Every new organization needs an organizational design. Knowing how your organization is structured. What is your core competency? What are you good at? How will you compete with all your competition? What is your differentiator? All of these things are part of your organizational design. Join Jeff Smith as he goes in-depth on why you need an organizational design for your small organization. Learn why you need to identify your core competencies before you start to hire. Find out more about the process today!
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Building Your Organizational Design As A Small Organization
In this episode, I talk about organizational design. Specifically, what I mean by that is building a people organization based around the functions your new business aspires to be great at, and most of all, starting with high-performing individual contributors versus high-cost managers and executives. I hope you enjoy the episode.
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In this episode, we talk about organizational design. What I mean by that is every company has something called an Organizational Chart or an Org Chart. What this does is it describes the way people and the activities and functions that they perform are organized and who they report to. This could seem like a boring topic, but I can’t emphasize enough how important it is. Again, begin with the end in mind is when designing your org.
The Purpose Of Organizational Design
In the other episode, I talked about co-founders and the importance of having complementary skillsets, particularly at the beginning stages as a physician entrepreneur. The purpose of discussing organizational design is to encourage physician entrepreneurs to think about what will my business’s core competencies be. Let’s unpack that for a second. Physician entrepreneur has a great idea to address an unmet need.
It could be for a piece of software, an application, an implant, or a diagnostic. It doesn’t matter what the solution is that the physician entrepreneur is going to start building and the problem he or she is going to solve. As a business, how will we differentiate and be competitive? A few examples of core competencies, some businesses have a stated core competency of being the best at engineering.
Their secret sauce to their solution in their business is they’re good at a specific mechanical engineering function. They could be electrical engineering, machine learning experts, or neural network builders that have unique insights, backgrounds, and experience in machine learning and artificial intelligence. It could be something as simple as we’re great at marketing and messaging. Our core competency is going to be around telling the story and the plight of the patient population we seek to serve.
It could be we’re good at sales and know how to get in front of the target user and deliver a convincing message, so we’re going to be great at training. It could be clinical evidence. Is this new business so revolutionary that the success or failure of it in the early years will come down to the ability to generate clinical evidence, which is very difficult, time-consuming, and expensive? If that’s how this business is going to initially succeed, it could become the business’s core competency. They get so good at running clinical trials that they never shy away from doing one.
Pre And Post-Mortem
They seek to do them, and in doing so, they become good at regulatory because FDA submissions and notified body audits are a lot easier when your business has no problem generating human clinical evidence. The point here is to start with what we are going to be great at. If you’re not sure early in the journey, try doing a pre and postmortem. The premortem exercise is something from the ancient Stoics.
It is not recommended to hire really expensive top-level folks. Don't build your organization top down.
I read about it through this great author Ryan Holiday. Some of you may know him. The point is the premortem exercise that the stoic philosophers would complete before they would go on a journey. Granted, travel at that time was more dangerous, so you’d contemplate how he might die, but for the purpose of doing this starting a business, as you say, “We have our plan. We’re going to develop this solution and be good at clinical trials and engineering. Our plan is we’re going to go out, raise capital, run a clinical trial, and only after we solve a hard engineering problem. We think it’s going to cost this much money.”
Ultimately, when we seek regulatory approval or clearance, we’ve got all of our growth metrics in mind, what the average customer value and the annual customer value are going to be, and things that we’ve discussed in previous episodes. The way a premortem works is we say, “If this fails, how would it fail?” You started by saying, “We could not be able to solve this engineering problem. We could run this clinical trial and find that our hypothesis on the patient benefit is wrong, or the clinical trial could take twice as long. We are not able to adequately finance as big of a clinical study.”
The point is you start making a list of those things, so they’re no longer the boogeyman. It’s not something the elephant in the room that nobody talks about because it’s taboo and makes people scared. You get the boogeyman out and say, “This is how we will die.” Let’s face it. The list is very long at the beginning, and it remains pretty long throughout the journey.
The reason I bring up the premortem exercise is because if you consider first in organizational design, what do we have to be great at? What is the core of our solution? Should we get this business to the next 2 or 3 levels and milestones of development? What will we have accomplished? What will we have shown as our differentiating competency to get there? The way that informs organizational design works like this. We’ll go back to the co-founder discussion from the previous episode.
The Technical Co-Founder
Physician entrepreneur has an idea and the idea could require that we’ve got to be good at synthetic cell manufacturing. I’ll use that as an example. We want to do something with the manufacturing of cells that hasn’t been done before. That is a great place to start with the co-founder because your co-founder could be an electrical engineer from MIT with a PhD and has founded and sold a company in wireless semiconductors. That’s a very impressive background.
It’s possible that a co-founder may not be the ideal person to lead your R&D for this business where you have to be great at manufacturing cells. Instead, the first employee you recruited that partner along this journey and your co-founder. One of the first people to sell and convince on your vision as an entrepreneur and try to infect them with this passion for solving a problem is the technical co-founder that is already great at your core competency that you aspire to develop.
This individual is already great at it. They’ve already demonstrated the ability to do amazing things. Now, they could have done that as a contributor. They could be a post-doc or a grad student. It’s not that they have to be this decorated executive that has founded and sold multiple companies. That person might be too advanced in her career for you to afford even when you’re offering equity, but their skillset is in that wheelhouse of your core competency and their network, the people that they can call on for advice, information, and introductions.
The Pre-Mortem List
They’re going to have a head-start on that journey. When you apply the core competency, what is the differentiator that how your business will compete in selecting your co-founder? That focuses you on who to recruit, bring in, and be the first person to join you on the journey. Now you started looking at your premortem list. What are the areas where we could fail? What are the things that we don’t get right? You take that list and start thinking about how you can attract the best resource in each of those areas. It was like, “If we can’t do a clinical trial, we designed the wrong study,” so you start looking for clinical trial design consultants.
Notice I say consultants because of the caliber of professional you can use in the early days as a consultant when you’re simply paying that professional’s hourly rate. You’re able to go out and get people you couldn’t otherwise afford as a full-time employee and you start to build a working relationship with that person. They see what it is that you’re doing and why the work is so important. They begin to know what it’s like to work with you as a physician entrepreneur. You have the opportunity to develop trust because your passion is so clear that you are for real. This is a problem you are going to solve.
By knowing what your core competency is going to be, and when I say core competency, what your competitive advantage. Which of your core competencies will be your competitive management to win your market? You start building your team around your competitive, differentiated core competency. You then look at the skillsets necessary to prevent you from failing that you’ve identified in your premortem exercise.
The org in the first year or two could look like a technical co-founder and then you have all the core functions with advisors and consultants. Possibly, you build this bench of talent through the people that you raise your seed financing. There’s nothing better than having an expert in his or her field who believes in your vision and backs it with his or her personal assets. On top of all, agrees to join the calls as a consultant or advisor to give you advice along the way.
What Not To Do
Now you’re starting to see how the org develops. Notice what I’m definitely not recommending it. I highly suggest you don’t think of it this way. What I often see as an org, building an organizational chart, or, in other words, building out your people team is saying, “The companies that I know in the space, they have a chief medical officer or chief scientific officer. We need a CFO because the CFO is going to make us seem more legitimate. I’ll be the CEO. We’ll hire a president as well and a chief operating officer.”
Until you have 10 employees, everybody reports to one person. Don't have a 12-person organization with three managers.
What happens is you start building a very top-heavy expensive organization of folks that have a lot of experience managing the activities of others. Please understand that caliber of executive leaders and those folks’ skillsets is incredibly valuable. It’s why they earn so much. As we get more experienced in MedTech, our value in the marketplace increases because it’s one thing to know how to be good and be a stellar individual contributor.
It’s another thing to be able to have a vision, a business plan, and orchestrate all these different skillsets to an individual contributor and execute towards a plan. That’s always constrained by time and finances. That skillset is incredibly valuable but I do not recommend incurring that level of overhead and building an org top down. What happens, in that case, is if you can attract the senior executive with a great brand and have done all these amazing things. You can get your investors or you’re personally bankrolling their high overhead costs because that’s their price in the market. That’s what they can command elsewhere.
Instead of doing that and having that person come to the board, the founder and say, “Now I need to hire some doers underneath me.” That model can take a long time. It is incredibly expensive. It’s going to take the focus off of very fast execution towards milestones that will unlock and enable the next round of financing.” It’s fraught with risks, but most of all, it takes the focus off of hands down, heads down in work doing, and it will lead to a lot of internal meetings and discussions on hiring. As this new venture, it is trying to establish its identity and define for this small team its values. You start hiring people without defining your core values, and the leaders that you bring in are going to bring the values they developed in their experience.
That’s not to say that those are the wrong core values, but your business is going to develop outside of your original vision because the people are the ones that are going to build the culture. They’re going to instill the values. What I’m saying here is that stage of org, people design, and building out the org is critical but it’s not something to do at the very early stages. I’ve been on both sides of the table for the relatively new startup. They show up for the update to the seed financing investors. I’ve done this and you’ve got your cadre of very expensive, highly decorated professionals on your team.
The investor says, “What do you got? What have you done? Do you have any patients enrolled? Is the prototype finished? Do you have any customers?” No, because you’ve been super busy building out this big, expensive team. It’s possible that if a person goes this route, the investor could say, “That’s not what I was financing. I wanted to finance a physician entrepreneur and a technical co-founder that together could put their heads down and use this very early seed financing to make this thing a little bit more real. Give me enough confidence to write that next check.”
Having An Identity
To bring this back to the beginning, it’s very important for every business to have an identity. It’s okay if it’s an aspirational identity because it’s a very new venture. Defining your aspirational identity of a business in the way of saying, “This is what our business aspires to be great at. It focuses you on the type of talent and skillsets that your business has to attract.”
You can attract them and I highly recommend them in the form of contractors. $10.99 is what you pay hourly. You can even incentivize these people with equity so that they have some skin in the game but it’s not bringing them on for 40 to 50 hours a week when it’s possible. The work isn’t even there yet because there are all these different contingent activities to perform.
By doing it that way, you start with consultants and then watch your billable hours with these amazing consultants that you’re able to track. When you find out whether it’s on finance, regulatory, quality systems, engineering, reimbursement, and market access advice. When you’re starting to bill significantly more than 20 to 30 hours a week with the same consultant, and you’ll know this when you review your operating expenses each month, that’s when you know that there’s enough work.
In fact, there’s more than enough work. By paying that highly successful, valuable consultants a full-time salary, you are saving money. I want to make this clear because I’ve seen this so many times. A group of people working together will say, “We need some help with this skillset. We got to figure out how to build a financial model.” “Let’s hire a director of financial planning and analysis.”
Now, they spend a bunch of time talking about that requisition and figuring out how to pay for it. They start recruiting. Maybe they hire a recruiter where they’re going to pay a fee. Months later, they have their director of FPNA. When the person starts, they find out that they build one budget model and implement an ERP, an Enterprise Resource Planning software solution.
It’s something as simple as QuickBooks or Xero. It turns out that there’s not a lot of financial planning analysis to be done. That person becomes a little bored. The whole idea here is all we needed was a budget model. We spent four months and all this money attracting this person who is not going to be inspired to work at the company because there’s not enough for him or her to do yet.
You could apply that same concept of what I’m trying to impart. Again, with anything that I share, this is not the only way. I’m not saying it can’t be done in another way but first, having a clear identity of what the business will be good at, its competitive advantage differentiating core competency. You can use that to inform your co-founder. Those co-founders should be very skilled doers with experience or early potential, at least in that core competency.
Building A Small People Org
Next, if you do the premortem and think about what are the areas that if we’re not good enough or good at, we could possibly fail. You then go out and attract a contract team. It’s a people or org that is primarily comprised of contractors. The reason people have org charts is it’s a visual representation of how your people org works. It shows reporting structures. Now, my one strong word of advice on the people org is until there are 10 employees, everybody reports to 1 person.
Don’t have a 12-person org with 3 managers, each managing a couple of people, because all that does is lead to what I believe is an efficiency killer. One of the things that work against execution is you’ll end up with a bunch of meetings. Before you know it, you have managers meeting with managers, manning with senior management, and individual contributors doing one-on-ones with managers than having respected team managers. Your very small org is a bunch of people on Zoom calls talking amongst each other instead of the customer, the patient, and the financial investors.
That’s not the way to implement it quickly. Small orgs focus on specific predefined skillsets and have those skillsets performed by highly accomplished, experienced contractors. What this is going to enable is to take seed financing that you’ve raised from the convertible note. You’ll be able to go fast towards building value in the form of achieving predetermined milestones. The milestone could be designed to freeze on a prototype.
It could be completing a biomechanical study, an animal study, regulatory submission, or any number of things. What the physician entrepreneur and founding team are asking of seed finance investors is, “I know this is improbable but we can execute on this 1 or 2 things. Most of all, this is where we want to prove it to you, so we’re asking you to trust us. We can accomplish this milestone in the amount of time that we’re telling you it will take with the amount of financing we are asking you to contribute.”
Once you do that, you’ve built trust and confidence in your seed investors. This is going to pay dividends when you go to them for future financing. It will also begin to develop a culture around exceeding expectations, underperforming, and over-delivering. I hope you enjoy the episode. As always, you can reach me at Jeff@JeffSmith.co. I look forward to sharing information in a future episode.