TL;DR A little bit of well designed bureaucracy will make your company faster, more agile, and better focused
Since jumping into the startup world, I’ve noticed a lot of resentment against bureaucracy. It’s almost a dirty word - asking a startup about their hierarchy and you get a lot of vehement denials and dirty looks. I don’t get it - frankly, I don’t think startups have enough bureaucracy.
Back when I was a consultant, I would regularly work with huge (huuuuge) clients. Clients so big they would have entire divisions employees didn’t know about. Clients who owned entire suburbs to have enough office space. Clients where the internal communications division, the division to communicate with other employees, had a thousand people working in it.
So I understand the backlash against bureaucracy. If you’ve come out of Megacorp, it’s easy to see bureaucracy as the stifling agent which ruins all good people and enforces mediocrity.
Some companies took this bureaucratic rejection to the extreme and implemented a totally flat structure, which manifests itself as the valley’s darling startup setup: self-motivated engineers hacking away at code, working on what they want to do, pounding out some passionate code.
That’s like, so cool, man.
Except not. The problem isn’t bureaucracy, it’s bad bureaucracy. A well-designed hierarchy acts faster, more collaboratively, and more decisively than a flat structure.
Where does the buck stop?
The question to answer is: Who owns this? You must have a crisp, simple answer for that question on every major decision you have. Everyone should know the answer to that question. It is not up for debate. It is the law. Every decision at every level needs to have a specific owner who is empowered to make it work and responsible for its success.
This might seem a bit hyperbolic. But there’s a reason to be prepared: While flat hierarchies perform well when times are good, you will eat shit when times are bad. Two examples to highlight flat bureaucracy gone wrong: first, where no one is responsible, and second, where the responsible person isn’t empowered to make it work.
What’s the worst that can happen?
One of the cases I worked was reorganize pricing flow for a tech company. The company had implemented a very flat, very collaborative methodology for pricing which brought together marketing, sales, engineering, support, ops, and finance to determine pricing and positioning. As a collaborative effort, the committee shared responsibility equally - everyone executed within their own domains from decisions made together.
When times were good, it worked spectacularly. Everyone pulled together to create a simple, flexible pricing scheme which worked. Margins grew. Market share grew. Pocketbooks grew.
However, times didn’t stay good. Discount competitors moved into the market, cutting prices in half.
The collaborative pricing committee quickly turned into Lord of the Flies.
Engineering tried to cut prices by giving services away for free. Services wasn’t happy taking the cost hit, so they formed an alliance with Finance to shift revenues on the back-end. Marketing introduced a targeted, customer specific price drop which Sales went about wildly applying to everything to stay price-competitive.
The competition didn’t even need to advertise. The company was too busy screwing itself to fight back.
Lesson: Flat hierarchies work only so long as each member’s goals are aligned. The second they start drifting apart, whether from competition, politics, or even just a misunderstanding, a flat hierarchy will deteriorate - fast.
"I’m being screwed for decisions I didn’t make"
Another case I worked on dealt with improperly designating a responsible party. We had a client who had set the vision that they would be an “Engineering led company”, where engineering would take final responsibility for an entire product’s lifecycle, from conception to support. It was fantastic in that the products were able to execute on long term thinking, introducing a recurring, support-driven revenue model which forwent sales price for lifetime value.
They quickly realized a problem: sales didn’t quite get the memo. While engineering could dictate the MSRP and the suggest sales pathways, it was actually sales’ call on what programs to use, which discounts they would offer, and how contracts were structured. Little wonder that when annual reviews came in, the product was singled out for improvement: sales had avoided selling the low-priced product, which wouldn’t dropped their volume (and commissions) for the year.
The product manager was crestfallen - how could he be responsible for a product when he couldn’t even control how it was sold?
Lesson: An owner must own and be empowered to execute on a decision. Designating someone as responsible isn’t enough if they don’t have to power to get it done.
Good Bureaucracy isn’t easy to implement - it takes some good thought, specific to each decision, to say who owns it, how much latitude they have to bring other folks in line, and what they’re responsible for. But the rewards are phenomenal if properly executed - long term thinking, broad alignment on goals, and extremely rapid responses to new developments.
If you’re planning on putting a little structure into your own company, three things to keep in mind:
- Have a structure on paper.
The best way to get people on the same page is to having it in writing
- Designate one person and one person only
They can have a backup in case they are sick or otherwise incapable of making the call, but the decision needs to come from one person
- Empower that person to get shit done
It’s no use if your responsible party can’t actually make it happen. If they’re not able to make the final yes/no decision, they aren’t the right person.
- Stick to it
Don’t deviate. It’s easy to start making one offs and ‘special projects’, but the more consistently you use the system, the more effective it becomes.