Cracking the Code: How Growth-Stage Companies Can Build Strong Cultural Foundations

By: Steven Berman & Nina Mermelstein

We’ve all heard the phrase ‘company culture’ a million times. We know what it means; or at least we think we know. But when something is repeated so often it can be tough to cut through the clutter, escape the platitudes, and unpack exactly what needs to get done and the roadmap for how to get there.

Here at Aequitas, we often partner with founders during their initial growth-stage, and at no point in a company’s lifecycle is the establishment of a strong cultural foundation more important. The values and principles that growth-stage startups adopt will inform their worldview and decision-making for years to come. And given how few employees there are, each new hire plays a vital role in shaping the culture of growth-stage companies; the #4 employee has a much greater impact on the long-term sustainability of company culture than the #40 employee does.

Because culture is so integral to the success of growth-stage companies, we thought we’d delve into what founders can do to create and nurture strong cultural foundations. Below is a three-step process for establishing a lasting cultural blueprint.

Define Your Culture

Part of the reason there’s so much confusion around what makes a strong company culture is that people are focused on the ‘what,’ as opposed to the ‘who.’ Company retreats, ping pong tables and team happy hours don’t define your culture – your people do. Events and office perks are mere facilitators. So it’s worth asking yourself: what exactly are you facilitating? What types of discussions and interactions are your teammates having? That is your company culture. Culture is people.

Some founders want a gritty, no-nonsense team that’s all about rolling up their sleeves and tackling problems day-in and day-out. Others prefer a more creative dynamic team, where teammates are encouraged to think high-level and question every directive before its implementation. The culture you want to build will unearth itself in the people you hire. They are the ones who will embody your company’s perspective and worldview. Ping pong is just a way for them to let off steam.

Along those same lines, there are some who view culture as a measure of output: if the team is producing at a high-level, that implies the culture must be strong. Others, however, believe that culture is not directly linked to on-the-job performance; rather it is about the values and principles that the company espouses. This type of culture doesn’t directly inform an employee’s everyday performance. Instead, it manifests itself through a zeitgeist – or collective spirit – which transforms into a million-and-one decisions that are made at both a macro and micro-level going forward. If the first type of culture implies focusing on output, such as counting the number of trees you plant, then the second type means landscaping a forest and creating space for the trees to grow.

There is no right or wrong approach to crystalizing a strong culture – the key is to be honest with yourself about who you are as a leader and the type of work environment you’re trying to build, in order to encapsulate your company’s mission. Just remember that talk is cheap, and you must embody the culture you want to create – for nothing is more discouraging to teammates than a ‘do as I say, not as I do’ leadership style.

Identify and Attract the Right Team

When it comes to team-building, founders often focus on finding the best and brightest – and with good reason. But there are plenty of ‘best and brightest’ candidates out there. The real question is, which one will be the best fit for your company?

Anyone can read a resume. The trick to finding the right cultural fit is reading the person instead (i.e. understanding your candidates’ goals and what truly motivates them). That means reading between the lines via ‘active listening.’ Active listening implies paying attention to how candidates speak in addition to what they say. Do they speak in lists or are their thoughts more fluid? Do they tend towards the extreme with superlatives or are they comfortable with gray matter? When it’s their turn to ask you questions, pay attention to the types of questions they come up with – are they about product or process? Are they thoughtful? Were they listening, or were their questions canned?

Your goal as an interviewer should be to seek out authenticity above all else; to untangle the real from the artificial. Remember, those first few hires will inform your culture more than any others you make down the road, so it’s important to spend the time now to get it right (for more on the value of formulating a plan before taking action, see our 1Q18 article, ‘Getting Your Ducks in a Row: The Importance of Planning Before Hiring’).

Establish a Solid Foundation

A recent Harvard Business School study illustrates the importance of establishing a strong culture early. The study, which analyzed over 100 early-stage startups, found that employee happiness actually drops more dramatically at faster growing startups. Startups with 20-200% annual revenue growth over their first six years reported a much steeper decline in their employees’ overall happiness levels than startups with 0-20% annual revenue growth. The reason is that the faster growing startups were so focused on rapid growth that they neglected to establish a strong cultural infrastructure. So when the company faced challenges later in its life (typically years 3-4), the problems were exacerbated by the absence of a strong cultural foundation.

In effect, the fast-growing startups sacrificed the important for the urgent; they focused on the ‘what’ and the ‘how’ of their business, at the expense of the ‘who.’ This approach has its consequences, as the absence of a strong cultural foundation often leads to voluntary attrition by employees. The same study uncovered that founders who rate the importance of culture lower than 10 on a scale of 1-10 are 70% more likely to have high employee turnover rates than those who rank culture a 10 out of 10. Employee turnover is challenging for any business, but especially so for a growth-stage startup, which lacks the infrastructure needed to overcome the loss of a core executive. Think of investment in culture as an insurance premium against unplanned employee attrition.

When founders begin the sales and marketing phase, they often speak of early adopters. A different approach is utilized when engaging this demographic, since they are the ones willing to take a gamble on your untested product or service. Well, the same should be true for employees – the only difference is that instead of selling them on your product, you’re selling them on your vision. These folks are the early adopters of your company culture, so it’s necessary to treat them with the same patience, care and gratitude that you would an early adopter of your product or service. And just like early-adopting customers, the first employees you bring on will become advocates for your brand, spreading the gospel to future candidates, and by extension making your job of attracting the best and brightest that much easier (for more on the added benefits of a strong interview process, see our 2Q18 article, ‘Designing the Candidate Experience: An Exercise in Brand Stewardship’).

Focus on What’s Important

Healthcare is an industry built on empathy; helping others is at the very core of who we are and what we do. Virtually all of the CEOs, entrepreneurs, executives and employees we have engaged with are motivated by that same noble mission. So let’s leverage those common principles as we build and grow our businesses. Connect with candidates by expressing your passion and motivations, and ask current and future employees for the same in return. What may seem like a tenuous aspiration – the development of a ‘strong company culture’ – can in fact be achieved by the simple act of elevating people above process, and sharing your vision with your future teammates. After all, Culture is People.