One perspective on why company culture matters and what to do about it.
When I was building my last startup, company culture was a complete mystery to me. I knew it was important and had no idea how to do it. I wanted a guide to tell me what I needed to know and do - this is my attempt at being exactly that guide. It's a living document so please send feedback and suggestions.
What Culture Is & Isn't
At some point a “great company culture” became equated with free lunches, happy hours, and foosball tables. While these are parts of a culture, the underlying values that they reinforce often are either unclear or unhealthy. There’s much more at play and at stake.
Culture is your company’s DNA - it’s what makes you you. Not only has it always existed but it continues to evolve over time, although often much remains true from day 1 onward.
I define company culture as:
The values, beliefs, and attitudes that define what matters most and also how you behave in the pursuit of what matters most.
Company culture always impacts results. Whether that impact is positive or negative depends largely on how healthy a culture is.
Why leaders <strike>should must care about culture
If you lead an organization and care about succeeding then culture needs to be a top priority.
In fact, I believe that a healthy culture is the highest leverage, highest ROI investment for an organization. Yes...more than securing capital, more than growing revenue, more than building a great product.
Let me show you why…
An Intro to ELTV
I’m not much a fan of quantifying people nor using acronyms, but I’m about to do both. Apologies in advance.
Employee Lifetime Value or ELTV is a concept that an employee contributes a certain amount over their time within your organization and there are levers that you can use to increase (or heaven-forbid decrease) their lifetime value as measured by contribution.
Here is a rather crude graph that hopefully explains things:
When an employee is hired their contribution begins at zero, they haven’t even setup their laptop yet.
As they are onboarded, their contribution increases until they reach their regular level of contribution. They then contribute at that steady state until they decide to depart the organization.
And at that point, they begin transitioning their work to others decreasing their contribution until their last day. The shaded area underneath the curve is that individual’s ELTV.
A healthy culture impacts this graph in a few different ways.
Culture Impact on ELTV #1 - Higher Output
Healthy cultures create clarity on what behaviors and objectives matter most. By aligning everyone on the same set of norms you end up with not only less confusion but also quicker decision-making amongst even the most junior team members. The net result is an amplifying effect across every team member. Each person becomes more effective and efficient in their work producing a jump in their steady-state level of contribution.
Worth noting…these gains continue to pay dividends over time creating a compounding effect.
The sooner you tend to culture the sooner the benefit begins to build.
Culture Impact on ELTV #2 - Faster Onboarding
A defined and healthy culture also ramps up the speed of onboarding new employees to being full contributors. From the moment they’re hired, everything they experience reinforces the culture that they’ve joined. They quickly and naturally learn how things get done and start doing them. There’s hardly a need to explain the culture, they experience, they embrace it.
The impact on ELTV is a slope change to the onboarding ramp.
On the flip side, the longer a new employee is alone in trying to figure out how to do things, the more you waste their full effort.
I remember an organization I joined years ago that had me in state of guessing for my entire time at the company. One month we did things this way, the next month it was something quite different. I assumed this meant that we had an ‘experimental’ culture. Months passed and yet we never actually learned anything or got nearer to an answer on who we are or how we work. It was simply unhealthy. I didn’t last long.
It feels icky to know you’re capable of more and not be able to demonstrate it. Healthy culture and onboarding aligned with it, is a powerful antidote.
It also impacts retention.
Culture Impact on ELTV #3 - Retention
Employee turnover is expensive. You get dinged at least 4 ways:
- You have a ramp down period for the departing employee.
- You have a gap in time for replacing someone.
- Your recruiting resources get pulled from other needs to address this gap.
- Once you find a replacement they need to be ramped up in onboarding.
Combined turnover can be a killer for startups that need to be moving quickly.
Culture happens to be one of the few tools available for addressing employee turnover. Put simply, healthy cultures keep employees engaged in their work and engagement has been shown to reduce turnover by 65%1.
Employees who stay longer contribute longer extending the ELTV graph.
Culture Impact on ELTV #4 - Talent Attraction
Great cultures attract great talent. The difference in contribution between an average hire and a top-performer can be massive. One study 2 across multiple industries found that the top 5% of people in a company produce 26% of the output.
Top-performers create over 5x the output of the remainder of employees. Let that sink in and then get serious about creating a culture that attracts the best.
Oh and one bonus kicker here….employees in a healthy culture will be more eager to refer others into the company. Not only does this make it easier to fill positions, but also top-performers tend to know other exceptional people. Ignore this potentially powerful dynamic at your own peril.
The Data Backs This All Up
A study conducted by Harvard Business School examined 200 company cultures and found that strong culture increased net income by 756 percent over a span of eleven years3. And yes, eleven years is a long period of time, but the gains are real and you can start unlocking them starting today.
Making the bet to build your organization’s culture is up to you.
And the odds are stacked in your favor.
Wait…so why do so few founders and leaders make the bet?
Most founders simply don’t know what to do about culture. Plus, they don’t have the time to stumble through it.
That’s why I built this guide and I do this work.
It also can feel risky to many founders. In reality, the risk of ignoring your culture is greater.
The problem is that if you don’t define your culture then it continues to define itself. At best it’s a missed opportunity to align on what matters most.
I’ve witnessed darker sides of not clearly defining your culture:
- Cliques form within the organization.
- Departments begin to resent one another.
- Gossip becomes the way that information (and misinformation !) spreads.
- People start second guessing the leaders.
- Then the leaders start second guessing the leaders.
It’s all an incredible waste of energy and resources and a breeding ground for unhealthy stress.
Perhaps most simply the reason to care about culture is elicited in Hubspot’s culture decks which asks the question: “Whether planed or not, all companies have a culture. So why not create a culture we love?” https://blog.hubspot.com/blog/tabid/6307/bid/34234/the-hubspot-culture-code-creating-a-company-we-love.aspx
What makes a healthy company culture?
I often hear this question phrased as “What makes a good company culture?” It seems like the same question but infers that there is some ideal to live up to in an organization's culture. There isn’t.
It’s simple: Unhealthy cultures lead to more bad things happening. Healthy cultures foster good things happening.
There isn’t a right or correct culture that you need to figure out and adhere to. Aim for healthy.
Three things make a healthy culture:
- The Culture is Defined
- The Culture is Communicated
- The Culture is Built Upon
What happens in healthy cultures:
- Everyone in your organizations makes quicker, better decisions.
- People are energized by getting to put their energy toward something that they believe in, a place of work that honors who they are and the impact they want to have.
- There are fewer fires to put out. Leaving more headspace for execution and proactivity.
- You’ll hire more people who will thrive in your organization.
- Similarly, it becomes much clearer who might be the wrong fit and may need to be let go (this is often both for their sake and the organizations). <<article here>>
- You establish an organization that develops new leaders for your business and for our world.
Look…if you’re not convinced by now, read no further.
If you are, then you’re probably wondering…so how do you create a healthy culture?
You begin by defining it…
Understanding & Defining Your Organization’s Culture
Defining your culture is making the invisible visible. You need to get clear on your identity and make the choice to be proud of who you are and how you act.
Your culture is a living thing, so don’t fall into perfection paralysis.
Defined and directionally right > Unclear
Embrace the journey, know that you can and will continue to iterate.
But for now, it’s time to get clear on why you’re here...
First, Define Your Purpose
Your organization’s reason for existing is the foundation on which everything is built. Left unclear and each person will intuit their own purpose.
Your purpose serves as the scaffolding on which everything is built. It isn’t the building itself. The strategy and tactical approach come later but will be structureless without purpose.
Defining your purpose is best performed as a leadership team, done offsite, and when possible facilitated by a professional.
Together, start at the beginning...Why do we exist?
In your responses, be as idealistic as possible. The details of how you’ll fulfill the purpose will come later. For now, let yourself and your team dream. And dream big.
Your aim is to define the core reason that you make the world better. It can be for you, for your customers, for the world, or any combination of the three.
Your purpose must be true. It should light a fire inside you; make you feel something. I think you’re close when you feel the fear of “Could we actually do that?” In the end, it should inspire some kind of a “fuck yea” around the room.
Next, Create Your Culture Code (Define the Essence)
Purpose is the beginning of the essence of who you are. It answers: “why you exist?” The other component of your essence answers “how do you exist?”
In this process, you’re seeking to identify the underlying values, beliefs, and structures that enable you to be your very best in pursuit of Purpose.
Defining these pieces is simple, not always easy. Here’s one way to do it...
Phase 1 - Exploring
Start by exploring, gathering, and collecting what’s important and what’s not about how you behave, what you believe, what works in your organization, and also what doesn’t work.
The more people that you can engage in this phase, the better. Inclusion drives a shared sense of ownership of the process and gives everyone a heads up that the organization takes culture seriously and a process to define it is underway.
Use interviews, focus groups, and your own experiences to identify the defining stories and themes that drive your behaviors and have enabled your success to date.
A few questions that can help:
- What 2-3 people in your organization if you could clone them would best set you up for achieving your purpose? And then, what are their characteristics that make this true?
- What 2-3 people in recent or current times have most struggled to be effective in your organization? What characteristics about them caused them to struggle? What is the flip side of those characteristics?
- What makes your organization iconic, distinct or unique? What are some specific examples (notable, memorable, or impactful stories)?
- What is it that makes you excited to come to work everyday?
The goal is to unearth as much as possible; capturing the words and stories that surface. Resist the temptation to start wordsmithing, that comes later.
Once you have the necessary raw material, start to refine.
Phase 2 - Refining
Taking all of what surfaced during exploration, combine and bucket everything into a handful of themes or areas that are most essentially who you are.
Get everything on a wall to make it easy to see patterns and begin to condense. Follow your curiosity. If something makes your ears perk up, go deeper and add.
From here the debate begins. Gather key leaders in the company and take turns pitching those that should be kept and those that can be discarded. The key question is always “Is this core to our essence - who we are and how we behave?"
Focus on grabbing hold of what is true, not on finding the perfect words to explain the truth. This comes in the next step.
Your goal should be to refine down to a handful of final themes. Fewer is better and you also need to balance that with needing to be complete in covering all of who you are.
Phase 3 - Crafting Your Culture Code
Once clear on the handful of areas that make your organization uniquely you, it’s time to find the right words, images, or stories that bring them fully alive.
Again with the leadership team gather offsite, if possible facilitated, to begin crafting the completed culture code. Taking the themes that you’ve refined, now explore the metaphors, inside jokes, key historical moments, and invigorating words that bring those themes to life.
Questions to consider:
- Is this uniquely us?
- Is what we have complete? Is anything redundant or unnecessary?
- Where is there energy and where is the energy lacking?
- And finally, are we all committed to this being true and good enough to bring to the team as a whole?
Your culture code can take whatever form fits for you and I’ve included a few examples to give you a glimpse of where you’re headed. Some organizations select short phrases that capture the essence. Some add on a sentence of description to be clear. Some add in stories in the company history,. Some add images or icons to create more clarity. One company I know of uses a single word and an image with no additional description. They believe that a part of their essence is allowing each individual to make their own deeper meaning.
Both Twilio and Hubspot are examples that might inspire.
The only “right” way to do it is to create what is uniquely you. Resist the urge to copy and allow yourself to be inspired.
Communicating Your Defined Culture
With your purpose clear and culture code defined, the hard work begins as you seek to enlist the team in taking ownership of the culture.
Simon D’Arcy of Culture Builder captures this phase well:
Most culture-change efforts fall short. The landscape is littered with failed culture change efforts. Successful implementation is counterintuitive.
None of the usual methods work: it can’t be delegated, can’t be mandated, can’t be outsourced, can’t just be hired and fired, can’t be given to internal SWAT teams.
To succeed, everyone from the CEO down to the janitor must be involved. Cultural fitness requires every person in the company to do their own pushups. The goal is to change company DNA and intentionally shape, build, enhance, and transform the culture of your team, organization and company.
To do this, you have to start with people: In fact, you need to build an army of Culture Builders.”
It’s time to get everyone on the same page and involved...
Setting Up the First Communication for Success
Call an all-hands meeting, letting everyone know the reason for gathering. The team should already be familiar with the ongoing culture effort from their involvement in the Defining phase and you’re likely to have a lot of positive, eager energy entering the room to see the outcome.
Leaders, and especially the CEO, should explain why culture is important, the process that was taken for defining your culture, and the outcome of the effort.
The key to a powerful meeting is simply this: Use the meeting to model the culture code in action.
Leave room for responses and feedback, but stand firm in knowing that what you’ve presented is true and will continue to evolve alongside the organization.
I also suggest finding ways to immediately create conversations around the culture code. Perhaps break into small groups to spend time brainstorming ways they could personally put these ways of being into action starting today. In the coming days, have team leads spark similar conversations with their team.
Your culture code needs to be communicated over and over. There is no such thing as talking about it too much.
It also needs to be built on in action by your people.
How to Build Culture
Once articulated, your people and your processes are where you build culture. Your goal always to bring more fully to life what matters most.
While it’s hard to give advice on this since your company culture will be completely unique, there are a few places to start:
Your culture code should fundamentally change both who you hire and how you hire. Candidates should encounter the culture code explicitly in the hiring process. This gives candidates a taste of who you are and how you work, also making it easier for them to self-select whether your company is a place that they’ll thrive.
Integrating your culture code in the hiring process also maintains an internal conversation around the culture. Discussions around “Why is (or isn’t) this candidate a fit at our company?” will create new depth to what the culture is and means.
How you onboard needs special attention to help new hires get up and running in your culture. There will be some things that new employees will need to discover over time, but your culture cannot be one of those things. Onboarding into the culture must be intentional and explicit.
Take a look at what you choose to communicate and not to. There’s probably some quick wins and likely some bigger shifts that might take time to enact.
How things are communicated is also worth a hard look. There’s a big difference between getting a key update via email vs. in-person from your manager vs. at all-hands meetings vs. hearing it as gossip.
Intentional communication aligned with your culture is impactful.
Also part of communication, how you run meetings and how you give and receive feedback are both areas to explore for building culture.
Want to Talk Culture?
In case you can’t tell, I geek out on startup culture a bit. If you’d like to talk about what’s going on at your company, reach out and let’s find a time to chat.
- My Thoughts
- Why Your Company Should Have Regular Town Hall Meetings (And 1 Reason You Shouldn’t)
- One of the Hardest Things About Clearly Defining Your Company Culture
- Six Examples of Powerful Culture Codes
- Elsewhere Online
- Books on Organizational & Startup Culture
- The Advantage