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Should you build a flat organization?

A Picture of Pablo Lecea
April 17, 2018 | Topic: Business  
Should you build a flat organization?

Should you build a flat organization

Continuing our series of articles as part of Belatrix’s Software Startup Week, I want to talk about my thoughts from meeting with the CEO and founder of Zoom, Eric Yuan, while we were visiting Silicon Valley. Yuan gave us some great insights into how they operate at Zoom, and his advice for entrepreneurs – in particular how he has built a “flat organization”.

Eric Yuan founded Zoom in 2011, the company makes videos and conference calls frictionless. Zoom is one of the leaders in modern enterprise video communications, with a secure, and easy to use platform. In building Zoom, Eric emphasized the method of having a super flat structure, meaning only a few heads of departments. No managers, directors or VPs. He didn’t want his people focusing on ranks and titles, but rather focusing on building a good product and keeping the customer happy. While most companies put most of their efforts into attracting new customers, while not focusing much of their attention on existing ones, Zooms’ philosophy is not to worry more about new customers than they do about their current ones. This is because they believe that prioritizing their current customers and keeping them happy will eventually lead to referrals, which in turn will lead to new customers. In line with this philosophy, Zoom will even provide technical support to users of the free version of their software, which is not something freemium companies typically do.

This is not the first time that an organization has tried a very flat structure. A few years after Google was founded, the founders, Larry Page and Sergey Brin, wondered whether or not Google needed management. They experimented with a completely flat organization just like Zoom does, but the experiment eventually fell apart. The reason was because many employees would go to the founders for questions about expense reports, interpersonal conflicts, or even silly things; it just could not scale. This made Page and Brin realize that managers are imperative in order to help employees prioritize, support career development and more. But through the experience they also learned that micromanagement was just as bad as no management at all. As a result, they now break one of the typical rules regarding span of control taught in most business programs – which is that no manager should have more than 5 to 10 direct reports. At Google it’s not uncommon for managers to have up to 30 people, which makes it impossible for even the most nit-picky managers to micromanage.

Ricardo Selmer, CEO of the Brazilian company Semco Partners, did something similar to Zoom and went even farther. This was that no one in the company would hold a ‘formal title’ – instead they would organize self-directed teams and people could name their own salaries. The caveat with that is that every year you had to be hand picked by a different self organized team, which have had their own profit and loss goals. As a result, if you got too expensive and you didn’t perform according to your salary, teams would not hire you.

However, while both of these approaches are interesting and worth examining, I believe there is an important distinction between a product and a services company. Developing and selling a product is fundamentally different from providing services. In a services company, there is greater need for management and providing the structure for people to succeed. We believe that our people deserve the recognition of knowing where they stand, and knowing what opportunities lie ahead. Of course, self-empowerment and self-organizing teams are still a key part of who we are as an organization, and here we find that Agile development provides an effective framework. While we have a decent size management department, it still has been a learning process to give people more recognition, and indeed our advisors still encourage us to continue to grow our management department.

So what does this mean for your startup? Firstly, know that keeping things simple is hard. In the long-run a flat organization may or may not work, it might work in the beginning but eventually you might hit a wall. No one having a title may not be valid in the end. Some say the structure may work when you have a tight knit group, and you’re just starting out, but eventually people are going to want opportunities and the recognition a title provides, maybe it’s human nature?

What’s your take? I’m very interested in debating the different angles on this topic.

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