Newsletter 93: the founder's guide to building an effective culture
Throughout the past decade, I have maniacally focused on becoming a better founder. I consumed countless books, podcasts, and blogs, on topics like startups, entrepreneurship, and leadership. My entrepreneurial journey exposed me to various roles, industries, and even several countries. The obsessive focus has paid many dividends. I am grateful for having the opportunity to work on things I thoroughly enjoy. Yet, the one area where I still feel underprepared is mastering the science and art of building an effective culture.
In my experience, nothing can compensate for the lack of a solid culture. A culture focused on shipping fast and user-centricity. Even if you somehow manage to build a great product, get good traction, and hire kickass people, that won’t be enough. If your culture shows signs of toxicity, it can poison the well, erode the well-being of your team, drive the high-performers out, and ultimately eat your strategy for breakfast.
The more I reflected on the significance of shaping the right culture, the more I studied how other companies have done it. I looked at all the great examples, like Netflix, Google, Apple, Amazon, Coinbase, and Pixar.
Yet, there is a limit to how much you can learn from other leaders and organizations. After all, building a lasting and effective culture is not something that can be easily engineered. A culture is a by-product of many dynamic forces. The founders’ personality. The countless conversations and decisions that happen every minute across the organization. The location of the business. The macro-environment. The list goes on and on.
Having said that, there are specific levers over which you have control. That’s the topic of today’s essay. What’s within your control? How do you influence groups of people to do some of the best work of their lives repeatedly?
Founders Leaders
Perhaps the most impactful lever within your control is your behavior as a leader. Your team will mirror you by default. In fact, they would most likely start by picking up the bad qualities you have. If you are late for meetings, that will become the norm. If you do not respect 1:1s, other people will follow suit. Tolerating mediocre work will show other people what’s the expected quality bar. Not respecting deadlines will encourage teams to do the same.
So my experience has taught me that no matter what, ensure you keep yourself accountable. Lead by example. Even situations that feel insignificant matter. Acting poorly will plant the seeds of a toxic tree.
Having said that, it’s not easy to be continuously aware of your attitude and behavior. But no one said it has to be easy. That’s the job of a leader. You need to portray the behavior you expect other people to mirror.
Whenever I start a new business or lead new teams, I do my best to solve complex problems in public. To lead by example. Give credit away at every opportunity. Show the team that I care about the work they do. Be firm. Do not tolerate mediocre work. Take time to understand the people on my team and their aspirations. What excites them? What are their weaknesses? Then delegate work accordingly where possible.
The most outstanding leaders figure out how to drive outcomes by setting the right example. Over time, a healthy culture’s foundation will emerge. All you have to do is to set the right example for long enough. It starts with you.
Hiring
How you hire is another tool that’s entirely within your control. The bigger the organization, the more critical it is to adhere to excellent hiring practices. But even early on, it matters quite a bit. After all, your first ten teammates are the most critical hires you will ever make. They will replicate themselves and set the quality bar for any new employee you will ever hire.
At the beginning of your journey, you would most likely lack the resources or brand power other companies have. That would naturally put you at a disadvantage. Talking to obviously great people will position you in direct competition with all successful, well-resourced, and popular brands. Matching compensation packages and perks of what established brands offer is incredibly difficult.
Perhaps, a better approach would be to focus on people who are great but struggle at selling themselves offline and online. I have met many superstars who do a poor job of articulating their strengths.
But no matter what, you should do everything possible to keep a high bar of talent density. Smart people attract other folks of the same caliber. Imagine if every person in your organization is someone you respect and learn from. It feels fantastic to work in a team of rock stars. There is no need to micromanage. People naturally pick complex problems to work on. The velocity of execution is incredible. As the business grows, the culture becomes a reflection of talent density.
But hiring well is only half the battle. As the company grows, mistakes are invertible. So trimming the fat every once in a while becomes an important activity. There are many ways to do that, but I particularly like Netflix’s way of doing that — the keeper test:
“Which of my people, if they told me they were leaving for a similar job at a peer company, would I fight hard to keep at Netflix?”
Then let go of the other people by giving them a generous severance package. That’s Netflix’s way of opening a slot to try to find a rockstar and thus keep a high talent density.
Rituals
By rituals, I am referring to man-made artifacts designed to create a coherent set of human behaviors. The mission, vision, and values are examples of rituals. Another example is all hands, 1:1s, offsites, and other events the founding team is repeatedly encouraging. Those events exist to create business and cultural alignment across teams and cultures.
In my experience, it all starts with defining a set of values that clearly communicate the behavior which results in new hires, rewards, promotions, or letting people go. Otherwise, your values would not be taken seriously. Then, it would help if you continuously gave examples of how the organization lives and breathes those skills and behaviors.
A word of caution, be cautious and avoid the wrong type of rituals. As the organization grows, it will naturally become bureaucratic. The bureaucracy is an attempt to control the inevitable chaos of fast-growing businesses. Controlling chaos comes in the form of processes. Some processes are good and should exist, but it’s rarer than many think. What actually happens is that most process brings short-term outcomes. Some mistakes are eliminated but at the cost of minimal thinking. As a result, you get a degree of efficiency at the cost of adaptability. Not to mention how many processes are self-serving. A set of rules designed to make the job of individuals and/or teams easier, not to propel the company forward. The most significant challenge of pre-maturely set processes is how inflexible everyone becomes. Rather than staying focused on getting the job done and adapting to an ever-changing market, teams get obsessed with process adherence. On a long enough time horizon, the company disappears into irrelevance.
So how do you get rid of destructive processes that stifle the organization?
In my experience, there are several ways:
Keep the organization small — the downside of this approach is that you cannot scale. It may work for some highly technical startups, but if you have a solid product-market fit sooner or later, you will need to hire many more people.
Organizes teams into small units — Coinbase recently announced the rolling out of small pods, <10 people working on a specific feature or area. Then each area/feature is run more or less as a standalone company.
No rules, rule — Netflix has notoriously designed another way of minimizing destructive processes: keep a very high talent density. The company trusts in smart people to figure it out.
“With the right people, instead of a culture of process adherence, we have a culture of creativity and self-discipline, freedome and responsibility.”
Netflix’s culture handbook
I like implementing each of the strategies mentioned above at different phases in the lifecycle of a business.
Early on, keep the organization small for the longest possible time. More people do not equal more output. Quite often, the opposite is true. Bigger teams dilute focus. The more people you manage, the more you are forced to work on people’s problems instead of pushing the company forward.
Yet, no matter how long you keep the company small and nimble, sooner or later, you have to grow. Then do everything in your control to keep the talent bar high.
As the organization grows, test Coinbases’s approach. Run products as individual companies. That would result in better focus and accountability.
To summarize, fight relentlessly against all destructive processes. Throw smart people at problems. Always let your values dictate who you hire, fire, and reward. Then communicate all that in public so the broader organization can embrace your values.
Putting it all together
In my view, it is possible to engineer an effective organizational culture. First, the founders and all other leaders need to understand how critical it is to lead by example. Second, you must do everything possible to have a high talent density. Finally, define aspirational artifacts. A set of behaviors and skills to serve as the invisible glue that binds and guides all teams towards great work.
Building and maintaining an effective culture won’t be easy. In fact, the larger the company gets, the harder it will be. But, the good news is that an effective culture gives you an unfair advantage over your competitors. So leading with culture would likely result in an asymmetric upside down the road.