Wharton management professor, Saerom (Ronnie) Lee, warns entrepreneurs against the pitfalls of a flat organizational structure in startups. His research suggests that startups with such a structure often fail due to a lack of clear direction and supervision for employees. The most successful startups hierarchical structure, he found, begins to take shape when the company reaches about 20 to 30 employees. Lee’s research also suggests that adopting the right organizational structure can help balance creative innovation with commercial success. In related research, it was found that a flat hierarchy could inadvertently decrease diversity in a startup, ultimately affecting long-term performance. Therefore, entrepreneurs are advised to think about their people as much as their product, especially in the early stages of their business.
Introduction
From Knowledge@Wharton By Saerom (Ronnie) Lee
Research Findings
Wharton management professor Saerom (Ronnie) Lee has a word of warning for aspiring entrepreneurs who envision an egalitarian workplace where there are no bosses and every employee ranks the same.
Importance of Hierarchical Structure
According to his latest research, startups with flat organizational structures often fail. Lee pushes back against the popular view that firms, especially new ventures, work best without managers stifling creativity and getting in the way of progress.
Effective Management
Lee found the most successful businesses that begin with a flat structure usually start creating levels of management when they reach about 20 or 30 employees. Without supervision, employees may lose direction, drift into endless exploration, create projects they aren’t capable of accomplishing, and fight with each other.
Striking the Right Balance
Lee acknowledged that it’s hard for entrepreneurs to balance the twin pursuits of creative innovation and commercial success. In the study, Lee found that the trade-off between the two desired outcomes can be mitigated by adopting the right organizational structure.
Key Considerations for Entrepreneurs
The key message for entrepreneurs is to think just as much about their people as the product, especially during those heady early days of the business. Entrepreneurs need to plan ahead and have a structure in mind to ensure long-term success.
Impact on Diversity
In related, forthcoming research, Lee and his co-authors found that featuring a flat hierarchy can inadvertently decrease diversity at a startup and ultimately hurt performance in the long run.
Question & Answer
Why does Wharton management professor Saerom (Ronnie) Lee warn against flat organizational structures in startups?
Saerom (Ronnie) Lee warns against flat organizational structures in startups because his research suggests that such structures often lead to failure due to a lack of clear direction and supervision for employees.
When does Saerom (Ronnie) Lee suggest that the most successful startups begin to adopt a hierarchical structure?
According to Saerom (Ronnie) Lee, the most successful startups begin to adopt a hierarchical structure when they reach about 20 to 30 employees.
How can adopting the right organizational structure help balance creative innovation with commercial success?
Adopting the right organizational structure can help balance creative innovation with commercial success by mitigating the trade-off between the two desired outcomes, as found in Saerom (Ronnie) Lee’s research.
What key message does Saerom (Ronnie) Lee have for entrepreneurs regarding their people and product?
The key message for entrepreneurs is to think just as much about their people as the product, especially during the early days of the business, according to Saerom (Ronnie) Lee.
