand and new areas will be launched or acquired into the company.
You will effectively be working at or running a different company every 6–12 months, with most of the people at the company having joined in the last 12 months. When I was at Google, it more or less 10Xed from 1,500 or 2,000 people when I joined to >15,000 people when I left 3.5 years later. My startup was acquired when Twitter was ~90 people, and I left a full-time role with Twitter at over 1,000 employees. 90% of the people at Twitter had not been with the company just 2.5 years earlier.
As the company scales and increases in complexity you will also need to change the organizational structure of the company to reflect new executives, new functions, more employees, and changing alignment against your market and product. In other words, re-orgs will occur at the company frequently.
Eventually, your executive team will start to stabilize but the teams under them will have more frequent re-orgs as each organization ramps in size.
Early on many of the re-orgs will be at the executive level and then cascade down. As you add more functional areas, there will be finer division of executive roles. If you add a CMO or other CX-level person then some of the executive roles may consolidate under that individual.
Re-orgs at the company level and the functional level
Early on, you may re-org the entire company frequently. But once you hit 500 to 1,000 people, you should expect fewer company level re-orgs and many more interfunctional re-orgs. For example, a change within the structure of the sales team, versus changes across all teams simultaneously. Some teams such as sales are more likely to re-org frequently at that point as they scale, while others like product and engineering tend to be more stable. Part of this has to do with where headcount grows and needs change most rapidly in a company as it switches from being solely product centric, to focusing more on go-to-market. The biggest cross company re-orgs later as the company scales will occur when changing product/engineering/go-to-market simultaneously, adding new product areas or acquisitions, if a company flips from a matrix to business unit-like organization, or flips between centralized and decentralized internationalization.
Early on, you as CEO will need to be adept at re-orgs. Later, as re-orgs shift more frequently to functional organization, you will need to make sure your leadership team knows how to approach them. Most companies and new managers screw up their first re-org or two, causing unnecessary pain in the organization. Below is a simple guide to re-orgs.
How to do a re-org
1. Decide why you need the new org structure. Determine what the right structure is and the logic for why this is better than before. Do you need renewed focus on a specific area? Are there collaboration issues? Has the team grown dramatically and now needs additional management? Has something changed in your market that means you need to realign functional priorities or the set of people working together? Spell out to yourself the logic of why you need to re-org first, and then think through the leadership and org structure that works best.
2. Determine what org structure is most pragmatic. Who on your leadership team is overloaded and who has bandwidth? Who is building out a great management layer? What areas would fit well together? Sometimes, there is no single right answer, and you need to balance managerial bandwidth with the logic of the situation.
As you determine who needs to work on what and the proper reporting structure, remember that nothing you come up with will be 100% perfect and that is OK.
Should you have cross-functional product and engineering organizations or verticalized product units? Should international be distributed or centralized? These sorts of questions come up all the time as companies grow, and some companies flop between structures over time (Oracle supposedly flips its international org every few years).
Relatedly, reporting is an exercise in tie breaking—i.e., you want people who are likely to disagree to eventually report in to a single tiebreaker (this may be the CEO, or it may be someone lower down in the org).
3. Get buy-in from the right people before implementation. If possible, you should consult with a handful of executives whose functions would be most impacted by the change. They may have good feedback about how changing the org in your function impacts their own functional area (e.g., changing the org structure for product may impact how engineering and design are structured).
Re-orgs should never be open conversations with the whole company (or a functional area) about what form the new organization structure should take. This only opens you up to lobbying, internal politicking, and land grabbing. It also prolongs the angst—re-orgs should happen swiftly and with as little churn as possible.
4. Announce and implement the re-org soup-to-nuts in 24 hours. Once you have decided what form the new organization will take, discuss it with your reports in their 1:1s. Your executives should have a clear plan for how and when to communicate the changes to their team members. If there are key people deeply affected or likely to be unhappy with the change, you or one of your reports can meet with them either right before or right after the announcement to hear them out and reaffirm the logic for the changes.
You should never drag out a re-org or pre-announce it.Try not to announce “this week we will reorganize product, and next month we will change engineering.” If possible, all elements of the re-org need to be communicated and implemented simultaneously. If you pre-announce a portion of the re-org, that team will not get any work done until the re-org happens. Instead, there will be hushed conversations in conference rooms full of gossip and speculation, crazy rumor-mongering, and executive lobbying.
5. Every person on the leadership team should be briefed on the re-org and be ready to answer questions from their team about it. If the re-org reaches or impacts enough of the company, the executives of the company should be briefed ahead of time. Write up an internal FAQ if needed and circulate it.
6. Remove ambiguity. Know where ~100% of people are going.Don’t do a partial re-org. When the re-org is announced, you should know where ~100% of people are going if possible. The worst possible situation for people is to not know what their future entails.
Make a list of the people most likely to be unhappy with the change and reach out to them quickly after the announcement, or speak to them before the change if necessary. Make sure to be accessible to these people later so you can explain the reasoning first-hand.
7. Communicate directly and clearly, and compassionately. Don’t beat around the bush when doing the re-org. Explain in clear language what is happening and why. Listen to people’s feedback but be firm about the change.
There will always be people who are unhappy with the shift in org structure. They may feel passed over for promotion or demoted, even if this is not the case. Listen carefully and see if you can meet their needs in the future. However, keep backtracking to a minimum. You are making this change for a reason, and if you start making exceptions for the squeakiest wheels you may reverse the whole reason you are making the change, as well as show people you are open to being politicked.
Just like letting people go, a re-organization can be unpleasant. There will undoubtedly be people disappointed with their new role or diminished responsibilities. If done right however, your company will function more effectively and be aligned to win. Re-orgs have to occur for the long term success of the company.
Interested in more tips like this? Check out High Growth Handbook.Terug naar whitepapers