When looking ahead to the growth of your business, it makes sense to focus on the strategic issues—the where’s, when’s and how’s. But as pointed out at mckinsey.com, the site for the consulting firm McKinsey & Company, it’s easy to underestimate or overlook the importance of organizational factors in your growth. Why does this matter?
Your processes and structure today may not adapt to challenges you encounter as you grow. Employees may need new skills and ways of doing things. This means that how you organize your business is a big deal, especially if you want to avoid the types of issues that a number of small business owners face in regard to their business structure and growth.
Common Issues with Growing Your Small Business and Organizational Structures
McKinsey describes three of the most common problem areas—pitfalls to be aware of— associated with small business organizational structures and growth, along with real-life examples of businesses that faced them:
- Stifling structures. Organizational structures meant to streamline can turn out to be inflexible and counterproductive if not closely examined.
- Unscalable processes. What works when you’re very small probably won’t as you grow. That’s why scalability is so important when structuring your small business.
- Unprepared people. Growth and the additional complexities it brings will require more of your employees as they encounter new interactions, processes and expectations.
In wanting to avoid getting tangled up in structure and bureaucracy, small business owners can go in the opposite direction, especially in the early years, resisting anything that smacks of organizational structure or formal practices. There’s an understandable desire is to break the mold and create a brand new model.
Businesses Require Organizational Structure
But as contributors Karl Stark and Bill Stewart write at inc.com, every business needs some structure. Stark and Stewart are managing directors and co-founders of Avondale, strategic advisory firm that focuses on growing companies. Drawing on previously published works, they outline three changes that growing companies need to make:
- Focus their customer targets
- Adapt their leadership styles
- Transform their structure and supporting processes
Early on, a lack of organizational structure is a good thing. There are no hindrances or barriers to moving quickly; you can be nimble and flexible, changing course if you need to. But at a certain threshold of growth, Stark and Stewart say, the absence of structure will hold you back. To keep growing, an organizational structure is necessary for defining roles, creating clear accountability for results and ensuring that you can continue to scale the business beyond small numbers of customers, locations or products.
4 Types of Small Business Organizational Structure
When considering the organizational structure best suited for your company, small business and start-up expert Janie Sullivan suggests that there are four basic types:
- Functional Organizational Structure: Grouping employees who perform similar tasks, skills, or jobs
- Divisional Organizational Structure: Creating teams for specific customers or groups of customers
- Matrix Organizational Structure: Grouping employees by both function and product
- Project Organizational Structure: Teams are created to either “produce the product or complete the project”
Each of these organizational structures can be used beneficially, and which type you choose depends largely on your individual small business needs. No matter which one you decide to go with though, you definitely want to create some type of structure for your small business, especially at certain stages of the game.
When Small Business Organizational Structure Becomes Critical
Standardandpoors.com says that among the most common growing pains of small businesses are those related to organizational structure. Typically, a business owner can manage (with everyone reporting to him or her) until the staff reaches about 12—the point at which things break down unless this initial structure is revamped.
At this juncture, you need to start seriously delegating, communicating non-stop, and generally offloading the time consuming day-to-day in favor of spending your time on bigger, more strategic issues. To do this requires clarity of roles: An actual organizational chart and job descriptions. Both are tools of accountability and empowerment.
You may not want an organizational chart, but you need one! Contributor and small business consultant John R. Aberle writes at Yahoo Finance that issues around supervision are some of the most challenging for small businesses. Right up there are the confusion and lack of clarity that occur when there’s no defined chain of command or communication. Efficiency and morale suffer; conflict arises.
How to Improve the Organizational Structure of Your Small Business
To help you map out your own internal structure, Aberle provides sample organizational charts that you can customize to help define reporting relationships, as well as your business’s main functions. Make sure everyone has the chart and understands what it means.
Be sure to think of it not as a rigid depiction of who does what but rather, a fluid, flexible and dynamic tool that will reflect the growth and change of your business. This requires the consideration of your company as it stands now, as well as where you want it to be in the future (think 5, 10, or 50 years down the road).
The more you can think ahead in terms of growth, the more you can foresee what type of structure you need to work towards. This can save you a lot of time and energy in restructuring at a later date, because you’ll already have the basic foundation of your organizational structure in place.