Tag Archives: startups

How to Change Corporate Culture

I was recently at an all-day retreat for an organization that is working on changing its culture. Like many fast-growing companies, this group is finding that what worked when it was smaller is no longer working. Ad hoc lines of communication break down as organizations grow. Old timers don’t trust newcomers, and the newcomers chafe under the mistrust. This is a common problem here in Silicon Valley, where growing companies are the norm.

Part of the challenge at this company, and at most companies in this position, is that founder who has gotten the company this far, often by being involved in every decision, is unable to let go even as she brings in experienced managers underneath her. Note that I am using female pronouns here, but this is definitely not a gendered issue.  If the corporate culture is one where nobody can act without founder approval, it will be challenging for the company to grow, no matter the gender of said founder.

More broadly speaking, this raises the question of corporate culture in general, and whether it can change without the people at the top also changing. Generally, corporate cultures reflect the personality of the founder; thus Oracle has a reputation as aggressively cut-throat, like Larry Ellison, while Microsoft long had the reputation as heartlessly numbers-driven, like Bill Gates.  James Baron, a professor at Yale, is one of the leaders in studying organizational change, and he notes that “founders impose cultural blueprints.” With older companies, a culture develops over time; IBM built a culture that was bureaucratic and risk-averse, and only an outsider like Lou Gerstner could change it.

Studies seem to indicate that corporate cultures will not easily change unless that change is driven from the top. This often means a founder ceding control to an outsider, but it can also mean a CEO committing to change and making that commitment public and real. Here are some factors which are essential to a CEO successfully changing a corporate culture:

  1. The CEO must announce the new values
  2. The CEO’s direct reports need to be on board with the changes
  3. A plan should be in place to drive these changes to all constituents
  4. There has to be a cost to violating the new norms; apostates must be punished.

The most important thing, however, is that the CEO needs to live the changes. Corporate culture comes from the top, and if the top doesn’t change the rest of the organization will see the announcement as empty words.

For example, what if a company has a culture of people showing up late for meetings, or not at all? Everyone at the company might agree that this is a cultural artifact they want to change. But most likely this culture exists because the founder is usually late for meetings, if she shows up at all. There are a number of reasons why a founder might act this way, but it doesn’t really matter why; what matters is that as long as she shows up late, everyone else will too. The only way for this culture to change is for the founder to embody the change.  That’s the thing about leadership; it requires you to lead.

Yes, It Is A Tech Bubble

We’ve seen lots of talk recently about whether there is another technology bubble going on, with LinkedIn’s super successful IPO, and shares of Facebook, Twitter, et. al. trading on secondary markets at multibillion dollar valuations. I lived through the first dot.com bubble in 1999-2001, and based that experience I am saying right here, categorically and emphatically, that we are definitely in another bubble. I will add some caveats at the end, but listed below are my top reasons for calling this a bubble. Every single thing I list below also happened in 2000, and made rational observers then realize that we were in a bubble. The more things change, the more they stay the same.

A) Insanely high valuations with no reasonable relation to the metrics (revenue, income) of the company (LinkedIn, Groupon)

B) Retail investor hunger for tech stocks. Back in 1999, we were all talking about Joe Kennedy’s famous line: “when you get stock tips from your shoeshine boy, it’s time to sell.” When the public is hungry to invest in a category, it’s a bubble

C) Farcical metrics. In the dot.com era we were supposed to look at eyeballs, not revenues. Now Groupon tells us that we should ignore marketing costs and look at “adjusted consolidated segment operating income

D) The emergence and venture funding of many copycat businesses. How many flash sale or social coupon businesses do people need? And what about Color, which raised $41 million to launch yet another iPhone photo sharing service, and reputedly only shared 5 photos during the iPhone developers conference and had its president leave within months of launch?

E) Especially the emergence and venture funding of narrow vertical copycats. For example, Juice in the City is Groupon for moms, Pawsley is Facebook for dogs, Everloop is Facebook for tweens (who will, by definition, leave as soon as they are old enough to join Facebook), etc. Anyone who lived through the dot.com remembers “vertical portals.” That didn’t work out so well.

F) Society and entertainment figures or kids fresh out of Stanford and Harvard business school as entrepreneurs.  (Juice in the City, Rent the Runway, Ashton Kutcher.)

G) Venture funds you’ve never heard of leading rounds in vertical copycats (Juice in the City funded by HU Investments and Tandem Enterprises)

H) Companies you’ve never heard of buying prime time TV commercials (Peel)

I) Ridiculous and nearly identical company names (Buzzr, Socialzr, Apptizr  etc.)

J) Weekly launching of new “incubators,” in which people, some with limited experience, will mentor new companies in return for some equity (Growlab, Capital Factory). Or one incubator, 500 Startups, that funded two nearly identical companies: StoryTree and Vvall.

K) Putting a tech sheen on non-tech companies so that they can raise money at tech company valuations (The Melt)

L) Features posing as companies. A clever little web widget, even a useful one that gets a lot of users, might not be enough to support a viable company. And starting companies that you know can only succeed by being acquired is a classic bubble move. For example, StumbleUpon, Blippy. Actually, Blippy alone is enough to prove my bubble hypothesis. Only in a bubble could that company have even existed.

Now for the caveats, or counterpoints:

As many have noted, some of these companies, particularly the big ones (LinkedIn, Groupon) are generating real revenues. Back in 2000, revenues were a rare thing. However, I should note that neither LinkedIn nor Groupon are particularly profitable. Neither is Pandora. Twitter still doesn’t really have a revenue model. The random widgets and apps that are raising money? Not so revenuefull.

There are more customers now. With the spread of broadband and smartphones, an online business has a much larger base of potential customers than in 1999. That means that the same capital investment can, theoretically, be spread over a much larger revenue base.

This bubble is focused on consumer-facing internet businesses. Not all tech companies are being lifted by the bubble. Microsoft, Google, Amazon and the ilk at still trading at normal to relatively normal valuations.