<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=452280238771595&amp;ev=PageView&amp;noscript=1">

Is a Flat Organizational Structure Best for Startups?

← Back

June 24, 2021

Click to download

Ever since mass production became an integral part of the American economy, companies have increasingly adopted a hierarchical organizational structure

Most hierarchical businesses have employees:

  • with clear job titles and agreed-upon compensation for that role
  • working in teams with fixed responsibilities
  • with one direct manager and specific tasks to complete

However, in recent years, enterprises have experimented with moving away from that model with mixed results. There’s nothing new about jettisoning strict hierarchies in favor of increased employee autonomy. What’s new is using these new structures to generate more profit, and not just because it makes for a happier workforce.

Tech startups are famous for their innovative approaches to organizational structure. That's because the ability to build technologically advanced products without production lines and with workforces dispersed remotely has led to some revolutionary company management methods.

These are things like task forces instead of departments, increased self-management, and eliminating traditional roles. It also includes other ways of doing things that are more conducive to startup growth than conventional organizational structures.

What's an organizational structure?

An organizational structure is a system that details how activities are to be carried out to accomplish corporate objectives. It also delineates how information flows between company levels.

Four types of organizational structure

Functional

This is when an organization is divided up into smaller groups with specific tasks or roles. For instance, an enterprise could have one group working in marketing, another in finance, and yet another in information technology.

Each department has a manager who answers to an executive higher up in the food chain who may oversee more than one department.

Divisional

With this kind of structure, each division operates as its own company. They're empowered to decide how much money to spend on projects or the best way to allocate resources. This way of doing things allows for much greater autonomy among groups.

Matrix

The matrix is a hybrid of the divisional and functional models. It groups team members into functional, specialized departments and then further separates groups into divisional projects.

Flat

A flat organizational structure eschews the traditional top-down management framework of most enterprises in favor of a decentralized system where everyone is their boss (more or less). This cuts down on bureaucracy and improves communication.

This is a model with few, or in most cases, no middle management levels between the top echelons and the lowest employee levels. It was designed with the idea that workers will be more productive when they’re directly involved in the decision-making process.

Flat organizational structure benefits 

More cost-efficient

There are few, if any, managerial layers between top executives and the lowest employee echelons. This means there are fewer wages and fringe benefits to pay out. Because salary-related expenses are reduced, the startup saves money.

Allows clear communication

When information is passed through too many organizational levels, it often ends up getting garbled. Flat organizations avoid this with a direct channel between the founder and employees.

Promotes faster decision making

Fewer people need to be consulted about a decision. This allows the company to provide a quick response to concerns.

Requires less supervision

Some individuals believe that a founder must oversee everything that happens within their organization. However, studies say otherwise. The less time managers spend micromanaging employees, the more productive they are.

Flat organizational structure disadvantages 

 Less motivation

While a flat organization decreases the problems caused by unhealthy competition between team members, it’s more challenging for ambitious employees to move up the ladder. This could cause employees to lack motivation.  

More potential for wrong decisions

Because the flat organization has a “bottom-up” hierarchy, lots of trust is placed on front-line staff to exercise sound judgment. However, if a team member lacks expertise, they could pass faulty intelligence to the C-Suite, resulting in a wrong decision.

Potential loss of productivity

A flat organizational structure assumes that each team member will give it their all every day without being supervised. However, no bosses mean workers can get away with not working at all on some days.

Although there are productivity monitoring apps and programs, this isn’t the same as having a manager around.

Stanford studies

A Stanford study found that flat hierarchies could be disorienting for some workers. Traditionally organized companies were preferable for these workers because they were more predictable.

However, another study found that flat structures are used in so many companies because they work.

Zappos’ approach to organizational structure

In 2013, Tony Hsieh, Zappos’ CEO, announced that his company was moving to a holacratic organizational structure.

According to Zappos: “Holacracy...replaces today’s top-down predict-and-control paradigm with a new way of achieving control by distributing power. It is a new “operating system” that instills rapid evolution in the core processes of an organization.”

Companies and cities

Zappos noticed that when a city doubles in size, productivity per person increases by 15%. However, they also observed that when a business doubled in size, the opposite occurs. Zappos believes that organizational structure is the key to solving this apparent paradox.

In a city, businesses and citizens are self-organizing. Zappos wanted to do the same thing in their company by switching from a traditional structure to a holacratic one. This allowed team members to act more like entrepreneurs who autonomously function instead of having a manager tell them what to do.

John Bunch, who was the lead organizational designer and technical adviser to Zappos CEO Tony Hsieh, had this to say:

“So, what it really looks like is throwing away the traditional org chart that we’re all accustomed to where we fit in one place in the organization. And instead, having a way that we can come together to define what work needs to be done, and then allow people the agency to figure out what work it is that they are most connected to.”

Who chooses task assignments in a holacracy?

In a holacracy, employees can look at available work and choose tasks they want to participate in. This gives people the opportunity to focus on the kinds of responsibilities they feel most motivated to do. Different people want different things. For example, some people thrive on continuity and consistency.

These team members will gravitate toward tasks that provide them with these needs. This organic approach to organizational roles extends to meetings:

“Meetings happen when they need to happen on whatever cadence makes sense. So some groups meet frequently, some groups meet very infrequently. And so, just like in a traditional organization, meetings happen when they need to.”

Holacracy at Zappos

Tony Hsieh was the CEO of Zappos for 20 years and pioneered lots of out-of-the-box work policies to foster innovation and productivity during that time. One of his better-known initiatives was paying unhappy employees $2,000 to quit.

The practice (known as "The Offer") weeded out those who wouldn't be as committed to and passionate about their work, thereby boosting overall happiness in the company's workforce.

Zappos' holacratic structure has helped it to create a widely respected company culture, low turnover rates, and earn high praise for being such an exemplary customer-facing organization.

However, as was already mentioned, a flat organizational hierarchy isn’t without its problems. For example, Zappos’ payroll department reportedly had difficulty determining monetary compensation after titles were eliminated. Another problem is some team members don’t like not having a boss to consult when they need to make crucial decisions.

Buffer’s example

 In 2104, Buffer was trying to figure out how to accelerate growth at their company. They were inspired by “Reinventing Organizations,” a book written by Frederick Laloux. One of the central philosophies of the book is the importance of the individual.

They used the text to forge a new organizational structure for their business. One thing the company got from the book was giving employees carte blanche to express their creativity, no matter how wild or unconventional it might be. However, they were also told that once their idea was shared with the team, they no longer owned it. This allowed the concept to be reshaped in any way the team sees fit.

How Buffer flattened their organization

Another part of the book that inspired the company was how flat organizations could revolutionize the way things are done. When Buffer decided to flatten their company, one of the biggest challenges they had was moving away from long-term teams in favor of self-managed units.

This meant having temporary, fluid task forces formed for a specific purpose and then disbanded. The entire company became self-managed, and anyone could create a brand-new task force. Workers could choose which task forces they wanted to be members of.

Nobody had a job title anymore, and they’d abolished all official coaching and mentoring that reinforced hierarchical expectations. Everything about the enterprise was open and transparent to everyone, including all financials.

Team members' responsibilities would be flexible, and they could find themselves working on multiple projects simultaneously. There were no designated leaders on task forces, simply people who stepped up to assume a temporary leadership role.

The company wasn’t a leaderless hierarchy because there was a hierarchy, but it formed naturally and changed organically. Some people contributed more and took on more tasks. These team members were looked upon as leaders.

Decisions were made through consensus, and the company abandoned all tracking metrics because it didn’t want to have any goals. Employees were encouraged to base themselves wherever in the world they felt most fulfilled. However, everyone met every five months for a company-wide retreat.  

What Buffer learned 

Buffer found that the lack of structure was inhibiting employees rather than liberating them. The amount of freedom team members had with zero accountability, expectations, or guidance felt paradoxically oppressive, and people became hopelessly lost.

Because of the feedback Buffer got, they reintegrated the more desirable elements of the former structure. This included one-to-one mentoring meetings and performance updates. The company also went back to data collection and the establishment of metrics. That's because during their "year without goals," growth wasn't as robust as they would have liked.

Joel Gascoigne, the co-founder of Buffer, had this to say: “We learned how much people enjoy having more structure, and that structure and hierarchy are not the same thing.”

It can be challenging to have self-managed teams in a company, and Buffer’s experiment illustrates this. “It’s tough to be motivated in a vacuum, where it feels as if any action you might take is as good as any other. It feels great to return to metrics for context and wayfinding,” Gascoigne said. “I think it was a great learning experience; it did set us back.”

These days, Buffer still has someone of a horizontally structured company. However, their experiment with a flat organization didn’t have the desire outcome.  

Usher in the new age of talent with Hunt Club

As you can see, it might be time to consider a flat organizational structure for your startup. Sometimes, you must let old, worn-out ideas fall by the wayside, and newer ideas take their place.

One area to look at is your hiring process. You’ve transformed nearly every aspect of how you work. Isn’t it time you changed your recruiting methods to keep up?

Call Hunt Club today if you want to usher in the new age of talent!

Hunt Club avatarHunt Club