Business Inside Out by Martin Towers: Why structure is key to growing a start-up

Structures of course evolve as a business expands and unfortunately the same can happen in reverse as businesses contract. The founders of an entrepreneurial start-up will be doing everything as the show gets on the road.

The business cannot afford anything else and it is within the vision and capability of the founders (including friends and family) to do the lot in those initial phases when we’re not even sure the business is viable. All hands on deck with everybody mucking in to the common cause, no demarcation disputes, no silo mentality, no job descriptions.

Growing businesses will face the truth, however uncomfortable to the founders, that not only do they need additional resource in the form of people, they need a structure if the business is going to thrive. Additional skillsets, wise counsel, experience and capability are needed. But how does it all fit together, who does what, and who is in charge.

Which leads to the formation of a board (of directors) and a hierarchy. Some businesses see the need and have a board from the outset. Some don’t. Entrepreneurs may resist the loss of control, bureaucracy, delay and politics they may associate with such a body, probably from prior bad personal experience.

But sooner or later you have a board, possibly as a pre-condition of external finance. And once a board exists then we have to start doing things properly. Which comes back to structure and can start to link structure to culture, two key ingredients in determining success or failure.

In plain vanilla terms structure can fall into two distinct types. Central command and control as opposed to a de-centralised ‘federated’ structure. In the former, ‘I’m from head office and I’m here to tell you what to do’. In the latter, ‘I’m from head office and I’m here to help’.

This is where culture hits. In the devolved model exist motivated teams of self-starters, people who are near the customer and take responsibility. It’s up to them with reward from one’s own efforts and initiative. Not people who need the crutch of being told what to do before anything happens and who certainly want no responsibility or blame for anything.

Note the experiences of large organisations such as banks that flip-flop between the different models as regimes change, and then back again 20 years later. Our disgraceful experiences with airline and financial service call centres smack of remote, demotivated staff with no authority to deviate from the The Centre manual.

The two structures outlined are mutually exclusive. Like oil and water they simply do not mix, dooming many deals to failure. Yet it is surprising how business culture is not given the recognition it deserves by financiers in large transactions in determining whether a deal will add value or destroy it.

Martin Towers is the former finance director of Kelda Group, which was the parent company of Yorkshire Water, and former CEO of Spice PLC. He is now an early-stage business investor.