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How not to screw the operating system of your startup


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Zappos uses Holacracy with elected team representatives instead of team leads. Netflix says "Hard work is not relevant" and discourages process adherence. Teams at Facebook have every freedom to do whatever they want as long as they have "impact" with their work. Things like management by objectives, strategic goals, matrix or line organisations are discarded.
Why are they doing that? What does that mean for your startup when it reaches the magic upper limit of "it just works" at 35-50 people? Is there a blueprint for a better way? And if you already ended up in a line organisation with management by objectives etc, what would be the benefit of change?

Published in: Leadership & Management
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How not to screw the operating system of your startup

  1. 1. The right OS upgrade for your Startup
  2. 2. Johann Hi, i am johann. While i am a founder / CTO as well i usually do software conferences, not startup conferences. And actually Lars asked me to do a cool nerdy talk, like docker security, rugged devops or the like. But since this is a startup conference, i wanted to do a different talk. And there you are.
  3. 3. 1997 2007 Still working here Invested in 2 startups. Worked for a lot of them. The first company i co-founded was mayflower. this happened in 1997, while i was still at the university. Boring but true: i am still working there. We do complex web and mobile application development using agile methods, devops and so on. you know the hype. 10 years later i co-founded SektionEins, a security consultancy. Security is fun for nerds, so i like it. I was the first CEO there, later the professionals overtook this role. Which made a lot of sense. With Mayflower i invested in 2 startups, and both had a really nice exit. So if you have a look at empirical data, ask me to invest in your startup, and it will work out. With Mayflower we work for a lot of startups, provide software development, infrastructure, consulting and the like. So i was involved in a lot of startup companies, and i got many friends there.
  4. 4. Dear Startups, we need to talk. And that is why i am here today. I have to admin that i am a bit involved in the new work and organization design discussions. But i am no consultant, and we don’t offer consulting for it, so this is not a marketing talk. On the other hand side: we went thru it on our own, so we know what we are talking about.
  5. 5. Startup! <10 people And that is what i saw: A fresh startup is fun to work for. It’s not pleasant when you are there, but in retrospective it’s big fun. And that’s the reason why:
  6. 6. Startup Operating System You use the startup operating system. And it’s great. From an organization design point of view it’s a flat organization.
  7. 7. Structure The structure we need for the problem right now. While there might be a formal structure, it does not really matter. You do what is needed, and you switch positions, roles and tasks on demand. You’ll figure out a new and fitting structure for every problem you got. Because you can.
  8. 8. Hierarchy No real hierarchy. Everybody can lead, 
 no one can dictate. C*O-Titles like an enterprise. There might be an official hierarchy, but there are only a few people, so you solve problems by talking to each other. Everybody can take a lead for tasks, and no one can dictate. You need to convince people, they resist if your idea does not sound reasonable to them. Nevertheless you got titles like siemens. The guy with the linux laptop is called CTO, the one with the macbook CMO, the macbook air guy is called the CEO and the only one left using windows is the CFO.
  9. 9. Processes Get stuff done now.
 Results win. Do it differently tomorrow. Since you just started up, there are no fixed processes. You do what you need to do with the best available method. If the results are fine you keep the process, if not you just change it. Change is cheap, and you do it a lot until you found a process that is good enough.
  10. 10. Alignment Alignment just happens. Everybody is involved 
 in everything. All goals are shared. Alignment is something you don’t talk about, because it’s just there. Since everybody is involved in everything, they know what’s important and what is not. All goals are shared in a natural way. Sometimes you have to fight for your stakes, but you see and understand opposing stakes and deal with them.
  11. 11. Adaptability 90% can be changed within 1 hour. The other 10% 
 take days. If there is a new customer lurking around the corner you feel free to change everything. A good opportunity is able to turn your business model inside out. You adapt frequently, and even bigger changes are done fast.
  12. 12. Innovation Everyone recognizes opportunities. Innovations are 
 company-wide. Innovation just happens, too. Since everybody is involved in everything, you are able to recognize opportunities in other departments, too. You can easily create company wide innovations if they make sense.
  13. 13. Coordination Close to zero hand-over costs. Planning happens on-demand. Coordination is implicit. Everybody pitches in. Coordination happens by talking. There are close to zero hand-over costs, because everybody knows everything anyway. You plan, but you do it on-demand, if you need to. And you are happy to throw all plan away and come up with a new one when needed. Most of the coordination is implicit, you don’t need to set up a lot of meetings. And if there is something missing, everybody pitches in.
  14. 14. Fast Efficient Low Maintenance Flexible Innovative The startup operating system is great. It’s fast, cost-efficient, does not use a lot of resources, it’s low maintenance and flexible. So it works out, and your successful. People want to give you money, and you need to scale.
  15. 15. „Alignment just happens“ „Implicit coordination“ „Everybody can lead“ „Everybody pitches in“ „Change everything in a day“ >50 people? 100? If you try to get implicit alignment and coordination with 50 people, if everybody can lead, if everybody can pitch in everywhere, if you change everything in a day with 50 people? Image belongs to
  16. 16. This will not work out.
  17. 17. Fast Efficient Low Maintenance Flexible Innovative Scalable
 Predictable Reliable Controlled But the bad thing about the startup os is: it does not scale well. And it’s not predictable, it’s not reliable. You can’t even control it properly. So you obviously reached the end of the flat organisation. and you need to look out for another organisational model.
  18. 18. Professional Operating System And you do what everybody else did. So you do what you learned in the university, what you saw before in similar companies or what your advisors told you.
  19. 19. Structure So you end up with a functional organisation. That’s what we did, btw. And it’s no fun. Suddenly you got a product development, a marketing, a sales, an engineering and an operations department.
  20. 20. Structure Or with a matrix organisation. Who of works in a line or in a matrix organisation right now? And yeah, it looks like this is going to scale.
  21. 21. Structure Structure exists & moves slowly Hierarchy Formal positions for decisions & processes Processes Needed for handovers, reliable. Adaptability Cheap inside an unit, expensive outside of it. Innovation There is a process for this. Alignment You are aligned to your unit. Your boss is aligned to your company. Coordination Management does it. A formal structure changes a lot. When it’s there it’s there, and it does not care about the problems you are currently facing. It’s hard to change it, since there are career levels and influence involved now. Because hierarchy exists. Now there are positions that have to care for decisions, called management. They are responsible to create and change processes, all other people aren’t. They could and they should, but they won’t, because there effort is dispensable. Adaptability is something that is managed, too. While the minions might have the right idea, it’s a management task to implement it. Innovation is part of the process now, product development and market research do it. Alignment is done by the management too, and so is all coordination that reaches over the boundary of your department.
  22. 22. Structure Structure is independent from current problems There are some changes in the company going on when you decide for a proper company structure. First thing: the structure is stable, and it is independent from your current work problems.
  23. 23. Processes Follow process now.
 Process adherance wins. Do it identical tomorrow. To assure hand-overs and cooperation you need to establish processes. Processes allow you to scale, since new people don’t need to understand everything - it’s enough if they are able to work following the process.
  24. 24. Hierarchy Real hierarchy. Some Positions can dictate. Other positions 
 lose their influence. Problems that are not solved by processes have a simple strategy - give it to your leader. If the solution is inside of your department, they make the decisions. If the solution is outside of your department, they need to care for the solution, too.
  25. 25. Alignment Alignment is a management task. It happens in departments. Goals are local. Since you can’t see everything that is happening inside the company anymore, the management position in your department needs to care for alignment. They are setting your goals, and they are local.
  26. 26. Adaptability 20% can be changed within 1 week. The other 80% 
 take months. The department boundaries slow down your adaptability, too. You are able to change your own local work most of the time, but as soon as you need to change something over department boundaries it takes a lot of time.
  27. 27. Alignment
  28. 28. Innovation Innovation is part 
 of the process. Company-wide innovations are managed. Innovation is now part of a process.There are official places for innovation- like product development - and all other innovation needs to be coordinated and established by a management level position, especially company wide innovations.
  29. 29. Coordination Hand-over costs are high. Planning happens. Coordination is explicit. Nobody pitches in. Since there are departments with different goals and different processes, you need additional effort for hand-overs at the department boundaries.This effort needs to be coordinated and planned. This coordination and planning is a responsibility of the formal positions.
  30. 30. s Fast Efficient Low Maintenance Flexible Innovative Scalable
 Predictable Reliable Controlled And while your new OS is able to deliver scalability, predictability, reliability and control - you are not able to provide speed, low maintenance costs, flexibility and innovation that you had before the OS update.
  31. 31. Fast Efficient Low Maintenance Flexible Innovative WTF?! It’s not a good thing to be a startup that is neither fast, nor flexible, nor innovative, and there is a lot of market pressure happening. You are now more than 50 people, so you are burning money. So what would you do?
  32. 32. Even more people! „Just add 50% more people! You’ll get 10% more performance!“ The obvious answer is more of the same. Take 50% more people to get 10% more of innovation and Performance. Obviously that does not scale, again. So they come over to us CTOs and ask us what to do. And we pretty much come up with our default answer.
  33. 33. CTOS!
 We need Speed! Flexibility! Innovation! So the capital comes over and wants to see speed, flexibility and innovation again. They already saw you delivering all three, so they expect that you still can do, now that you got a lot more money than before. Does anybody know how to get Speed, flexibility and innovation into IT driven companies?
  34. 34. Improve Technology! „Too much Technical Debt! Docker/MicroServices/Cloud!“ First thing we CTOs usually say is how we would improve our own work. What happens in our department. So we go like „We need to clean up, remove our technical debt!“ „We need switch to Docker, Cloud, MicroServices, Clojure, Golang, Node, ReactJS now!“ „Refactoring, Rewrite!“
  35. 35. Better processes!
 Agility & DevOps! And you say: Let’s do better processes, like agile and devops. They are known to provide speed, flexibility and innovation. And the CEO likes it, since he already read about in in inflight magazines and Brand 1. Who does agile in here? 
 Who does it really, really good? Who has been lying? Yeah, there always is some issue with agile and/or devops. Let’s see why.
  36. 36. Agile says Self-Organization! Management organizes for you! Like everything agile you start with self organization. But the professional operating system answers: „Uh, you should not do that. Management does the organization, so you don’t have to do it yourself.“
  37. 37. Processes are adjusted every 2 weeks! We provide standard processes for you. So you ask for adjusting your processes every two weeks. Because you got retrospectives, scrum and all this. And the professional operating system answers: „Hey, lucky you, you don’t need to! we already got a standard process for you, just keep with it!“
  38. 38. Agile says only team performance matters! I just care about your own performance.
 See, that’s your goals. And that’s the bonus for it. And you tell them, that only team performance and results matter. But the professional operating system does not like it. It cares about individual performance. And it sets goals, and you will get 80% of the bonus one year later.
  39. 39. Agile demands empirical management!
 Let’s continouosly change based on Metrics! Just do your part of the strategic plan the CEO told you. And you preach: let’s do empirical management, not define everything a year in advance, it won’t happen anyway“ And the professional operating system asks you just to do your part of the strategic plan the CEO sold to the shareholders.
  40. 40. Cross-Functional Teams! Functional departments with clear responsibilities! Next you say: hey, let’s do cross functional teams! so we have everything we need inside one team and could solve problems immediately! And the professional operating systems say „sorry, we just split everything into functional departments with clear responsibilities, let’s stay with this.“
  41. 41. DevOps says only shared goals matter! Your department already has goals! And you think: that was a hard time with agile - let’s try doves. Let’s go for shared goals, it’s so obvious they will understand. But the professional operating system just answers with „No need to share, you already got goals completely on your own“
  42. 42. DevOps says: solve problems together, socialize. Just escalate it to your boss. DevOps says: solve problems together, have a beer together, socialize. And the professional operating system answers: „If this is a problem outside of your department, escalate it to your boss. he will talk to their boss, and they will deliver.“
  43. 43. DevOps says: every information should 
 be transparent and visible! The management knows what happens,
 so you don’t have too. And you ask them to make every information transparent, so it’s easy to recognize dysfunctions and improvements. And the professional operating system responds with „Hey, the management already knows what is going on, so you don’t have to do it on your own. You would not understand it anyway.“
  44. 44. Let’s install
 Agile & DevOps! And in this very moment you realize: the operating system you are using is not supported.
  45. 45. „organizations which design systems ... are constrained to produce designs which are copies of the communication structures of these organizations“ And you can’t do a lot about it. This is a sentence conway said when wood stock happened.
  46. 46. Docker won’t 
 save you. That’s why docker won’t save you, by the way.
  47. 47. Modern Operating System That’s why some companies looked out for a new operating system.
  48. 48. Probably you have already read an article of any of these companies. They don’t rely on classical structures and hierarchies anymore to provide a scalable approach hat supports innovation and flexibility. Has anyone read about Zappos new operating system?
  49. 49. Yep, it is called Holacracy. And there are some books written about this topic. The most discussed right now is probably „reinventing organizations“, at least i heard a lot of founders talking about becoming a teal organization (just like us :-) ). 
 I like organize for complexity, written by Niels Pflaeging, a lot. Our company design owns a lot to his stuff. How do these companies look like?
  50. 50. Self Organization & Decentralized Structure First thing is a high level of self organization inside the company. And this is not just „we do scrum, isn’t that self-organized?“, this is a decentralized structure. They take responsibility for the whole company, not only for their department. This is important: you can’t be self organized and organized by the management level at the same time. Decentralized innovation is called slack time. And why does this not end in chaos?
  51. 51. Shared Goals & Full Transparency Because alignment is a major process inside the company. Most of them have full transparency, and rituals to provide alignment. They meet every friday, and everybody tells everyone what’s going on right now. They socialize, and everybody knows what’s going on. They got communities of practice, squads, devops groups. They talk a lot. Every information is visible inside the company.
  52. 52. Constant Evolution Strategy The result is a constant evolution of the company. They got flexible structure for teams, for departments, for cooperation, for problem solving. Everything, the structure and the processes, evolves the whole time.
  53. 53. This is no flat org. There is no blueprint. Two important things at the end: this is not a flat organization, it’s flexible organization. There are leaders, there are structures, they change. There is no blueprint - don’t believe the holacracy guys in that point, they are selling their product.
  54. 54. &tldr; In 2015 You can do better than functional orgs and Management by Objectives. I did it wrong with my company. You don’t need to now. That’s great, isn’t it?
  55. 55. What we do/try: - self-directed teams - cross-functional teams - roles & self-selected titles - elected & dynamic team leads - corporate lattice career - on-demand-C*O - „Management as a Service“ - Open Books - Salary formula (kind of) That’s what we already do. If you are curious i can tell you about it.