Complete guide to startup organizational design and leveling

What’s the right org structure for your startup? Most begin with a functional approach, but when should you consider a divisional model where each product has a full-stack team and can be autonomous? Or should you go with a network model if you’re working with lots of external contractors?

Ninety percent of businesses fail to align their business strategy with their organizational design, leading to organizational debt. And 50% of respondents to a survey reported that ineffective communication that can stem from poor org design hurt their job satisfaction and productivity.

Building the right organizational design lets you get more done with a smaller team while keeping communication open, roles and expectations defined, and your company an attractive place to work. So we asked some of the top startup org design experts for their most actionable strategies that founders can implement to move faster.

Here we’ll cover:

• What organizational design means
• Foundational principles of organizational design 
• How to implement organizational design models for startups 
• Introducing career ladders at startups 

What is organizational design? 

Organizational design is the structure and hierarchy within which you place the different roles and functions in your company to affect how the company makes decisions and executes its goals. This structure clarifies responsibilities and reporting relationships for improved collaboration and communication. 

As your startup scales, you’ll be assessing how to achieve your business strategy while facilitating sustainable growth. Organizational design is the blueprint that allows this to happen. 

From hiring to career progression, defining your startup's structure shapes its culture. Your organization’s design influences the team member’s journey, from remote hiring to career advancement.

There’s no one-size-fits-all organization design that serves all companies, and over time, companies need to evolve their designs to align with scaling business needs. However, there’s a consistent set of principles and considerations founders should address in determining the right organization for them.

‎Organizational design principles for startups 

Most founders start by thinking about how flat they want their organization to be (e.g., the number of reporting layers) or span of control (e.g., how many direct reports each manager should have). These considerations are important, but we recommend starting with the outcome in mind: will this lead to an effective, high-performance organization?

Keep these basic principles in mind when thinking about structure:

• Accountability: Design your structure in a way that encourages accountability and discourages micromanagement so your employees feel empowered to make decisions and managers are free to think strategically. Introduce key performance indicators for each role and provide a clear tracking system for them so employees and departments can manage and track their performance. Make ownership one of your core company values and part of your employer branding.
• Transparent decision-making: When decision-making gets confusing, and there isn’t a clear chain of communication, projects slow down, and targets are missed. Standardize the decision-making process. Outline who is involved, when and how decisions are made, and how to communicate these decisions to the rest of the team. 
• Customization based on objectives: What roles are essential for you to move the needle? Do you have a repeatable sales process and a go-to-market motion but don’t have the bandwidth? It might be time to hire an SDR or a product marketing manager. Where can you leverage AI to streamline workflow? The answer will be different for every organization, but considering this will help you understand your organizational design needs.

Once you’ve done the thinking and you know what tasks are most pressing and what roles and functions to start building, you need to place them in a structure. That’s where organizational design models come in.

How to implement organizational design models for startups 

An effective organizational design has to marry the structure of the division of tasks in the organization with how to make these tasks work in concert. Organizational design models take both aspects into account. Let’s go through the most common ones.

A functional model provides a clear reporting chart by grouping employees into departments such as marketing or customer service and assigning a manager to oversee each of them. It’s the default model for most early-stage startups to define roles and responsibilities in line with business objectives. 

Hire department heads first, as their functional expertise puts them in the best position to hire the right talent. A downside to this structure is a need for wider collaboration, as employees might identify more strongly with each department rather than the business as a whole. To counteract this potential downside, ensure you interview for company-minded leaders who understand the dependencies affecting their team and the broader organization. This is the most common and appropriate model for the bulk of early-stage startups.

A network model might be a better option if your startup relies heavily on external resources and expertise to build out new capabilities. A network model utilizes external resources and strategic partnerships and offers flexibility. That way, the in-house staff can focus their efforts on their core competencies. 

Start by deciding who needs to be within the fold of the organization, as leadership within each core area will be essential. Each section leader can identify who and how many external staff they need. You’ll need to establish systems for collaboration and communication through platforms such as project management and messaging apps to coordinate all the moving parts. Because this structure is inherently decentralized, this could lead to a lack of control without established workflow processes in place.

‎A matrix model is ideal for effective collaboration for startups working on cross-functional projects. A matrix design model calls for dual reporting functions, so an employee will report to a functional manager responsible for overseeing their career development and a project manager responsible for project-related tasks. Most startups won’t need to consider this option until they have a few hundred employees and the business complexity that requires it.

To successfully implement this design when ready, outline reporting relationships for clarity and accountability. Introduce clear communication channels to streamline the cross-functional teams of this design model. This might look like regular meetings, project management software, or internal social media platforms. 

A divisional model creates autonomous teams with departments such as marketing and operations. This structure creates an environment of innovation and autonomy for startups with various products, market segments, or geographical expansion projects, as each team is hyper-focused on its objectives. 

When implementing this design model, factor in each division’s resource needs, such as human capital and operational support, to prevent wasted resources and give each division the necessary means to achieve its strategic goals. Similar to the matrix model, it would be premature for most startups to explore this model—they would be better served considering a functional or network model.

Organizational structure design: Career ladders

According to Gallup’s latest report, unengaged employees cost the global economy around $8 trillion each year, which shows just how important it is to create the right environment for your employees to thrive. Career ladders are the roadmaps for employees to understand what progression lies ahead for them at your company.  They also provide a consistent framework and language for opening new roles, aligning your compensation and headcount planning strategy, and more. 

Once positions have been given defined responsibilities, consider the depth of experience and knowledge required to successfully deliver on those expectations, which will help you assign the correct level. Next, outline the key competencies and performance criteria needed to progress to the next level.

‎But don’t forget that a career ladder without training and resources to develop employees won't mean much. Before you finalize your ladders, you’ll need to have a clear plan for training leaders and managers to utilize the ladders effectively with their teams.

Feedback to employees attempting to progress to the next level will also be paramount. Ensure team leaders and executives have regular feedback sessions with their teams and provide resources for your staff to become skilled at giving and receiving feedback. To make everyone successful, employees must understand that promotions are a mix of personal readiness (career pathways) and business needs (organizational design).

The impact of organizational design 

As your startup evolves from scrappy beginnings to rapid growth, the need for organizational design is vital to continue streamlined decision-making and establish career progression ladders. 

Luckily, SignalFire can help. We offer org design assistance to our portfolio companies from our full-time operating partners like former Netflix Chief Talent Officer Tawni Cranz, former Webflow VP of People Heather Doshay, and former Stripe CMO Jim Stoneham. They help guide founders to the right decisions for their sector, stage, and management style. And with SignalFire’s in-house AI recruiting engine, Beacon, companies can find the best talent to fill all their critical roles. 

Implementing the right organizational structure and career ladders provides a conducive environment for both your company and your employees to grow. Engaged and happy teams see greater productivity, profits, and success. By engineering your organization to minimize unnecessary bureaucracy and office politics, you’ll remain nimble and retain your best talent as you scale.