{"id":65586,"date":"2022-05-11T07:35:40","date_gmt":"2022-05-11T11:35:40","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=65586"},"modified":"2022-05-15T10:50:38","modified_gmt":"2022-05-15T14:50:38","slug":"startup-organizational-structure","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/startup-organizational-structure\/","title":{"rendered":"Startup Organizational Structure: Your First Decisions"},"content":{"rendered":"\n

What is the best organizational structure for a startup? Who should have equity and how much? Who should make the executive decisions?<\/p>\n\n\n\n

Structure impacts performance, so how you organize your business at the start is critical. Peter Thiel asserts that you must make the right decisions in three areas\u2014equity, direction, and operation\u2014to cultivate organizational alignment<\/a> and growth.<\/p>\n\n\n\n

Here’s how to get your startup structure right at the start.<\/p>\n\n\n\n\n\n\n\n

Startup Organizational Structure<\/h2>\n\n\n\n

Thiel points out that the decisions you make when founding an organization will permanently shape how it operates in the future. You need to make the right decisions up front because, if you make mistakes at the formative stages of your startup, it may not be possible to fix them later.<\/strong> Thiel calls this principle \u201cThiel\u2019s law,\u201d and says that it applies to organizations of all types, whether businesses or governments.<\/p>\n\n\n\n

As an example of how difficult it is for established organizations to change, Thiel points out how seldom the Constitution of the United States has been amended. The organizational structure of the US government is much the same as it was two hundred years ago, and it\u2019s not likely to be changed, whether it still suits our needs well or not. The same is true for your startup organizational structure.<\/p>\n\n\n\n

Choosing Partners<\/h3>\n\n\n\n

Thiel asserts that one thing you need to get right up front is the selection of your co-founders. In fact, he asserts that this is the <\/strong>most important<\/em><\/strong> decision you\u2019ll make in founding a startup<\/strong>. <\/p>\n\n\n\n

He even equates choosing a co-founder to choosing a marriage partner<\/a>, claiming that the same issue of personal compatibility applies, and the consequences of incompatibility are just as severe. As an example, he recounts the tragic story of a company founded by Luke Nosek and an unnamed co-founder whose personality and ambitions were incompatible with Nosek\u2019s. Thiel was an investor in the company, but he lost his investment when the company failed due to the founders\u2019 incompatibility.<\/p>\n\n\n\n

Corporate Structure<\/h3>\n\n\n\n

The structure of your startup provides a framework to support and constrain how the people of the company\u2014founders, investors, employees, and so on\u2014interact with each other. As Thiel notes, some people advise against imposing structure on an organization, saying that this will stimulate creativity<\/a> by giving your team members greater latitude to implement their own innovative ideas. Thiel concedes that, in a perfect world full of perfect people, that would be true. But he argues that, in the real world, real people need some amount of structure in order to work together constructively.<\/p>\n\n\n\n

As an example of how a lack of effective structure can contribute to poor performance, Thiel discusses the notoriously poor customer service of certain government agencies. <\/p>\n\n\n\n

(Shortform note: On paper, most government agencies have a formal structure, but Thiel equates \u201cstructure\u201d with clearly defined roles, and bureaucracy, by definition, is when responsibilities are distributed over such a large organization that no individual holds responsibility for anything. Thus, to Thiel, a bureaucracy\u2019s lack of clearly defined roles implies a lack of effective structure.) <\/p>\n\n\n\n

He explains that, to establish a structure that will promote alignment and progress, you must make three decisions:<\/p>\n\n\n\n