Robert asked this question in a comment on a previous post:

If I remember correctly Alexander, I read on your site here that one of your companies did not have any managers? Do you elaborate on that anywhere and if not could you?

It seems that a lot of the problems seem to come from low to middle management and as someone who is looking to start my own software company I don’t want this to happen in my organization. A no managers approach seems pretty appealing.

You’re right Robert. In Enterprise Systems, the IT company I co-founded back in 1997, we decided not to have any managers. We wanted plenty of leadership, but we wanted dynamic leadership that could change as the situation warranted.

So rather than have presidents, vice presidents and managers, all employees had an equal say in running the company. This was backed up by the fact that all employees were also co-owners, every new hire being offered a stake in the company after six months on the job. While I and my two co-founders retained a majority of the shares, this gave us no greater power in making day-to-day decisions.

So how did we make decisions? We had two major structures in place:
Areas of responsibility
We sat down and made a list of all the categories of tasks we had in the company. Sales, finance, intranet, our website, personnel, etc. There were around 20 in all. Then instead of appointing managers responsible for each of these, we asked who in the company would like to do it, and let people choose for themselves where they wanted to be involved. Interestingly, everyone signed up for at least a couple of these and every single task got at least one person assigned to it.

The result was that all these tasks were done by people who liked doing it – and who therefore invariably did a great job.

The people who took on such an area of responsibility were responsible for making a lost of all tasks, for making a budget if required and for making sure that everything worked as it should.

Company meetings
Every two weeks we had a company meeting for all employees. This was also important because many of us didn’t work out of the office but at a customer’s site. At these meetings, we made larger decisions or any decisions that didn’t readily fall under one of the established areas of responsibility. When we voted, it was one man, one vote, regardless of seniority or number of shares.

So how did this work in practice? Here’s an example: When it looked like we needed a new and larger office, we raised the issue at a company meeting. Did we need new offices? Yes! What were our preferences for size, price, location, etc.? Discussion ensued.

We then appointed a task force and asked them to go look at offices and return with some options. Who was in the task force? The people who volunteered to be, of course. The group came back with some ideas, and we all voted on which one we preferred. We had ourselves a new office. The task force went on to find us a designer to spruce up the place and some cool furniture. This being a major(!) expense, the budget was approved at another company meeting.

The advantages of this model are:

• Ownership. Everyone is as involved as they want to be. No one is sulking because a decision was made over their head.
• Motivation. People are insanely motivated, because they’re a part of running the company – they don’t just work there.
• Implementing decisions. Because people are involved in making decisions, it becomes much easier to implement them. You don’t have to sell decisions to reluctant employees.

The disadvantages are:

• Time. Sometimes it takes time to arrive at a decision. This was never a problem for us, but if your business climate requires constant quick leaderhip decisions, this may not be the right model.
• Petty discussions. If you’re not careful, meetings can devolve into endless, petty talk about mindless minutiae. In this case it’s important to stop and delegate or to trust someone who cares to make a good decision.

The proudest moment for our model came in the company’s darkest hour. We were never a dotcom company, but when that era ended, we were in trouble too. Suddenly about half our customers were no longer buying from us, and we were in deep trouble. Basically we were out of money and it didn’t look like new customers were coming in.

In a traditional company this is where the CEO steps in and makes the tough decisions needed, and I have to tell you, we were sorely tempted to offload this decision onto one person who could then call the shots. Luckily we held onto our process and in a series of company meetings that ranged from playful to painful we talked about how we would handle it.

We narrowed it down to two choices: Taking a 25% pay cut or firing 5 people. Discussions raged. I, for one, held out for the pay cuts. That became a unanimous decision. And a good one too – just 6 months later we had signed new customers, and every single consultant was back in business. If we had fired people back then, we would have missed them sorely.

I realize that this experiment worked for an IT company of just 20 people and that you can’t possibly generalize from that to larger companies in other fields. And yet I believe that this is certainly a viable way to go. That what companies really need is leadership that is dynamic, distributed and entirely voluntary. Leadership that switches from person to person, depending on who has the will and the energy, rather than what it says on somebody’s business card.

Here’s some more reading on the topic:

• My review of Harrison Owen’s excellent book The Power of Spirit, which talks about this type of organization.
• My story so far – including my time at Enterprise Systems.
• How to make your startup a happy company.