Structuring Your Company

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Written by Philip Cornell

October 1 2018

There are countless decisions that you face when you start a new company or expand your current company. One of these very important decisions is choosing the structure of your company, which generally can be broken into two categories: hierarchy or flat. It seems like this is the choice between old and new, but don’t base your whole decision on the desire to be modern. Instead, make an educated decision, making sure that you know the pros and cons of both types. In this article I hope to cover a few.

 

Hierarchal

This is the most common company structure. At the top of the hierarchy is a CEO or Chief Executive Officer (or a board if the company is publicly owned). Slightly below the CEO is usually the COO and/or the CFO (Chief Operating Officer and Chief Financial Officer respectively). Although many people think that all three of them have equal say, usually companies want to make sure that one person is slightly elevated in need of a tiebreaker. This is especially important for VC firms because they want to know that there will not be gridlock between two founders-which can be prevented if one has slightly more authority. Below these people you will have VPs of everything from Marketing to Sales and such. Each person is in charge of the people below them, and reports to the person directly above them. As you go farther down the latter, each person will have more and more direct reports, but each of these reports will have less responsibilities individually.

PROS

Easier to define specific responsibilities for each role

Provides a simple way to reward someone through giving them more direct reports

Clearly establishes work relationship without confusion

CONS

Less comradery between employees

Harder to ensure collaboration

Often promotion is the only effective way to reward

 

Flat

The flat structure is becoming more common in modern businesses. This is the structure where although there is probably somebody with the title CEO or some other type of boss, they do not have complete control over the decisions. Often a flat structure is implemented in a way that there is a flat structure that is made up of executives, so 10-20 people with the same amount of power. Then below them, the rest of the company could also be flat, so everybody having equally important roles. Or another way of doing it is having a flat executive structure then a hierarchal structure for the rest of the company. Either way though, the need for middle management is radically removed.

PROS

Natural collaboration is easier

Quick information movement

Cost Effective

CONS

Could be harder to recruit talent, especially in roles

Management can lose control

Deletes the need for middle management[1]

 

Now that you have an idea of the two most basic types of company structure, it is up to you to decide which would be better for your company, and which would be more effective for your employees, as well as future employees. No matter which you choose, or more likely a combination of both, remember that longevity is possible with either as long as your business is a meritocracy.

 

[1] https://connectusfund.org/11-key-advantages-and-disadvantages-of-a-flat-organizational-structure