Sunday, October 18, 2015

Organizational Structure Is All About Pragmatism

First time CEOs and entrepreneurs often call me to discuss how to structure their organization. Common questions include: Should I hire a COO or not? Who should the VP Marketing report to? How should I split up product and engineering? Should international build out its own functions or be matrixed with US headquarters?

There is often fear in the mind of the entrepreneur that there is a "right" answer to how to structure an organization and that if they screw it up by doing the "wrong" thing the implications could be disastrous. This is an incorrect perspective. Most of the time there is no "right" answer and org structure is really an exercise in pragmatism - i.e. what is the right structure given the constraints you face in terms of the talent available to your company, the set of initiatives you need to pursue, and a 12-18 month time horizon.

Here are a few key takeaways and things to keep in mind about org structure:

If you are growing fast, you have a different company every 6-12 months.
When I joined Google it grew from ~1500 to 15,000 people in 3.5 years. After my startup was acquired by Twitter, Twitter grew from ~90 to ~1500 people in 3 years. When companies grow that rapidly they are literally a different company every 6 months. This means every 6-12 months the company's org structure may change.

When choosing an organization structure for a high growth company, focus on the next 6-12 months. Don't try to find the "long term" solution as in the long term your company will be completely different and have radically different needs.

There is no "right" answer.
Often there is no "correct" answer to how to structure your organization, rather it is a series of tradeoffs. Two different structure may be equally "good" and "bad". Don't sweat it too much - ultimately if you make a mistake it is painful but you *can* undo it. 

Communicate to the team that as your company grows quickly things will shift around and it is normal for that to happen - it is a sign of your success and other companies that grow fast do the same thing.

Sometimes bandwidth matters more than perfect fit.
Sometimes executive bandwidth is more important than a traditional reporting chain. For example, Alex MacGillivray, the talented former General Counsel at Twitter, had User Support, Trust and Safety, Corporate Development / M&A, and other areas reporting to him at various times in addition to legal. Many of these areas normally would not report to a GC, but Alex was talented enough to take these on in the absence of other executives with bandwidth to own these areas. As new executives were hired or promoted things would transfer over to them from Alex.

As CEO, you should look at your team and allocate functional areas based in part on who has time and skill set to focus on the area and make it succeed. This does not mean the area needs to work for this executive forever. Remember, nothing needs to be permanent. There are also some cases that don't make sense from a tie-breaking or skill set perspective - e.g. your VP Engineering should probably not run sales and manage that team in addition to engineering. However your VP Engineering could potentially have the design team work for her or the product team if needed short term or if it makes sense to do so longer term. 

Org structure is often about tie-breaking.
Reporting chains are ultimately about decision making. E.g. engineering and product management have a natural tension between them, so where do you want most decisions to be taken if the two groups disagree? The person to whom both functions reports ultimately functions as the tie breaker between the orgs. This is a good heuristic to keep in mind when thinking about org structure.

Hire executives for the next 12-18 months, not eternity.
As an exhausted founder/CEO, the temptation is to try to hire an executive for a role who will last for the remaining history of the company. This leads to over-hiring/ hiring someone who will likely be ineffectual at the scale you are currently operating at. For example you do not need an engineering VP who has run a 10,000 person organization when you only have 20 engineers. Instead, hire someone who has led e.g. a 50-100 person team who can scale up your org to the right level over the next 12-18 months. Either that person will grow with the team or you will need to hire someone new in the future. 

Ben Horowitz has a good perspective on this.

Please note, a stable management team is only positive for a company. However, you should realize that even if the executive team only evolves slowly over time, the org structure may still change more rapidly.

There is no perfect organization structure for a company. A company is a living, breathing thing and will change with time - as will the organizational scaffolding on which it is built. As CEO, focus on a pragmatic solution to the next 6-12 months in the life of the company rather then the perfect long term solution. In part, focus on executive bandwidth - who on your team has the bandwidth to do more and where do you need to promote or hire talent to meet the company's execution needs?

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