Talent & Leadership
How to Design an Organizational Structure for Your Startup
When working with early-stage companies, one of the questions we most commonly get asked is: “Can you help me with recruiting?”
And while building your team with talented humans is indeed a critical goal, usually what people are asking is how to improve the pipeline, or interview well (we’ll talk about both those worthy goals in a future guide!). What we tell them in response is often surprising: The best way to improve your recruiting processes is to design your organizational structure first.
Before you can fill roles with the best talent, you need to be intentional about what those roles look like and how they fit into the larger strategic vision for the organization. Thoughtful organizational design is one of the most critical skills a founder can cultivate. In this guide, we’ll show you how to get good at this skill faster.
What is organizational structure?
But first, let’s get on the same page about what we mean by “organizational structure.” To simplify the complexity of this concept, let’s define it as the roles and decision rights that help you achieve your company’s vision, mission, and objectives.
Work backwards from the future
So, how do you get started in designing the right org structure for your company? While most people try to build their structure based on what they think they need today, the best approach is to think about what your company will be in the future, and work backwards from there.
For early-stage companies, especially if you haven’t quite found product-market fit or if your company faces a great deal of uncertainty, you should plan out with short intervals (e.g., 12-24 months tops). The more predictable your company and its ecosystem becomes, the longer your time intervals can be. For most fast-growing companies, it’s very difficult to plan too much farther ahead than two years.
Right now: Imagine it’s 12 months into the future. Your company is even more successful than you hoped. Ask yourself and your leadership team:
- How many customers/users do we have?
- What industries do we serve?
- What geographic regions do we serve?
- How much revenue do we have?
- How much cash do we have?
- How many employees do we have?
Pro tip: If you’re unsure about your prediction of the future, do some “scenario planning”— articulating three possible futures.
Now keep working backwards. Ask:
- What made this future possible?
- What actions need to take place for us to reach this vision?
- What responsibilities will people need to have to make this happen?
- What skills and competencies does our team need to make this future a reality?
- What obstacles and challenges will we face, and what competencies will help us overcome them?
- Can we help people on our current team develop these competencies, or will we need to hire people from the outside to reach these goals on time?
When is it the right time to do this exercise? Remember that most roles take about 3 months to fill. Do this work early to get ahead of your needs, and schedule a review on a quarterly or annual basis, depending on the pace of your organization’s growth.
Extract the roles
Think of a role as a bundle of related activities, responsibilities, and competencies that serve one purpose. Review your list of answers to the questions above and see what roles emerge. Keep in mind that a role is not the same as a person. Especially in early-stage startups, one person might be filling multiple roles at once and become more specialized with time. Focusing on the work that needs to be done helps you extract what people can do, and what skills and experience is needed to be successful.
Depending on the nature of your organization, you may choose to group activities, responsibilities, and competencies around a function (e.g., marketing), a service (e.g., consulting), a client type (e.g., enterprise accounts), a region (e.g., APAC), or a product.
Not sure how to decide? For each option listed above, do a pros/cons/mitigations exercise with your leadership team. Ask:
- What are the advantages of grouping responsibilities by [function]?
- What are the disadvantages of grouping responsibilities in this way?
- What are our mitigation ideas (i.e., how can we amplify the pros and reduce the cons)?
- Of all the options we’ve explored, which is most likely to meet our goals?
Pro tip: If you’re still feeling stuck, hold “listening tours” with leaders of other companies, especially those who have been through the stage you are on now. Share your takeaways about the responsibilities and competencies you’ll need, and ask how they think these might roll up into roles. You can also simply Google job titles that seem like they might be the right match, and read sample job descriptions you find online. Many VC firms (like M13!) will have CEO peer groups and forums where you can connect with mentors for these discussions.
Scope the roles
Once you’ve identified the roles you need based on the purpose they serve, the next step is to think about the scope of responsibility and the level of decision-making authority you want each role to have. Asking the following questions will help:
- Do we need someone to define strategy, create structure, make independent decisions, and lead others?
- Do we already have a clear strategy and process and just need someone to execute?
- Does this role need specialized subject matter expertise, or can it be learned on the job?
Pro tip: We use the “Hay System” at LifeLabs Learning to create role bands and set compensation based on degree of (1) know-how, (2) accountability, and (3) complexity.
Understanding the level/band of the role your company needs at each stage of its development is a key component of designing your organizational structure well. Here are some common levels and considerations to keep in mind:
- Executive (C-level, VP): Focused on vision, strategy, systems building, and culture building. This is typically the level you’d bring in post-Series B funding, with 150-plus employees, or if your company has found product-market fit and is growing fast.
- Director (Head of, Director): Typically the first leader in a startup’s function. This person will build out the playbook for how work processes will get done and, in most cases, build their team. They usually toggle between leadership, management, and execution. This role typically leads a team but may also be an individual contributor who leads a major initiative or brings specialized knowledge.
- Manager (Manager, Lead): Once your Director-level folks have a team that is five-plus people, most companies create a manager-level role who is responsible for team development, team-level goals, and resource allocation.
- Individual Contributor: This is an execution-focused role without the responsibility to lead or develop other people.
How do you know if you need to bring in a strategic leader into your company? Here are two big red flags to watch out for:
- Key execs are stretched too thin to do their best work: Is there too much on your CEO’s plate (or the plates of other key business leaders)? Is everyone coming to them for help? Are they creating bottlenecks for others? Are they spending time on tactical execution rather than strategy and culture building? Are they spending at least 80% of their time on work they are truly best suited to do?
- Learning is happening too slowly: Are the majority of employees learning “on the job” with no one to accelerate and guide their development? Is quality suffering? Is your business about to experience a change or growth spurt that will require additional strategy, subject matter expertise, and/or structure-building strengths?
Pro tip: A common mistake we see companies make is handing out big titles to their earliest hires. In many cases, this limits a company’s ability to scale since there are fewer role openings for folks with external expertise or creates major disappointment when people are demoted.
To mitigate this problem, start with director or lead titles, creating room to grow. If these individuals can develop necessary capabilities to keep pace with the growth and needs of your business, they will have opportunities to grow their titles. If you find that your needs for specific skills are more urgent, it will be easier to hire executive-level roles.
It’s also incredibly important that you set a level structure and hierarchy that does not require someone to manage teams to hold a senior title. Managing people effectively is a learned skill, and you don’t want to force people in a role not suited for them just to advance in your organization.
For the greatest amount of agility, set expectations early and often that titles are not primary markers of career growth and that titles can and will change often as business needs change.
Create role descriptions
Once the roles you need are reasonably clear, create role descriptions you will use externally (for recruiting) and internally (for alignment, accountability, assessment, and development).
Here’s a template we like to use at LifeLabs Learning that’s inspired by the Holacracy model:
Make roles visible (and real)
Once you’ve established your role descriptions, turn them into living documents that anyone in the company can access. This can be an intranet, wiki, Google sheet, or a tool like GlassFrog.
Especially in a rapid-growth startup, roles will evolve quickly over time. To keep your role descriptions real, hold monthly or quarterly meetings where anyone in the company can raise confusion around roles and responsibilities. Ask:
- Is there a responsibility no one has that someone should have?
- Is there an area with unclear decision-making rights?
When you make changes, change your role documents, so it’s clear who to go to for what and how decisions should be made.
Pro tip: To clarify how roles interact with one another, use a decision-making model like DACI*:
- Driver*: The one person responsible for the task or goal. (Some folks use RACI with R standing for Responsible.)
- Approver: The person making the final decision (sometimes the same as the Driver). If there is more than one person, decide if you’ll vote or drive toward consensus.
- Consultants: The people providing feedback, advice, and contributions along the way
- Informed: The people who are kept in the loop about the task or goal
This will also help you set the proper scope of the role and understand the amount of stakeholder management involved (which typically implies some level of leadership).
Create cross-functional connection
Now you have your roles in place and the responsibilities well-documented. Lastly, let’s talk about how not to create a bunch of impenetrable silos in your organization. Instead, your org structure should allow information to flow smoothly and swiftly between functions, roles, and individuals. The most agile, nimble, and resilient organizations function like organisms, with autonomous action as well as centralized coordination.
We’ll share more advice on how to build this type of organization in future guides of the Human Capital series, but here are some of the most effective silo-busting solutions when it comes to organizational structure:
- Have clear overarching vision, mission, and goals that everyone’s work relates to.
- Assemble a central leadership/strategy/steering team with representatives of different functions to meet on a regular basis and share updates and learnings. These roles can be fixed or rotated on an annual basis.
- Share company news on a weekly basis in an all-hands meeting and/or newsletter. For best results, invite anyone in the company to contribute questions and updates.
- Make it clear how people can share their ideas and recommendations (e.g., quarterly survey, “office” hours, proposal template).
- Have an easily-accessible dashboard/scorecard so everyone knows how the company is doing relative to its goals.
- Invite cross-functional task forces to emerge, address a specific goal, and dissolve.
- Create a platform and practice of people demonstrating their work and/or shadowing other people’s work.
- Hold Ask Me Anything (AMA) sessions to address questions about the company or specific functions or initiatives.
- Overcommunicate on what you are doing; ask extra questions on what other stakeholders need. This is important to avoid working in silos and ensure you are building an organization that works for all functions.
- Establish shared tools and vocabulary company-wide (for example: teaching all employees the same feedback framework).
- Hold retrospectives on a regular basis to gather input on your current org structure. Ask what’s working well, where there are bottlenecks, where there are silos, and where there can be more opportunities to learn from others.
BONUS: Organization Structure Inspiration
While the majority of organizational structures follow the hierarchical model popularized during the Industrial Revolution, there are many other structures to consider, in whole or in part, for your company. For example:
- Hierarchy: organized by function, information flowing top down, fixed roles and departments—good for predictable, repetitive work
- Holacracy: organized by function, distributed information, constantly evolving roles and groupings—good for adapting to a changing environment
- Matrix/Team of Teams/Pods: organized by specific initiatives or goals—good for projects that require a variety of expertise
- Teal/Self-Managed: organized as peer communities that hold one another accountable—good for frequently changing goals and projects
Read about different org structures, interview people who work in different organizations, and borrow the aspects of each structure that align with your vision, mission, values, and goals.
Takeaways & next steps
- Organizational structure consists of the roles and decision rights that help you achieve your company’s vision, mission, and objectives.
- To design the right structure for your company, work backwards from your vision for the future to identify what responsibilities and capabilities will become essential.
- Identify what roles you’ll need (including their scope of responsibility) and create role descriptions that articulate the role purpose, accountabilities, commitments, success metrics, and decision rights. Keep descriptions accessible and current.
- Avoid silos and create cross-functional connection with a shared vision, transparent information, visibility into one another’s work, and a clear system to give input.
- Learn about different org structures to get inspired. Run small experiments to see what’s right for you.
What to do next:
- Schedule time with your leadership team to map out your expected company size, objectives, and challenges 12 months from now.
- Work backwards to identify roles, responsibilities, and capabilities that are currently missing on your team.
Your organization is bound to go through many iterations on the journey from founding to exit. The best way to ensure it is both agile and resilient is to focus on some of the key principles of organizational design we’ve shared. This should provide a supportive structure to build off of.
Organizational change is never smooth but remember to enjoy the process! This is the work of laying a strong foundation for your company's future.