When you're five or ten people or even twenty, purpose takes care of the organization. Things happen organically. Everyone collaborates. There's the excitement of a new beginning (see Hermann Hesse's Steps). Product gets built fast.
But as you start to scale the business and hire more people and things start being a little chaotic, there's this one moment. I call it the "now it's time to become a REAL company" moment (I am not great at naming stuff). Usually it's a founder who contracts that feeling and then starts spreading it like a virus.
This is a moment of fear. Fear contracts and people contract it. It's often the moment the company adopts a traditional domination hierarchy. Reporting relationships are set up. The first deterministic processes, foreshadowing the onset of the great bureaucracy, are introduced. Overnight the business becomes a less wonderful place to work. What most VCs don't see: this is often the point the business starts to lose its full potential.
And the true insanity is this: as the company scales headcount to 100 and beyond, hierarchy as an organizational model ceases to work well. Instead, the founder/CEO realizes we need a variety of small, cross-functional teams. Responsibility and the power to make significant decisions needs to be devolved to the edge of the organization. Alignment should happen at the lowest possible level (subsidiarity principle, anyone?).
So why do most companies have to go through this phase? And why do many not make it across this "organizational chasm"? It's egoic leadership, a leadership that's driven by fear, the wish to retain the success that has been achieved (attachment to outcome), and a lack of trust. Most founders instinctively hire phenomenally well in the beginning, but then destroy that achievement by withdrawing trust and seeking control just as things start to scale.
My favorite (radical) book in this context is Reinventing Organizations by Frederic Laloux. I'm not saying adopt all of that - just be aware of the principles. And know that the very first step is _not_ to force things in your company, but to gently use the momentum that exists to guide things to their natural outcome.
*Leadership is not an ego game.*