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3 Reasons Holacracy Isn't a Good Fit for Most Businesses

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When CEO announced that his 1,500-person company was going to adopt a “holacracy” model, many people were left wondering what the heck holacracy even is.


According to HolacracyOne, this “boss free” philosophy focuses on a less structured system with roles -- as opposed to concrete job descriptions -- and on self-organization and arranged teams that concentrate on specific operations or goals.

While this term may be a new piece of business jargon, structures similar to it have existed for years. Derived from the Greek “holon” -- meaning something that’s both a whole and a part -- the setup isn’t without its pitfalls. In the best-case scenario, a holacracy will tap into employees aptitude and drive, but models can flop after a few months of use -- it can even drive your best talent away.

Still, Hsieh cites the speed and flexibility of the holacracy model as a key element of Zappos’ ongoing success. 

“When companies get bigger, innovation or productivity per employee generally goes down,” said Hsieh. “So we’re trying to figure out how to structure Zappos more like a city and less like a bureaucratic corporation.”

“Get bigger” might be an understatement when it comes to Zappos. Medium, a blogging service, has also adopted this structure. However, at just 50 employees, it looks like a molehill standing next to the mountain that is Zappos. And while many startups are looking to mirror Zappos’ success under this model, there are some key considerations to make before taking the plunge yourself. 

Here are three issues that could arise in a holacracy:

1. Who makes the tough choices in tough times?

The main problem with holacracy comes to light when operations go south.

The ideas behind holacracy work perfectly when things are running smoothly and there’s enough resources to go around. But what happens when your organization hits a bump in the road? What if you have to lay people off, cut hours or trim expenses? Who decides which team members need to go, and who delivers the news?

Holacracy is best suited to good times and growth, but it may very well cause problems when the time comes to make a tough decision.

Related: The Bossless Workplace: A New Frontier

2. Who holds slackers accountable?

Unfortunately, people will be people. Not everyone has the wherewithal to self-regulate on the job, especially slackers. Every organization has them -- folks who simply don’t contribute to get the job done. What happens in a community without managers when someone isn’t doing his or her part? Can slackers simply fly under the radar until their paychecks clear at the end of the month?

Related: If You Want a Job at Zappos, You'll Have to Network for It

3. It's not likely to work everywhere.

The holacracy model that works great in your home office full of millennials and programmers won’t go over so well in your distant manufacturing plants or satellite branches. This model may work well at some levels and be a disaster at others.

For example, an established business that’s mature enough to spring back if things don’t turn out as planned may be more comfortable taking on the risk. Additionally, it may be easier for a large, profitable organization to adopt holacracy elements in some divisions than it will be for a smaller business with a shoestring budget to put all its chips on the holacracy table.

So, is the holacracy model right for your business? If you’re an established business that’s able to take the risk or a startup that favors speed and flexibility over traditional business models, it could help. Whatever kind of business you run, it’s important to have a full understanding of the potential problems that could arise in a holacracy model and to weigh them against the potential advantages. Only then can you truly make an informed decision.

Related: 5 Reasons Companies Thrive When Everyone Gets to Lead

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