As a company grows and becomes more complex, it begins to trip over its own success - too many new people , too many new customers, too many new orders, too many new products. When was once great fun becomes an unwieldly ball of disorganized stuff. Lack of planning, lack of accounting, lack of system, and lack of hiring constraints create friction. Problems surface - with customer, with cash flow, with schedules.
In response, someone (often a board member) says, "It's time to grow up. This places needs some professional management." The company begins to hire MBAs and seasoned executives from blue-chip companies. Processes, procedures, checklists, and all the rest begin to sprout up like weeds. What was once an egalitarian environment gets replaced with a hierarchy. Chains of command appear for the first time. Reporting relationships become clear, and an executive class with special perks begins to appear. "We" and "they" segmentations appear - just like in a real company.
The professional managers finally rein in the mess. They create order out of chaos, but they also kill the entrepreneurial spirit. Members of the founding team begins to grumble, "This isn't fun anymore. I used to be able to just get things done. Now I have to fill out these stupid forms and follow these stupid rules. Worst of all, I have to spend a horrendous amount of time in useless meetings." The creative magic begins to wane as some of the most innovative people leave, disgusted by the burgeoning bureaucracy and hierarchy. The exciting start-up transforms into just another company, with nothing special to recommend it. The cancer of mediocrity begins to grow in earnest.
--- quoted from "Good to Great"
Although sound unrealistic, but if you have experienced of seeing a start-up company tripping over its own success and eventually getting bog down, even killed sometimes, by the exact bureaucracy and hierarchy created to save them, you know how accurately Jim Collins illustrated the scenario here. I am always amazed to see different start-up company with different style of leadership in completely different industry repeating the same story over and over again. I have personally witnessed two of such melt-down, and perhaps witnessing another one with my present job. It used to puzzle me, so "How can a somewhat successfully start-up company transform into not just another company but a good successful company or even maybe a great company without losing the innovative culture?". If you have been haunted by the same question, or working for a company that is going through the transformation stage, or founding a start-up company, check out the Good to Great by Jim Collins (if you haven't), although most of the book is about how a good company can transform itself to a great company, there are also a lot of insight and systematic thinking that I personally found priceless for any entrepreneur.
Just remember the only purpose of bureaucracy and hierarchy is to compensate the incompetence, and whatever you believe they are not the magic bullet to transform the company.