Your company needs engaged employees who can think conceptually and solve problems, but there is a very real chance that your management style is doing just the opposite: stifling employees' innovation and morale.

Why? Because many entrepreneurs rely on an autocratic, command-and-control model in which the boss tells the workers what to do. That style was born in the 19th century, when we needed employees for their brawn more than their brains. But changes in technology, workplace demographics, and the global economy demand a new paradigm. Old-school management techniques no longer cut it because in a centralized decision-making model one person is doing all the thinking.

Second-stage entrepreneurs need to think hard about how to manage effectively because success now becomes more tied to how you manage your social system rather than how you manage your economic system. In startup mode you focused on how to make money, add value, and capture a market. Once you expand beyond 10 employees, however, the continued success of that system depends on how you manage your workforce. Indeed, Gallop estimates disengaged workers cost between $450 billion and $550 billion annually in lost productivity.

They Want What You Want

Think about why you launch your company in the first place. Having a purpose was probably high on your list, as was autonomy: You wanted to work without someone looking over your shoulder. You wanted to do compelling work, be around people you found stimulating, and control your destiny.

Your most talented employees are looking for the same thing--it’s not just about a paycheck.

One second-stage entrepreneur who really gets this is Luke Ford, founder of My Computer Works (MCW) in Scottsdale, Ariz. Ford launched MCW, which provides remote computer repair, in 2005; today the company generates about $4 million with 70 employees, including 50 technicians who work virtually.

Ford has embraced a management style of empowerment, which he attributes to his years as a sales executive at Fortune 500 companies where he had “responsibility for everything and the power to do nothing.” As CEO of his own company, Ford engages employees by:

Enabling workers to do what they love. That starts with hiring. At MCW aptitude and attitude trump experience. "We look for people who have a real passion for computers and technology and then train them how to be excellent technicians," Ford says. "We believe that if you really love something, you’ll excel at it." What’s more, MCW has developed proprietary analytical software that frees its technicians from more mundane tasks, such as performing diagnostics on hardware, so they can focus on problem-solving, which is what they really enjoy.

Encouraging constructive conflict. Late in 2013, Ford divided his company into seven cost centers and assigned one or two to each of his senior managers. Their objective: make sure costs don’t exceed a certain percentage of revenue. "It’s created a tremendous amount of empowerment," Ford says. "If I make decisions that are going to be expensive, they can call me on the carpet. I don’t have the ability to spend money without their permission--or, at least, without them questioning me."

Stretching skill sets. Ford believes that it's critical to give high performers more responsibility. Case in point: When his CIO wanted to take his children to Europe as part of their home schooling experience, Ford didn’t blink. Nor did he need to call the CIO once during that six-week period. "That proved just how good he was," Ford says. "He had empowered his teams to operate without him. When he came back I promoted him to COO and tripled the number of his direct reports."

Make Flexibility a Core Value

Another example of innovative management is Stuart Carlin, founder of Machine Tools.com, a Michigan-based online marketplace for buyers and sellers of new and used machinery, which generates about $3 million in annual revenue.

"Whenever we hire a new employee, where they work is determined on a case-by-case basis, depending on what’s best for that individual," Carlin explains. Today he has 18 employees: 10 work virtually, five work from MachineTools.com’s headquarters in West Bloomfield, Mich., and three work from its Ann Arbor office, in office space that Carlin opened when he wanted to hire someone who had just become a father. "I didn't want him to have to work from home with a baby," Carlin explains.

That flexibility extends to employees' schedules. MachineTool.com has no vacation policy. People take time off when they need to, and they don't need to ask for permission as long as a colleague covers their duties.

Carlin gets a lot of raised eyebrows about his management model: "People always ask me how I know if employees are really working. First of all, everyone uses Skype, so it's easy to tell when they're at their desks. If you're working, your Skype is on. If you're away, your Skype is off. I don't care if people take a two-hour lunch break or if they suddenly need to take the afternoon off. I trust that my people know what needs to be done and that they’ll do it. When you trust people, you get so much more back."

Carlin is an employee-centric leader. Like Ford, he has a high degree of trust. He doesn't try to impose his working style on employees but instead recognizes them as individuals with different wants and needs. He has created a results-driven organization and allows employees to decide how they will complete tasks and hit goals. What especially impresses me is that he doesn't have a vacation policy, but allows his employee to decide when they need time off. This is really throwing old-school thinking out the window. People talk about work-life balance, but Carlin lives it.

Question (Your) Authority

Remember, as CEO you're the architect of your organization's design. You can design it any way you want, so don't try to force-fit a management style. Step back, take a deep breath, and remind yourself that you're building a new company in a new era.

Set aside some time to question generally accepted management practices and your current management techniques. Are they improving things for your employees and helping them do their best work? Or are you operating by antiquated assumptions that are doing more harm than good?

Experiment. If something works, keep it. If it doesn't, throw it out and try something different. Find out what works for you in this century.