Entrepreneurial Cultures at Work

Through his work at several start-up and technology growth companies in Northeast Ohio, Silicon Valley, and Europe, Robert Hatta has gained an extensive understanding of the culture and needs of high-growth companies, with a particular focus on talent. In his current role at JumpStart, Robert advises portfolio companies on their talent and recruiting strategies, while providing a suite of services to help entrepreneurs hire and grow more quickly and effectively. This post originally appeared on his blog.

The Importance of Culture

Unfortunately, many times the phrase “company culture” is perceived to include things like “Funny-hat Friday” or office parties. Anyone who watches the show The Office knows what I’m talking about. However, I believe strongly that culture in a business is about how you work together, not how you play together.* To me, culture is a collection of certain values or principles that are core to a company’s identity and are aligned with the way a company does things. Therefore, culture starts and ends with people: who you choose to hire; how you develop and reward; who you fire and who chooses to go somewhere else. So it is impossible to separate culture from your talent and hiring strategies, policies on conduct, reward schemes and everyday interactions. In my role as an advisor to the companies in JumpStart Ventures’ investment portfolio, I am always looking for examples of great entrepreneurial cultures to learn from and share. These companies demonstrate how people, with shared core principles, doing things in a manner aligned with those values can become dominant in their respective markets.

Jim Collins has written two seminal books on what makes great companies, well, great. Good to Great and Built to Last are on every executive’s must-read list and take a rigorous, data-driven look at how great businesses do things differently than their competitors and contemporaries. In each, he spends a lot of time talking about the cultures of these companies in great detail, drawing out specific examples of how the great companies have built and nurture very strong cultural identities and use these as a competitive advantage in their respective industries. To Collins, culture is not about mission statements and the like, but the aligning of action and values. It’s not enough to say you stand for one thing or another, but real mechanisms (“mechanisms with teeth” as Collins calls them) need to be in place that reward behavior and actions that align with core values and punish those that don’t. Though the companies that are at the core of Collins’ work are all globally dominant, generations-old businesses, I firmly believe that successful startups need to take the same, rigorous approach toward defining core values and putting real mechanisms in place to reinforce them.

I’ve been fortunate to work for a truly great company, Netflix. Most people know Netflix as the DVD-by-mail service. With over 15 million subscribers, those little red envelopes have become a common site in mailboxes around the country. However, what truly makes the $8 billion company special is its culture of high performance. Like many companies, Netflix talks a lot about recruiting and retaining only the very best people. Unlike most companies, they have serious, structural mechanisms in place that back this up. For anyone who is interested in how they do this, read the internal culture presentation found here.

The short version:

• The mission of the company is not to be the world’s leading film and movie entertainment provider, but rather, to work with stunning colleagues.
• Stunning colleagues are described as those that have 9 distinct core values, and question actions that are inconsistent with those values.
• These values are reinforced in all aspects of how the company does business – from hiring and compensation to firing.
• Great performance is given generous (above market) pay… adequate performance is given generous severance.
• If one of your employees came into your office today and said that they were leaving for another opportunity and you aren’t willing to fight for them to stay, fire them now.
• If you are willing to fight for them, fight now, not after they’ve decided to leave.

I’ve seen and experienced this culture first-hand and know it to be THE reason Netflix has managed to defeat some of the scariest competitors a business can face – Blockbuster, Walmart, and Amazon.

Another company that I recently discovered to have a similar view on culture is Bridgewater. I’d never heard of this company before a couple of weeks ago, but can’t stop talking about them in the time since. Bridgewater is the highest-rated hedge fund in the world, with over $80 billion in assets under management. However, you’d never know that by visiting their website. Most of the messaging on their website talks about what kind of company Bridgewater is. In fact, the first link you will find on the site is to a 110-page personal manifesto from the company’s founder, Ray Dalio, on his personal and business principles. Its content is simple, but mind-blowing. The core to their culture is “radical” truth-seeking and transparency. I’ve not had a chance to experience this directly, but most reports explain this as ruthless honesty. Any idea, any decision, from any source needs to hold up to rigorous debate and scrutiny. Egos or the thin-skinned have no place at Bridgewater. I highly recommend reading this document.

What resonates most with me about all these companies is the similarities in their core values and the commitment to aligning these with actions through “mechanisms with teeth.”

• Netflix and Bridgewater both hire slow, fire fast. As a result, both experience lots of turnover in early months, as new hires struggle to adapt to their unique cultures. However, once the match is made, the bond is water tight. Dalio describes the fit between people and culture as making a “click”, like two puzzle pieces coming together. As a result, both enjoy very little turnover down the road.
• Employees at both companies not only live the core values, but demand the same from their colleagues.
• Candor, honesty, and continuous self-improvement are included in both sets of core values.
• Few people see anything all that special going on in these companies from the outside.

This last point is worth highlighting. Many times, people confuse brand with culture. If a company or its products are sexy and fun, they transpose that onto the company’s culture. However, companies like MTV, Virgin, and Apple are known to suck the life out of their employees, rewarding and empowering only the most cut-throat and politically-savvy few. Now, that in itself is an example of a strong culture. And these companies are very, very successful. But I’ve worked in two of these companies and can tell you that it’s not as sexy on the inside as it appears from the outside. That’s the thing, good cultures usually aren’t sexy (inside or out). But in all strong cultures, you either “click” or you don’t. In these instances, I definitely didn’t click. At Netflix, I did.

All companies with strong cultures built on accountability, candor, and excellent performance from all employees have one more thing in common, and that is managerial courage. Sticking to your principles is hard, especially as organizations grow and achieve success. Individuals and companies lose their way every day, forgetting the values that got them there in the first place. Dalio himself admits that, “virtually all problems we encounter can be traced to violating one or more of (our) principles.” Collins recently published an entire book about “How the Mighty Fall” that covers this very topic.

For myself personally, and to be more effective in my role as an advisor to startup companies, I’m always searching for examples of successful companies that have a strong understanding of a great culture. If you have any stories to share, please do so in the comments section.

* I’m not saying we should throw out the “play together part”. For example, Zappos famously promotes Creating Fun and A Little Weirdness as one of their core values. What’s important is that having fun is an established core value at Zappos, supported by real mechanisms that align this core value with the way things get done at the company. One of these mechanisms is in the hiring process, where recruits are invited to weekend social events as part of the interview process. Standoffish types don’t get invited back.