Organizational Structure – Startup to Maturity – Part 1

I recently had the privilege of presenting to the Software Leaders Group organized here in Dallas.  The group consists of CTO, CIO, other senior development leaders both for product and large enterprises.   My presentation discussed  the startup to maturity challenges of a software or high tech company organizational structure, leadership, and hiring/retention.  The organizational challenges of a startup are very similar in a mature organization who is venturing into a different product area or wants to drive innovation.

(Slides and contact information are available at the bottom of this article.)

My experience as a 3 time CEO, 2 time CTO, and a GM driving a startup division from 1 person to nearly 500 people worldwide provided the backdrop of what happens, why, and what to expect.  As I always say experience is the mother of all knowledge…many lessons learned and also working with very knowledgeable managers.

There are fundamental changes in the organization as the startup grows in maturity and size.   I’ve seen this play out consistently with very distinct inflection points through the business growth process.  Business growth is great but you will need to understand that it will  have its own stress and anxiety as well as attrition.

Employees that were part of the core team in starting up and participating in daily meetings about all aspects of the business can no longer participate since they will have their own tasks.  Nothing will get done through group meetings.  This begins the first of many inflection points dealing with staffing and the task of what I call organizational compartmentalization and will continue to happen as the business grows.  You will experience staff attrition since those that like to get their hands into everything won’t be able to and they will leave to go to another startup.

startup orgWhen a business starts up (or a new division for an existing company) the CEO/CTO/Founder plays the critical role of visionary and doing everything plus possibly even being part of the development team.  This functions fine during the vision phase and chasing customers… trouble begins when you get the first customer and revenue starts with customer commitments and expectations.

The team needs to deliver to a very specific schedule and a host of promised features/functionality that the founder promised.  The formalization of the product management position starts to emerge that may be played by the CEO, formal product testing starts to emerge, maintaining revision control and engineering processes start to emerge, etc…

You can see that by the virtue of growth and commitments that compartments start are emerging with procedures.  Stress is added to the group and the CEO must exhibit leadership to keep things flowing and keep people involved and driving to the same vision. Employees many who got use to being involved with every decision see their roles changed to be more defined, boundaries set, and formal process are starting to be put in place. This is challenging for employees and you might experience some attrition since feelings will get hurt or employees won’t fine their current role as satisfying or feel that they are slighted in some way since they use to interact with the CEO on a daily basis.

Seed Round orgAs the organization moves from the startup phase the next is the seed/vc round.  The roles continue (or need to) to be better defined.  The challenging area is how to grow engineering without the CEO involved on the day to day basis or the CEO moves to the CTO/VP Engineering role and a CEO with more administrative and leadership skills is brought in to support growth.  One area I marked as is transition is the Marketing/Sales and Product Management area.  The reason this is in transition in this phase is that particular attention needs to be paid to recruiting and hiring a good product manager and sales manager to better define the product and get additional customers.  Also this area may experience the largest growth in staff.  This isn’t a rule and depends on the business you are in.

Hiring a good product manager is very difficult. It requires a skill of listening, selling and interacting with sales, understanding technology, the market, business skills and writing skills blended into one person.  I’ll discuss this in a future blog.

VC RoundAs growth continues and more organizational compartmentalization’s needed.

The transition area continue to be product management and the sales/marketing organizations.  Decisions need to be made on where to put customer support.  I’ve seen this in organized in many different ways and there some absolute wrongs.  For example, I’ve seen customer support reporting to the CFO, not very logical but the company had a rational decision on why.  Generally, you see customer support Tier 1 reporting into sales or product management and Tier 2+ reporting into engineering.  Engineering growth and formalization will have the pain points.  The organization needs to grow to support the various phases of the product but also organize to encourage innovation.

The next phase and some other organizational truths will be discussed in the Part 2 of this blog in the very near future.

Some of the questions that came up during the meeting where:

Q.  Can you organize around an individual to retain them?

A. Generally and mostly NO.  The only way this may work is if the person is an individual contributor but the position won’t last long.  The organization will continue to grow and the position you carved out will be absorbed elsewhere in the organization and now you have conflict and angst and who is accountable.  You’ll spend more time trying to fix it than its worth.  Don’t do it… it’s not worth it in the long run

Q.  Can the organization take a different shape that what is seen traditionally and what have you seen that might work?

A.  The key part of any organization is responsibility and accountability.  Who is in charge and who is responsible for delivery of the product and delivery of sales etc.  It doesn’t mean that you can’t be somewhat creative but when you are small a hierarchical approach is easiest.  It doesn’t mean that a matrix organization or some other approach may work but you need to know who to call to fix a problem and it must be clear to you and them.

Q.  Can the team be remote or outsourced?

A. This is a tough one.  You’d like to take advantage of lower labor rates in other countries but nothing replaces everyone sitting in the same room with a whiteboard and brainstorming.  I’ve seen several approaches in a startup or early product development even in a mature company completely fail because of interpretation and the immense detail needed for the remote team to start coding.  Other issues creep in like cultural by not reading the meeting as brainstorming as opposed to complaining.  When you have everyone together you can be more experimental.  Also a key question is who owns the intellectual property and who locally knows what it does or how to fix the code if necessary and where is the code.  I’ve seen companies that don’t have a copy of the code onshore… very bad!  You need to have someone onshore that knows the code and the company can’t be held hostage.  My recommendation is don’t do it until the product is more mature.

Please contact me if you are interested in participating in the group, use my contact page to reach me and I’ll put you in touch with Ashish Shanker who is the organizer.  The slides I used for my presentation are available here Organizational Tipping Points



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