The choice of an appropriate organizational structure is also an important decision when organizing an entrepreneurial venture. At some point, successful entrepreneurs find that they can’t do everything. They need people. The entrepreneur must then decide on the most appropriate structural arrangement for effectively and efficiently carrying out the organization’s activities. Without a suitable type of organizational structure, an entrepreneurial venture may soon find itself in a chaotic situation.

In many small firms, the organizational structure tends to evolve with very little intentional and deliberate planning by the entrepreneur. For the most part, the structure may be very simple—one person does whatever is needed. As an entrepreneurial venture grows and the entrepreneur finds it increasingly difficult to go it alone, employees are brought on board to perform certain functions or duties that the entrepreneur can’t handle. As the company continues to grow, these individuals tend to perform those same functions. Soon, each functional area may require managers and employees.

As the venture evolves to a more deliberate structure, an entrepreneur faces a whole new set of challenges. All of a sudden, he or she must share decision-making and operating responsibilities, which are typically the most difficult things for an entrepreneur to do—letting go and allowing someone else to make decisions. After all, he or she reasons, how can anyone know this business as well as I do? Also, what might have been a fairly informal, loose, and flexible atmosphere that worked well when the organization was small may no longer be effective. Many entrepreneurs are greatly concerned about keeping that “small company” atmosphere alive even as the venture grows and evolves into a more structured arrangement. But having a structured organization doesn’t necessarily mean giving up flexibility, adaptability, and freedom. In fact, the structural design may be as fluid as the entrepreneur feels comfortable with and yet still have the rigidity it needs to operate efficiently.

Organizational design decisions in entrepreneurial ventures also revolve around the six elements of organizational structure that we’ll be discussing in Chapter 8: work specialization, departmentalization, chain of command, span of control, amount of centralization-decentralization, and amount of formalization. Decisions about these six elements will determine whether an entrepreneur has a more traditional or a more flexible design.