Why it’s dangerous to have a company without hierarchy, according to pioneers of Google’s Startup Accelerator

Many entrepreneurs are inspired by romantic conceptions of how great startup life can be, and are looking for an exit path from the typical culture of a big company. They dream about getting rid of bureaucracy, hierarchies, irrelevant policies, unfair inequalities, and all the other corporate irritations. The appeal of reinventing all this is especially strong for founders who see themselves as maverick disruptors. If you believe that it’s possible to reinvent a product, service, or industry, it’s easy to extend that thinking to reinventing the way people are managed. Many corporate practices can seem as outdated as a VHS machine in the age of streaming.

It’s relatively easy to be a management maverick in the early days of a startup, when a handful of cofounders and early hires share the same passion, goals, and energy. You can throw out all those corporate practices and run the startup as an egalitarian, non-bureaucratic, highly effective team. And you might congratulate yourself for being a management disruptor as well as a product or service disruptor.

But sooner than you think, your anti-corporate vibe will become hard to sustain. If you insist on clinging to maverick leadership as the startup grows, the result can be a dysfunctional and unhealthy culture, which can breed deep conflicts among the cofounders and the team.

It’s no surprise that maverick founders hate the very idea of hierarchy. What could be a bigger drag on creativity and boldness than a chain of command, requiring permission from above before anything gets done? Hierarchy seems to spawn bureaucracy. Leaders at the top tend to lose touch with the realities of the work and the needs of users or customers. Decision-making slows down, and teams get stuck in a loop of overexplaining to deflect blame and paperwork to keep management apprised. Who would want their exciting new startup to become that kind of organization?

One of today’s leading thinkers in organizational design, INSEAD’s Phanish Puranam, studied the often unspoken reasons why hierarchy is unpopular. Hierarchy contradicts the egalitarian ideal that everyone is equal, and implies that some people deserve more power and autonomy than others. It forces people to take narrower and more specialized roles, creating deep dissatisfaction among those who value variety in their work. It forces managers to create reporting systems to coordinate and integrate a team’s efforts, but people experience these management reports as drudgery and red tape, not as an essential tool. And hierarchy forces managers to do intangible work that’s hard to measure, relative to the more visible and quantifiable work of writing lines of code, closing sales, or completing projects. Tangible output is widely seen as more valuable, so people who aren’t managers start to resent them as unnecessary.

People often conflate hierarchy with bureaucracy—for good reason, because they tend to expand in tandem. All other things being equal, a company with fifty people with a layer of managers will have more meetings, documentation, and approval processes than a company of five. Nevertheless, it’s possible to reap the positive aspects of hierarchy to help a growing startup achieve its goals without suffering from the downsides of too much bureaucracy. Maverick managers get into trouble when they ban hierarchy in the hopes of minimizing bureaucracy but create chaos instead.

In Google’s early days, Larry Page and Sergey Brin experimented with a nearly flat organization, eliminating engineering managers and having a few hundred people report directly to a single VP of engineering, Wayne Rosing. Their goal was to break down barriers to rapid idea development and to replicate the collegial environment they’d enjoyed in grad school. But this maverick management experiment lasted only a few months. Too many people were going directly to the founders with minutia, such as questions about expense reports and minor interpersonal conflicts. Projects that needed resources didn’t get them, while redundancy of projects became an issue. The engineers craved feedback and guidance on their career development. Everyone soon realized that at least some hierarchy is useful.

Other maverick startups such as Valve, Zappos, GitHub, Medium, and Buffer have also attempted flat organizations. Tony Hsieh, Zappos’s founder, implemented a radical self-management fad known as “holacracy” in 2014, to widespread grumbling. Holacracy decentralizes authority and decision-making in dramatic ways: Employees raise their hands to work on a task, then fluidly assemble a working group that has full authorization to make decisions. Holacracy’s proponents call it self-management, but its critics have called it undermanagement. Two years after adopting the system, Hsieh gave everyone an ultimatum to either commit to holacracy or take a severance package; a third of the 1,500 employees quit. (Ironically, that move was a dramatic use of power and hierarchy.)

Within three years, Zappos was unwinding holacracy and re-creating some amount of hierarchy. They found that as the company continued to grow, teams craved rules and guidance in the face of what felt like anarchy—especially for important business functions such as budgeting and setting priorities. Self-managed teams also spent a lot of time negotiating with each other, instead of having a manager to make quick decisions so everyone could move forward. John Bunch, who coled the rollout of holacracy, recounted that the business metrics started to get shaky, and the company’s reputation for exceptional customer service was at risk.

The evidence is clear that a healthy hierarchy with effective managers can help reduce operational ambiguity. It can help align the team around shared goals, resolve conflicts, speed up progress, and ensure that people’s development and well-being are looked after. Columbia professor Adam Galinsky showed in several studies that if you need a collaborative team to solve complex problems, you’re better off with a boss in the mix instead of a group of equal friends.

Similarly, Saerom Lee of Wharton studied the impact of hierarchy on a large sample of video game studios responsible for more than 190,000 games. He found that every additional layer of management correlated to a decrease of about 1% in the average customer ratings of a studio’s games, attributed to some reduction of cross-pollination of ideas when managers divide large groups into smaller teams. On the other hand, adding one extra layer of management correlated with a 14% increase in global sales, attributed to a reduction in aimless exploration and dysfunctional conflicts. That’s a big gain in commercial success in return for a very small decrease in perceived product quality.

Hierarchy doesn’t have to devolve into bureaucracy. Applied within reasonable limits, it can add speed and clarity within your team, driving measurably better results. Startups need not fear hierarchy.

Excerpted from the book The Bonfire Moment: Bring Your Team Together to Solve the Hardest Problems Startups Face, by Martin Gonzalez and Joshua Yellin. Copyright © 2024 by Martin Gonzalez and Joshua Yellin. Reprinted courtesy of Harper Business, an imprint of HarperCollins Publishers.