Let’s Talk About Startup Structure

Your startup organizational structure is the foundation of the empire you’re about to build. Despite what much of the corporate world would have you believe, there are many ways to organize your company.

Let’s explore the options, their pros and cons, and what you need to think about before choosing one to build your company.

Hierarchical Structure 

The hierarchical structure is the most well-known way to organize your startup. Most of us have worked in a company that employs this familiar option, defined by each employee reporting directly to one supervisor. Employees are grouped into several relatively obvious options — function, geography, or product.

In other words, a marketing manager may report to a marketing director who reports to the chief marketing officer — who may report directly to the CEO. A developer may report to the head of product which answers to the CEO. 

The Pros and Cons of Hierarchical Structure

As Chron put it, the main benefit of a hierarchical structure is that it’s easy to understand: “From top to bottom in a hierarchical organization, everyone knows who their boss is. You know whom to go to if you have a problem or a complaint. You only bypass your direct boss if the boss is the problem.” However, this common structure fails to reimagine business and can leave employees feeling disempowered. 

Matrix Structure

In the immortal words of Morpheus from The Matrix, “I’m trying to free your mind, Neo. But I can only show you the door. You’re the one that has to walk through it.” Sadly, we’re not talking about that matrix, but depending on your perspective, the idea of a company organized with a matrix structure may be similarly mind-bending. Companies that adhere to this structure put people with similar skills together to complete specific work assignments. The result is that employees may end up reporting to more than one manager. 

The Pros and Cons of Matrix Structure

While a matrix structure may be harder to wrap your mind around, it has some apparent benefits to organizations. Not only does it allow for skilled workers to go where they are most needed, the Project Manager says, “Because the matrix organizational structure fosters better communications, but it also makes the normal boundaries between groups more porous, which allows for more collaboration and an integrated, more dynamic organization.” It takes very skilled managers to make the most of this structure and ensure that projects run smoothly. 

Horizontal Structure

Also known as a flat structure, the horizontal organization is, perhaps, best known for eliminating many — if not all — middle management positions. Small companies and startups love this option because it empowers employees to make quick decisions — but it requires you to have a well-trained workforce that you can trust to make good choices. 

The Pros and Cons of Horizontal Structure

Startup founders may be drawn to a flat company structure because, as Org Charting points out, the structure is flexible and allows managers to adjust priorities as needed. Of course, as your company grows, it’s harder to imagine scaling this particular structure to accommodate a larger workforce and more impactful decisions.

Network Structure

Another flexible option for startups is a networked structure which “helps visualize both internal and external relationships between managers and top-level management,” according to Creately. The part to key in on here is “external relationships” because this structure is meant mainly for companies that plan to outsource work — i.e., foregoing a marketing department in place of working with an agency to create more flexibility.   

Pros and Cons of Network Structure

The main point in the pro-column for a networked structure is the flexibility it provides your team. Working with outside vendors says Advergize, allows companies to make changes to “production techniques, quantity, products’ designs or stop the production completely without facing any major problems.” However, you also relinquish some control over your business when you depend too much on outside vendors, so this structure requires founders to strike the right balance between in-house responsibilities and outsourced tasks.

Divisional Structure

If you foresee a future with a widely dispersed team, a divisional structure may be the right choice for your company. This model breaks down your organization into different divisions — often grouped by function or geography — each with their org chart and all the resources they need to function. While this structure may be familiar to people who have worked in large, global companies, adopting this structure can allow you to experiment with other organizational styles within individual divisions.

Pros and Cons of Divisional Structure

A divisional structure promotes accountability within divisions and is well-suited to companies with multiple product offerings or services. And if you adopt this structure based on geography, it allows each division to create a culture “that most closely meets the needs of the local market,” according to Accounting Tools. While this may be a good plan for a large company, many startups will not have distinct divisions for many years — making this an unlikely starting point for smaller companies. 

Line Structure

If your model is “Keep it simple,” then this organizational structure may be for you! Authority flows down the chain of command in a straight line, from the top of the organization to the bottom — making it very clear who gets the final say. This model requires you to keep the team streamlined and stay focused on your core mission. 

Pros and Cons of Line Structure

A business organized in a straight line has one obvious benefit — it’s clear who is responsible for all decisions, making communication easy. The drawbacks are also apparent — not only is it difficult to scale an organization if you’re unable to delegate some decisions to trusted managers, but it can also leave employees feeling more like mercenaries hired to execute someone else’s vision than a part of a team.

Team Structure

A team structure is pretty self-explanatory. Team-based organizations utilize teams that work toward a common goal while working on individual tasks and responsibilities. Straight-forward and easy to understand, this structure helps promote teamwork.

Pros and Cons of Team Structure

While this structure is flexible and promotes problem-solving while still maintaining a familiar organizational structure, it also requires a sizable enough pool of employees to divide them into teams. 

Many of these structures overlap — or one morphs into the other as your team grows — so you may find that you choose the flexibility of a horizontal structure now but adopt a more team-oriented structure as the company grows. 

Once you’ve chosen and structured, it’s time to think about staffing.

Be sure to check out Lomit's other content on startups — The Principles of Scaling a Startup and his bestselling book Lean AI.

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