Running a Flat organization.. Really??

I stumble upon this article today: http://www.inc.com/magazine/20110401/jason-fried-why-i-run-a-flat-company.html from Jason Fried the founder of 37Signals. I thought I would get some really good insights on how to run a startup and all this, and then I realized how I could not disagree more with him. I am starting to understand why, despite the claim of double digit growth, 37Signals has not grown to be the major player it could have become.

For the history, 37Signals with Basecamphq was in my line of sight when I was creating effecteev (www.effecteev.com). We are trying to solve the same problem of team collaboration. When I found basecamphq I really felt that they had solved it.. The product had plenty of really good features and was claiming over a million customers (although many free). I thought they were not making that much money and not growing very fast because their pricing model was stupid (way to cheap for the value it provides), and their software is a bit clunky with a security scheme that I would call “poor”. Now I see more clearly. Jason Fried seems to be very short sighted and is not the leader that company needs and that really doesn’t help growing a business with a long term vision.

Let’s consider the flat organization he is describing:

– At 37Signals it’s all collaborative, no managers. That is a structure that can never ever scale! Who makes decisions? Who handles conflicts? Who takes risks? Having this structures builds a world of compromise where the outcome of a decision is simply the average of all opinions. That makes the outcome average, and average is not enough to beat the competition. Also, underlying this structure, mister Jason Fried then becomes the King of the castle. In the end, he decides, he solves conflicts, he takes the risk. That’s fine, but please, don’t come saying how great it is for your employees to leave in this world when you are just at the opposite of the spectrum!

–  At 37Signals they don’t promote people, they take people who love what they do and want to get better at what they are doing.. Man.. I’m sure employees at 37Signals are really really good at what they do after 11 years of service doing the same stuff.. Can you really get that good?? Is there an unlimited growth potential in what you love to do? I’m sure you can always get better, but the growth curve must become pretty flat pretty rapidly!They are lucky in the sense that the Web is constantly evolving and new technologies appear all the time so they can certainly evolve their skills that way but I don’t really buy it.. it’s a bit of the same over and over. The biggest problem I see is the fact that Jason Fried doesn’t think about his employees. What about their career? Do you think they will spend 40 years working at 37Signals (where titles don’t matter) and enjoy what they are doing for 40 years? Do you believe, really, that it’s making them a favor to not promote them? to not teach them managerial skills? to not force them to think strategically more?  What happens when they decide it’s time for them to move on somewhere else? Do you have a notion of how recruiting is done in most companies? If you are an Software Engineer, have never managed anyone, even for 10 years, and you are really good, you will end up as maybe a senior Software engineer with a bunch of 23 year old all around you and a salary that fits that profile. 37Sginals needs to help people grow their skills so they can have a successful career after 37Signals. Nobody likes turnover, but that’s a fact of life for a business. Embracing the fact that some turnover happens, and making sure your former employees like you is key to succeed in business. Those former employee will pass the good word around, about how good it is to work in your company, they will want to work with you in the future as partner, or customers, they will help your business!

If your employee don’t want to evolve and develop new skills, fine, let them, but make them think “long term”, and they will quickly realize that this is not sustainable. They will pay this Flat Organization the day they leave.

Now Jason, I’m sure your employees all own some equities in your business, or at least I hope they do, and I hope they have enough of them so when you make it in a few years, they will sit on a pile of cash big enough so they don’t have to worry about their career anymore. If you think that is not the case.. then I say, you are screwing them and their future.

– 37Signals has 26 employees. This is after 11 years and over a million subscribers! Honestly, with that big of a user base you should already be Public! 11 years, 26 employees, I’m not calling that success, I’m calling that stale. and I now understand that you are that way, not because the pricing is too low, not because your product is a bit clunky to use, not because your security layer is full of holes, but because you build a Flat Organization that can go nowhere.

My advise: Structure your company for growth, put layers in place, promote people, hire people that can manage for excellence (not average), and help your employees build their career at 37Signals, but also after 37Signals. You will do everyone a favor by offering a better product, a better equity value to your employees (that might eventually be able to retire and do what they love all their life if they want), and will open future doors for the employees that want to be good at what they do but like everyone on this planet, can get bored doing the same thing over and over..

 

Who am I, Why this Blog?

My name is Antony Passemard. I’m french and came in the US only a couple years ago to study for an MBA at Haas (UC Berkeley). I will certainly talk a lot about what I have seen, heard and learned while at Haas as I went there to focus on entrepreneurial skills and felt blessed by the tremendous amount of resources I had there.

Before coming to Haas, I was an entrepreneur.  after graduating with a Master degree in Computer Sciences from EFREI (LINK) in 1998, I have been focused on developing my skills to be able to start a business.. The opportunity came up in 2001 and I co-founded with 3 other partners my first company INTEGRITY. This company was to provide high level of services around network security solutions (Checkpoint, Juniper, Fortinet, Cisco, Sophos, etc…). We opened our doors on September 11th, 2001 (tough) and after much lessons and some good business, we closed them in the summer of 2005.

At the end of 2005, I joined the funding team of INIFLUX a small startup in Paris providing services around Open Sources solutions. I took a general management role and helped growing the company from $300K in revenue to close $1.3M while enjoying a very fun work environment thanks to Eric Paumerat and Benjamin Devichi, the founders of INIFLUX. INIFLUX is still on track to become more than a small business and I warmly recommend them for any IT services you would need in Paris.

During my two years at Haas, I have been very involved in the various entrepreneurship programs, obtaining a Certificate in Entrepreneurship at my graduation. I have been the Manager of the Venture Lab for the Center of Entrepreneurship and Technology (CET) for one year, and held a role of Graduate Student Instructor (GSI) for an undergraduate entrepreneurship class for 2 semesters. during those semesters I worked closely with amazing professors: Iklhaq Sidhu and John Burgstone from whom I have learned a lot. I have been an organizer of the UC Berkeley business plan competition 08 responsible for Mentorship (finding mentors for participating team reaching the semi-final) and reached the final stage of the BPlan competition 2009 with my company ulteamail, now known as Effecteev. I also initiated the new program that Haas has launched this year: The Venture Launch Pad which seemed to be a missing link between wannabe entrepreneurs and the fantastic resources available at Haas. All this involvement was rewarded by the Gloria W award that I received for outstanding leadership in entrepreneurship at Haas.

I still haven’t launched a startup in the “Silicon Valley” sense of the term but I feel that I have valuable insight from INTEGRITY and INIFLUX but also from what I have seen from students and friends. In the last 2 years I have personally been involved in about 5  ventures and analyzed over a hundred business plans.

Today I am working at Yahoo learning a tremendous amount about the “Consumer Web” and those insights reinforce and complete other area I have worked on before.

This blog is about entrepreneurship, in the hope that wannabe entrepreneurs will succeed.