Holacracy vs Hierarchy and the tale of too many chiefs, and not enough indians.

This is a retrospective story about a 12-month experiment we tired (and failed) at our company, Hapi.

At some point in late 2015, I stumbled across the concept of Holacracies, also known as decentralised organisational models, which more or less flatten the team structure instead of stacking it in a traditional hierarchical form.

Such structures are touted as “self-organised” and “self-managed”, meaning that authoritative figures are very hands off, micro-managing is eliminated, and each individual team member is responsible for getting shit done on their own terms and really own their role.

At least that’s my interpretation. Maybe I am totally wrong?

This was a very fascinating concept to me. I wanted to give it a go, as I have personally never been a fan of having a boss, or being told what to do on a daily basis. To me it feels like my free will is being taken away.

I wanted everyone in our team to feel like they had a purpose, and a say in each conversation and decision, instead of just being dictated all the time.

In theory this is a very appealing concept, but in our case it held us back dramatically, and ended in a less than ideal manner.

Here’s my thoughts on the key issues that caused this experiment to fail.

1. Too many CxOs

As the saying goes, “Too many chiefs and not enough indians”. That is to say, too many high-level roles deciding what to do, and not enough people actually doing real work.

The image below sums it up quite well.

This was very much the case for us. We got to a point where there were 4 major CxO roles in our company: a CEO (me), a CTO (my original co-founder), a COO and a CBO (Chief Brand Officer).

Overall, said CxO roles made up 70% of the team.

Now, I am not saying this is necessarily a bad thing as many early stage companies have several CxO roles, rather I am pointing out that anyone in a CxO role needs to be getting hands on work done like there’s no tomorrow, every single day, and not just making high level, non-tangible decisions.

Which leads me onto my next point.

2. Too many Co-Founders.

Following on from the last point, the real problem came about after a MASSIVE pivot. We decided to rename and rebrand our company, from the former ‘Noots’ to the current ‘Hapi’. This gave everyone in the team a deeper sense of ownerhsip, as we collectively birthed a new entity.

However, this essentially translated into having four co-founders, up from the previous two. This seemed very natural given the fact we were experimenting with a Holacracy. In theory we would just continue as we were, right?

Unfortunately not. In fact, this led to an escalating amount of paralysis.

Everyone all of a sudden had an opinion, and assumed that their opinion was equally weighted relative to everyone else, given the nature of the flat structure we had at the time.

This continued to spiral out of control. Tension in team meetings became uncomfortable, and we all started to clash more frequently.

This amounted to constant indecision, and prevented us from making decisions in a timely manner—which—as many people know, is a key ingredient to killing an early stage company.

Overall, this produced the OPPOSITE effect of what we intended. It created a system where all decisions needed to be approved by all other co-founders, before going ahead with them… not fun.

Clearly this was stunting our growth, so something had to give.

The aftermath of this was the hardest hour of my life to date, which ended in the exit of all the other CxO / Co-Founder team members.

It was quite an emotional weekly team meeting to say the least, but it was most certainly necessary in order to prevent our company from failing.

Thankfully all three of the former team members are great people, and were quite agreeable with the situation. I like to think I am still friends with all of them, and hope to make their vested shares quite valuable one day.

Lesson learned, the hard way.

3. Lack of Co-founder ‘synergy’

I have heard from advisors and other founders that this is one of the biggest killers of an early stage company, if not the biggest.

Having a lack of synergy between original co-founders breeds toxicity, and most certainly prevents great things from happening.

This lack of ‘co-founder fit’ was less to do with the other person (at least in the beginning), and more to do with the relevancy of the role.

When I first had the idea for starting a cognitive enhancement company in late 2014, I wanted to create a mobile app that could personalise cognitive supplements based on a set of user needs. Coming from a tech / managerial background, this seemed like the best approach to me.

Coincidentally at the time, I started talking to a co-worker from a previous startup I was involved in, who happened to be a software developer. So naturally I shared the idea, and we began working together as co-founders, as a CEO & CTO duo.

At the time it was a perfect fit. I had a business and design background, and he had a software development background.

But in the very early days, only after a month or two in I would say, we pivoted from an app to a much simpler MVP, which simply involved a landing page, and seeing if we could get any signups, to gauge interest.

In the first 24 hours we got a good 300 signups, and decided there was enough demand to justify the change in vision. From there onward, we embarked on the path of becoming a pharmaceutical / nutraceutical company, which involved very little tech / software dev.

As time went on, the need for software development and a general CTO role grew less and less relevant. To supplement for this, my co-founder continued to pour money into the company every month, and focus on higher level business operations with me.

But ultimately we did not see eye to eye on many things, aside from the overall vision. This caused much of the issues described in point #2, whereby frequent disagreements led to indecision, and frustration.

In addition, as CEO, I felt like it was my responsibility to make the business decisions, and be the visionary figure that drives things forward. Without having full autonomy to do so, I lost a significant amount of passion and motivation for the company, and as such was the conclusion of point #2.

It’s a very hard position to be in. I describe it just as I would describe relationships. Having to ‘break up’ with your co-founder is not an easy conversation, and one that many of times can become very hostile, and cause lawsuits. But the longer you take to do so, the more damage you’re doing. Business is business, at the end of the day. It’s a bitter fact that will leave scars, but a reality that one must be aware of.

Overall, I think if the circumstances were much different—if for example we were a tech company—this would have worked out fine. But of course, this was not the case, therefore it did not make sense for the business.

If you’re in the same position where you don’t feel like it’s a good fit with your co-founder, have a conversation immediately.

4. Too hands off

As an extremely self-motivated and driven individual, I tend to expect everyone else I work with to act accordingly. As it’s so normalised for me to work from when I wake up til when I go to bed, 365 days a year at a constant pace, I assume this is what others will do too, given the opportunity to become part of an early stage company.

This assumption is incorrect. Not everyone is willing to literally put work before all else, make major sacrifices and have no ‘life’ for many years, in order to build something that might one day make money.

The probability of creating a successful company is extremely low. You really have to be totally fucking insane to attempt such a feat, given the odds are not in your favour, not at all.

This is where I made a massive mistake. As I assumed everyone else in the team would get the whole startup mentality, therefore I employed a very hand-off approach to how I managed others.

Instead of micro-managing, training less experienced team members and giving rigid direction, I sort of said “just get shit done, we’re a Holacracy, manage yourself.”

A mistake this was, and something I am 100% accountable for. It was poor leadership from my end, and not how a CEO should run a team.

When other team members have a lack of direction and aren’t allocated tasks frequently, and aren’t strictly held accountable for said tasks, they don’t actually know what they should be working on, nor are they motivated in general, which will have everyone running around in circles.

A company needs a visionary who sets the goals, the vision, the direction and the strategies to accomplish the mission, not a lack thereof.

This was where the idea of a Holacracy was very conflicting. I really wanted to leave things be until we had experimented for a full 12 months, and dictating others did not seem fitting for self-management.

Overall, I think this was more about I than it was about our team structure. As a first time CEO, I have never really told others what to do, and asserted authority, let alone truly dictated the overall vision. But, I now see this is necessary in order to build a successful venture.

5. Inexperience

Finally, a big part of this is inexperience.

Many people in the team had never been part of a ‘startup’ before, and did not fully understand the commitment needed compared to a regular 9–5.

But more important than that were the sheer skillsets, or lack thereof, given most people in the team were very young <25, without developed skillets in the roles they were fulfilling.

I have been a sole founder and co-founder before, but never a CEO, and prior to starting the company I knew very little about the industry we’re embarking on.

I had never raised capital before, lodged a tax return (let alone used a spreadsheet), created a profitable business model, nor understood all of the regulatory and scientific practices required.

This meant learning on the job, FAST, which is standard for first time founders / CEOs and startups in general. But a consequence of this is moving at a slower pace compared to people with a lot of experience, and a deep understanding of the industry they’re in.

I think if all of the members in our team each had a good 5 years of work experience in the relevant industry, it would have been much easier to operate under a decentralised team structure, as each member would have been able to truly own their area of the business without needing to be directed or trained on the job (including myself!).

Conclusion

Overall a Holacracy did not work for us. Irrespective of that fact, I do not think a flat team structure is impossible, rather I think many other variables caused it not to work for us, and perhaps we did not implement said decentralised methodologies properly.

I’m glad we gave it a shot, and doubly glad we’re still around to tell the tale, avoiding any permeant damage or a massive fallout that would have seen the destruction of our company.

Moving forward I think we will try to find a balance between traditional and new age organisational models, when the time is right.

As for the short term, we will very much move forward operating like a traditional company with a hierarchy, until we have the opportunity to experiment with new practices on a more micro scale.

I definitely recommend reading the article below, which covers some key oppositions toward flat team structures. It will give you some perspective.

— John, CEO at Hapi.