Founders want to scale their businesses from two to 2,000 people. They want to launch worldwide. Some even make it happen. When they do, it’s not thanks solely to their Big Idea. It’s because they have created a workplace that can learn, innovate, pivot and deliver. Internal culture matters. Nick Watling, Partner at Fenji & Co, explains why…
What makes a business grow? It’s a simple enough question, with some obvious answers: a great product, skillful go-to-market execution, competitive differentiation.
Historically, founders have focused their attention on these elements, which we might call external factors. Why ‘external’? Because they relate to customers and investors: the way the company presents itself in the world.
Undoubtedly, these outward-facing factors are important. But they represent only one side of the equation.
Put simply, products cannot be designed, delivered and scaled without people. That’s why today’s more enlightened founders think equally hard about ‘internal design’.
In other words, workplace culture.
Examples abound. Look at AirBnB. Yes, the company launched with an innovative idea. But so do many others. Without a doubt, the company’s acclaimed internal culture has helped it scale towards a projected $8.5 billion turnover by 2020. AirBnB calls its employees the Airfam. In 2016 alone it received 180,000 CVs for 900 positions.
Job applicants care deeply about company culture. It will determine their levels of motivation and performance. When workers feel they don’t fit, they are more likely to become disengaged and leave. Individually and collectively, this can impact delivery and productivity.
Obviously, workplace culture matters inside every organisation. But in a high growth startup, it can be the difference between scaling up to meet demand or missing that opportunity.
In fact, research by CB Insights based on 101 start-up post mortems found that not having the right team in place was the third most common reason why start-ups fail (after poor market fit and failing to raise sufficient capital).
And yet, workplace culture is rarely top of a founder’s list of priorities. It’s still misunderstood. The word ‘culture’ is loaded with different meanings. It is complex and hard to measure.
But that shouldn’t stop us trying. I’ve spent my career helping organisations to understand internal culture and manage change – mostly at big organisations with the resources to hire consultants and embark on costly programmes.
However, more recently I have started to ask: why can’t early-stage businesses benefit from the same insights? I think they can, and should. And I believe the best way to make this happen is to nurture skill sets in leaders while the business is still small.
AlbionVC has been pondering the same questions. It knew that many of its portfolio companies had grown employees and revenues by 10x in two to three years. It also knew that in every case the value proposition had changed, the mission evolved and the competition increased.
What had made these companies survive and prosper? AlbionVC believed it was workplace culture. But it wanted to investigate its hunch.
That’s why, together, we launched a research project to see how workplace culture impacts fitness to scale. We looked at nine fast growth technology companies within AlbionVC’s investment portfolio. We ran surveys, held focus groups and interviewed CEOs.
To assess fitness to scale we asked these questions:
- How well does the business attract, manage and retain talent?
- To what extent is the top team and the entire business aligned around a clear and compelling purpose and direction?
- Does the organisation enable people to work well together?
- Is there potential and capability in the business to execute flawlessly?
- Does the business respond and pivot quickly and effectively?
The results were clear. Every company that scored well on Fitness to Scale is currently outperforming commercially. Every company that scored poorly is underdelivering against its potential. There was a 100 per cent correlation between these two measures of performance.
And a positive workplace culture doesn’t just help a business scale. It will also minimise the risk of reputational damage from lax ethics further down the line. One only has to look at what happened to Theranos – with its fear-fuelled internal culture – to understand that.
So, the question is: how can founders create an excellent workplace culture from the get-go?
Here are five tips.
1 Align staff around a clear and compelling purpose and direction. This will excite and attract talent, guide behaviour and inform good decision-making.
- Attract, retain and manage the right people. Think carefully about the interview, feedback and assessment processes. Work hard to create a diverse workforce. Reward and recognise performance. Promote learning and development.
- Ensure people can work together well. Design a workflow and organisation structure with clear roles and responsibilities. Create open communication channels that work across multiple departments.
- Design processes that help people to execute flawlessly. Minimise bureaucracy so that people can make decisions. Have fewer shorter meetings.
- Promote the ability to pivot and change. Instil agile practices that encourage experimentation and innovation.
It’s time to reassess workplace culture. It has to be more than a happy by-product or a just a quirk of the founders’ personality. Early-stage companies should design it from the start, then shape and measure it as meticulously as any product or campaign.
For more insight into this important topic, download the report we are proud to have worked on with AlbionVC: ‘The impact of workplace culture on fitness to scale’.