And I mean this literally: If you want your startup to succeed in today's hyper-agile and über-competitive environment, you've got to tear down those office walls. Why?
Because in a startup environment, communication trumps privacy!
Over the past ten years, I have visited the offices of well over 100 startups in Silicon Valley, and looking back, there has been a very strong correlation between those startups sporting an "open office" layout and their ultimate success. Here are some examples:
Powerset (acquired by Microsoft as foundation of their Bing natural language search engine) started with the whole company huddling around a large conference room for the first year in CommerceNet headquarters in Palo Alto. No executive offices, no cubicles, not even individual desks.
(Which, coming to think of it, reminds me of another quite innovative, albeit a bit older startup)
Facebook Long rows of tables with monitors facing in every direction has been characteristic of Facebook offices from the humble beginnings in scattered offices throughout downtown Palo Alto, to their new digs at the former Agilent building in Palo Alto. Here is a skateboard video tour of the new office, which illustrates that they are still true believers in the open office philosophy:
Google When they outgrew the garage and moved to 165 University Avenue, Palo Alto (also known as the "lucky building", home to other notable startups such as Logitech, Paypal and Danger) with their 8 employees in 1999, they didn't have any offices. They are still trying to maintain the open office feel, although it gets a bit harder to do once you have over 20,000 employees worldwide.
(Larry and Sergey in their startup garage. Pic from http://bit.ly/JnL9x)
Of course, just having an open office layout does not guarantee you overnight success, yet without one, you are putting your company at a distinct disadvantage versus your competitors, as they will be able to innovate and move much faster than you can. In startups, every nanosecond counts. Your employees need to be in constant communication with one another, and your job as founders/executives is to eliminate any barrier and friction in that process (coincidentally, this is one main reason it is usually not a good idea to outsource/offshore development in a startup, regardless of the immediate financial benefits).
As for those employees who come to you and tell you they need a cubicle/office because it is getting too loud for them to be productive, well, you may just want to offer them a pair of noise-canceling Bose headsets before you make any rash decisions.