Key Considerations about Corporate Culture in Startups

Key Considerations about Corporate Culture in Startups

In this conversation with Leland Sandler, we discuss some of the best practices and common elements of a great corporate culture. This is becoming increasingly more important as the workforce is becoming more dominated by Gen Y and Millennial generation employees. These people want to be heard, and play an important role in the organization.  They want to be given ongoing feedback, challenges and the ability to develop themselves and get better.

Both more processes-oriented & rigid cultures, and more free-thinking & flexible cultures can be successful. Bottom line, companies want to get results, and employees want to have a place where they love to work.

There is a “what” and a “how” of corporate culture. The “what” of a good corporate culture starts with values and operating principles. The “how” is about the way that people in the organization interact with each other, the structure in which they operate, how people in the organization hold each other accountable, how they run meetings, and how they make decisions.

It is very difficult for large and established organizations to transform their culture. It takes a deep, consistent and daily commitment from the top including the CEO, and the next two or three layers down in the organization. Leadership needs to model the culture.

Startups should make a concerted effort to focus on culture early-on in the life of the company. Make a conscious effort to create your culture because it is going to be created anyway.

Ultimately, all organizations want to make better decisions faster, communicate better, and execute better.

A culture builds with momentum. Find areas of common ground where the principles can agree. Start there and build from there. You don’t have to have the whole thing figured-out in the beginning.

Hire for talent, but also consider personality. You need to manage with fluidity and agility.

An organization needs to ask itself: What’s important? Where we want to go? What we want to be? Who we want to be?

Some of the examples we discuss include Lou Gerstner as the CEO of IBM, and how he and his team transformed IBM, which was incredibly surprising to many. Another example is the hedge fund, Bridgewater where Ray Daleo was the founder. One of the overriding core values at Bridgewater is getting to the truth. We discuss how to create a culture of real openness? Interestingly, Bridgewater videotapes every meeting, not to do gotchas, but to allow people to review for themselves how the meeting went, and how they “showed-up” at the meeting. Also, if you were unable to attend the meeting, can watch the meeting later. Bridgewater has a mobile app that allows employees to login in their cell on phones and give feedback that is beneficial to any person. This is a culture that is structured where I can regularly have someone I trust whose commitment is to my development and growth.

We also discuss so-called “anarchists” in startup organizations. How you work with them. How sometimes you must get to a “decision point”, when this person’s collateral damage for outweighs their value, but the tendency to not take actions since “we need their technical brainpower”.

 

Patrick:     I’ve read different things about what I would call world-class organizations, like Nike. Phil Knight has a particular culture that he instilled very early in the company. It’s about competitiveness and winning. That’s really what the Nike culture is about, whereas the Coca-Cola culture is something different. The IBM culture is something different.

Is there a “best practices” culture? Is it more that, there are elements that are good in all cultures, but you define what it is, and as long as you stick with that, it’s your identity?

Leland:      I think that last one is more spot on. I think there are some elements to what one would call a great culture. In today’s environment, especially with Millennials and Generation Y employees, they’re incredibly smart. There are a lot of them. They’re in high demand.

If you don’t have a culture that’s appealing and fulfilling to them, regardless of the money, they’re going to leave. That’s one of the things that has shifted. That shift has played all the way up to people like us, the Baby Boomers.

What happens? What does that mean? It means that I know the organization cares about me. I know that I’m in a place where I’m going to be heard. I’m going to have a part to play in something that’s important. I’m going to be given feedback. I will be given challenges. I’m going to have a chance to develop myself and get better. All of those things, to me, are elements of the culture now.

As you said, it’s going to play differently. It depends on the set of people that you have. I do think there will be cultures that will do much better when they’re focused, process driven and have a clear idea about where they want to go.

I believe there are other cultures that can also be successful, that are a bit more free thinking, aren’t as rigid and bounce things off of each other. But there has to be something in common that really works for everyone. At the end of the day, you want to get results and have a place where people love working.

Patrick:     Do you believe that you can consciously define a culture or that you can change a culture? This was decades ago, but there was the famous McKinsey consultant Lou Gerstner, who eventually became the CEO of IBM. He really transformed IBM. You would never think that IBM was something that was transformable.

They stuck with many of the core values that the corporation had for many years. That is an example versus a very small company like Entropic. When I started there, we had 60 employees. We were still a young company. We had some contractors.

Even then, the culture wasn’t set in concrete, but there were elements of it where I had to make a decision before I joined. Is this a group of founders and engineers who have the same values and the things that I look for? Those are two different extremes.

Can you design a corporate culture? Are there times when it’s too late to do that?

Leland:      Yes, I think it’s the latter one. Let’s start with the first one. Is it important to do early on, and can you do it? Of course you can. You used the IBM example. In a good corporate culture, it starts with values and operating principles. What’s most important to us? That’s the “what.”

The second part is the “how.” That is often structure and process that helps us. Sometimes it’s a way of engaging with each other that we all commit to doing. The “what” and the “how” are the beginnings of that. If I work with a company, the first thing I want to understand is, what do you really value about this place? What’s most important to you? What are some principles to operate under?

I’m going to use an example of a company that I like quite a bit. It’s the number one hedge fund in the world. It’s called Bridgewater out of Connecticut. Ray Dalio was the founder. He’s no longer the CEO. One of the principles that was important to him was to get to the truth. Get to reality. Get to the truth. He has a number of others, but that is the overarching one.

What does that mean? If I’m in a meeting and I don’t speak up about something that’s on my mind, I’m not fulfilling my role in the corporate culture. The flip side of it is, they’re asking me to speak up. They want to hear me. If I say something, someone isn’t going to contradict me. They’re probably going to ask me a question.

They will probably say, “What do you mean? Tell me more. What got you here? What was your thinking?” Those questions take an extra minute or two, but they ferret out input that could be invaluable for making decisions. After all, what’s the point of saying, “Get to the truth?” It’s so that you can make decisions. You make better decisions faster.

Patrick:     I’ve worked for organizations that say they value that. But when someone speaks up, they’re criticized or ostracized if it doesn’t agree with the view of the leader. How do you create what I would call a culture of real openness? Does Bridgewater really have that?

Leland:      Yes.

Patrick:     Was that formed early in the organization? Those norms, attitudes, how we deal with things and communicate were established. They hired people who were comfortable with that kind of thing?

Leland:      Yes. That’s also an important part. There are three elements. I’m not saying they’re the only three. We talked about one, which is values and principles. Another element is what I call the structure that helps you.

Let’s say that the structure is feedback. Let’s say the structure is learning a process in which we’re going to ferret out people’s points of view. Let’s say the structure is, “I can’t articulate something until I fully understand what someone else means. I watch them.” Let’s say that part of the structure says one of the norms is that they are not to get ostracized. They are not to be embarrassed for asking the question.

But it doesn’t mean they will be agreed with. It doesn’t mean that they’re not going to be challenged. We want to challenge them. Regularly, we’re going to give each other feedback on how we’re doing. As strange as this sounds, Bridgewater videotapes every meeting.

Patrick:     Is that Big Brother?

Leland:      That’s what they’re accused of. They’re not doing it to catch you. They are so that you can review for yourself. Also, if you’re not at the meeting, you have documentation of it. My expectation is, when I leave a meeting, I am very likely to get some kind of feedback. They have a piece of software on their iPhones. Everyone who is at the meeting pops up.

If you feel like someone needs feedback, to their betterment… That’s another thing. If at any time, the feeling is you’re not giving someone feedback with the intention of helping them, but you’re giving feedback with the intention of helping yourself, that’s frowned upon. That’s called out.

Patrick:     This is a culture that was established early on. It’s grown to be a relatively big company.

Leland:      It’s reinforced regularly, over and over again.

Patrick:     The leader believes in it. There are rewards and punishments?

Leland:      Generally speaking, yes. You have principles and values. You have structure. The last piece is people engaging each other. Everyone in the organization has, what I’ll call, a coaching partner. That person has four roles.

One role is to be nothing more than a sounding board. One role is to be nothing more than a place for you to vent. They do believe you get to vent. Everyone has that need. As a coaching partner, when you’re done venting, then I would say, “Okay, Patrick. What are we going to do now? How are we going to move this forward?”

The third thing is to be an advisor. You might say, “I have this challenging meeting. I’m not sure how to deal with this. What do you think?” I’ll give you another point of view.

The fourth thing is to be your coach. I’m regularly giving you feedback on how I see you showing up and what I’m hearing. I feel that I have a coach. My go-to person is helping me along the way. I have a manager and a mentor. All of these pieces are coming together.

Patrick:     These are different people or is one person doing all these things?

Leland:      You don’t want to have your coaching partner be someone you report to. You want it to be fairly level, a peer.

Patrick:     Is that a value that you believe all organizations should have or are you just giving an example of a culture that has this particular thing and how it works?

Leland:      I’m giving an example of a culture. I do think the idea of some kind of structure where I regularly have someone I trust whose commitment is to my development, growth and improvement is a big deal.

Most of the time, because we are hierarchal, it’s going to be a manager, too. But it has to be in addition to that. I really like the concept. I also like the idea of having regular structure or practices that help me. Some of the things we talked about where how to run a meeting and how to make decisions.

Patrick:     This goes back to the previous example of IBM. Can you transform a culture?

Leland:      Arguably, you can’t, in my opinion. It’s really hard to do. Can you? Yes. It takes a deep daily commitment from the CEO. The culture that you’re trying to practice needs to be modeled and managed by the next layer down, and then the next layer down. If it isn’t being modeled at the top, it goes nowhere.

Patrick:     It’s really difficult. It’s hard to swing around and pick up a water skier with an aircraft carrier. You’re not as maneuverable in that situation. But aircraft carriers are very good for other things.

Leland:      Yes, they are.

Patrick:     That is a tough thing. Should startups focus on culture in the beginning? Should they let it evolve? Will it naturally come depending on the CEO? Do you get together with the team and talk about what they want to be or not want to be? What are your thoughts on that?

Leland:      I’m a big believer that you should create your culture. It’s going to be created anyway. At the beginning, you might want to contour it so that, from a timely standpoint, it’s not impacting peoples’ time.

Why would you put energy and time into having a culture? You want to make better decisions faster. You want to execute better. You want to communicate better. You want to do things better on a regular basis.

In startup mode, you’re kind of in a survival phase, at least until you get some early stages of finance. If you’re going to be in that mode, why not be as good as you can possibly be? I like to say, you get to build the culture from the ground up. Otherwise, it’s going to build you.

Patrick:     Let me give you an example out of my experience. It’s one of the companies that I ran. I have this belief based on dealing with a lot of founding teams and entrepreneurs. When you want to start a company or a war, you need to have people who are more unorthodox. I call them anarchists.

You need to have people who are out-of-the-box thinkers and are extremely passionate. You need people like that. As Peter Thiel talks about in his book, Zero to One, it’s different than one to some bigger number. I’ve worked with some of those people. They don’t necessarily have the culture that I would want.

A lot of times, they’re very anti-authority. They’re anarchists. But the amount and quality of what they can accomplish can be incredible and invaluable in a startup organization. I know how I’ve dealt with it. As someone who has dealt with many more companies than I have, do you just make an exception for the crazy person?

Leland:      Now it’s the crazy person. We said that culture has a lot of components. In this case, we agree on just one or two things. That’s the goal. Get everyone in the room to agree on those one or two things.

Let’s say that you have anarchists and everyone wants to go in a different direction. You will crash and burn. It’s almost guaranteed. There has to be some commonality. Part of that commonality may be starting one place. Let’s start with one thing, not three, four or five things. Maybe it’s how we make decisions. Maybe we agree on how that’s going to be done. We start there.

A culture builds with momentum. You don’t need to have the whole thing in place. That may be restrictive to many people, and to their talents that you want to bring out. Start small.

Patrick:     I’ve worked with these types of people. I’m thinking of one person in particular. They’re very difficult to manage. My ability to manage a person like that is different than my ability to manage other people on the team.

You can’t really manage them. You just point them in the general direction and make sure that the guided missile blows up the enemy, and it doesn’t blow you up. In the same context, there will be collateral damage with these types of individuals.

You wake up as a CEO every day and say, “Does the value that this person’s providing dramatically outweigh the collateral damage to the organization, or is this the day of reckoning that we address this issue?” Maybe some people are always that way and you find a way to work around them.

If you have dozens of those people and you make exceptions all over the place, that becomes your culture. It’s a culture of exceptions versus a culture of the standard. As an expert in this kind of stuff, how do you recommend our CEOs, founders and startup executives deal with situations like this?

You want to have a culture where you have efficient meetings, openness, get things done, thoughtful decision making, a bias towards action, people agreeing to disagree, everyone getting on board and everyone rowing in the same direction. But sometimes you have these people who are incredibly valuable and you make an exception for them.

Leland:      It’s a good example. I’m not going to go on the presumption that every out-of-the-box talented person is also going to be difficult, because it’s not true. If you’re hiring only for talent and not for personality, you have to be careful.

At the startup phase, you’re probably going to hire a little more for talent than for personality. I get that. The second thing you said that I agree with is, “I’m going to manage fluidly with agility.”

How I manage this person may be a little different than how I manage this person. I’m going to set the expectation with the whole team ahead of time and tell them, “I’m going to try to bring out the best in each of you.” I have to make a call on how I need to do that. That’s the second thing.

The third thing is, you have to come with some kind of commonality with the so-called anarchists in the room. What can we agree on so that we are pointed in the same direction? We are headed in the same place and everyone feels like this is part of the game that I want to play.

The fourth thing you mentioned is the decision point. In my opinion, companies make that decision way too late. This person’s collateral damage quotient is way too high and painful. We hang on too long. We rationalize why because they’re talented. We need their scientific brain power or their technical ability. It’s at the cost of being the company that we really want to be. At the end of the day, this wasn’t what we wanted but now we’re stuck with it.

Patrick:     In the early stages of a company, there are no redundancies. You have single point of failure all over the place. It gets to the point where we’re building a product and we don’t even document it. Who am I documenting it for, myself?

Eventually, you do have to grow up. You do have to put processes and procedures in place. Once you remove that redundancy, maybe you don’t do it with one individual, but with two or three individuals, you’re in a situation where you can make a change.

Leland:      Exactly. That’s your adaptation. It’s your adaptation to make the whole organization work but also bring out the best in each individual.

Patrick:     Do you have any other thoughts on culture or things that our audience of startups and entrepreneurs should think about when they’re trying to establish a culture? What’s important and not important?

Leland:      That conversation is a great conversation to have. What’s important in terms of where we want to go? What’s important about where we want to be? I want to be here because this is a place that I love coming to and I’m engaged in.

It isn’t just the technology, science or the product. What else is there? What else is important to me? Having that conversation across that small organization is not only important, but it’s a pretty easy one to have because you’re so small.

Patrick:     What’s the size in terms of number of employees where you feel like you can still mold it and it’s relatively set, where you’re talking about very minor changes after that?

Leland:      It depends on the industry. Some people say you can do it with 30 or 50 people. I think you hit an inflection point around 100 to 150. By that time, a culture is starting to cement itself. If you weren’t intentional early on, and now you want to be intentional, it’s a little harder but still manageable. Once it gets into the few hundreds, it becomes very difficult.

Patrick:     This is a lot of good food for thought for the entrepreneurs out there. For me, the parting comments are to make sure you’re conscious about what kind of company and culture you want to build early on. Make that a part of your decision process as you’re talking to people to bring into the company. Model those behaviors that are consistent with that as you run the organization.

Leland:      Yes, that’s very important.

Patrick:     This is Patrick Henry, the CEO of QuestFusion, with the Real Deal…What Matters. We’re talking to Leland Sandler, Executive Coach, about corporate culture. This has been a fantastic discussion. Thank you very much, Leland.

Leland:      Thank you. I appreciate it.

This is Patrick Henry, CEO of QuestFusion, with The Real Deal…What Matters

 

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