The most dysfunctional startups that I've worked at are the ones with an ideological commitment to flatness
How much bureaucracy you need is an empirical question which you must answer with pragmatism, not politics.
The most dysfunctional startups that I've worked at are the ones with an ideological commitment to flatness. They move from 10 people to 100 people and they don't realize they need to start putting in place controls for money. They get to 100 people and they still have the CEO using their American Express card to pay for things. Eventually something happens, such as a major reorganization on AWS, and so the CEO has to start handing out the American Express info to whoever is running devops, to pay for the changes, or set up new AWS accounts. And likewise, the marketing team decides to switch to a new SaaS analysis tool, so the CEO gives the American Express information to the head of marketing. And then the head of logistics decides to contract with an additional 3PL, and so on, and so on.
Later on, (when the company has 200 people? 300 people?) when some actual controls are put in place, the new CFO is horrified by how many people know the American Express numbers, and so he/she has to spend time clawing back control of actual spending.
And this is just one example. The problems are pervasive. And then as the company grows to 200 or 300 or 400 people, the problems multiply. And then, at some point, growth comes to a stop. The startup was full of beautiful potential, but it never seems able to capture that potential, because it doesn't have the basic bureaucracy needed to manage the growth.
Software developers are aware of the concept of "tech debt." They are less aware of the concept of "organizational debt" but organizational debt grows quickly in the companies that try to remain flat for too long. At a certain point, the company needs a way to track money, and to get money to individual teams, to set budgets for each group, etc, but in a flat organization all of that is done on a personal level, by 2 or 3 key people, for far too long, and the lack of process eventually strangles the possibility of growth.
I once said all of the above on Twitter and Alan Kern responded, "That doesn’t sound like a problem with flat orgs but with bad process. Bureaucracy is the lazy way to solve process problems. You don’t really need bureaucrats to enforce process if incentives are aligned correctly by a single skilled operator."
But there is no way to enforce a system of incentives without first putting in place a bureaucracy that can enforce that system of incentives. Whatever incentives you offer, employees will be ruthless in trying to take advantage of them. When you've flatness (many employees but few managers) then the employees will know they can exploit any system of incentives and their risk of getting punished will be low, as the managers will be spread too thin to punish them.
I have previously written about sales people who analyze a system of incentives to see what loopholes they can discover, to maximize their own income, based on what you offer them. And I've written how I have developed reports in Salesforce that showed the leadership how sales people were using the incentives in unintended ways. But no one in leadership had previously had the time or energy to study the issue, and so the sales people and been exploiting the incentive system for years. In the end, the decision was made the expand the RevOps team so that someone could police the incentives better, which is to say, the answer was to expand the bureaucracy. And this lead to closer alignment between what the incentives were supposed to do, and what they actually did.
You cannot grow without hierarchy. You will sabotage your own growth if you have an ideological commitment to flatness. How much bureaucracy you need is an empirical question which you must answer with pragmatism, not politics. To grow large, you must build a bureaucracy, so have the ambition to build a bold, beautiful, brilliant bureaucracy that performs well.