A company's culture is what people do when the CEO is not watching. And that is a very valuable -- if intangible force -- because the right culture will attract and motivate the right people to do the right things at the right time to realize the company's goals.
In researching my new book, Scaling Your Startup, companies told me that they don't articulate culture in the earliest days when the founders are scrambling to build a product and win customers. I agree with them -- it's a mistake to spend time articulating culture until your company has achieved initial success -- culture should reflect the values that drove that success.
Here are three ways to keep from making that mistake and instead articulate and use the right culture at the right time.
1. Articulate culture after the founding team wins its first customers.
This springs from an idea attributed to MIT Sloan School Professor Emeritus, Edgar Schein, who pointed out that it is only after the startup achieves success -- by selling its product to many customers -- that a company should define the values and behavior that helped it succeed.
Once a startup achieves initial success, it raises more capital and hires new people. That's when the company should scale its culture by analyzing and articulating the values that drove the startup's initial success.
One company that did this well is Boston-based, Toast, which supplies a restaurant management platform. In March 2019, Toast raised $250 million at a valuation of $2.7 billion, according to Venturebeat. Toast was founded in 2012 and raised its initial $500,000 seed round from the founder of Endeca, a Cambridge software company where its co-founders all worked when Oracle bought it for $1.1 billion in October 2011.
Toast did not achieve success with its first product but did enjoy a surge in demand after building a new one. In an April 16 interview I conducted with Toast Presidents and co-founders, Steve Fredette and Aman Narang and CTO and co-founder, Jonathan Grimm, pointed out Toast's initial product -- a restaurant paycheck app -- struggled. However, their pivot to a point-of-sale app was so popular that Toast could not keep up with the demand.
They uncovered specific values that drove their early growth. As Narang said, "In the early days, our success was due to being close to the customers and caring about making our customers successful."
Grimm, who was raised in a small Kansas farm town -- noted, "We had the confidence to ignore people telling us that we'd fail because we were in a crowded market." Ironically, that sense of confidence came from what Grimm called "a culture of no ego -- doing right by the customer -- rather than flashy, self-promotion."
Fredette -- who tried to compete with Facebook when Mark Zuckerberg was a Harvard student and turned down an offer to be one of its first employees -- emphasized the importance of "learning what made our initial strategy work and leading by example rather than articulating values."
2. Define values through focus groups with culture-carrying employees.
When you're ready to bring on new employees and want to make sure they fit your culture, it's not a great idea for the CEO to define the company's values in isolation. Instead, the founding team should pick a group of employees whom they believe have demonstrated the deepest understanding of what makes the company successful.
The company should conduct a focus group with these culture-carriers to uncover what they see as the company's core values. That's what Toast did. As Narang said, "When we reached 80 to 100 employees we identified 10 to 30 of our employees who were best aligned with our core values.We focus-grouped the company's six core values by asking 'What does it mean to be successful here?'"
3. Use the values to hire people who will fit the culture.
If a startup hires someone who does not fit your culture, it could endanger your company's survival. That's because most of your people will quickly realize that this person needs to go -- and to paraphrase what Babson College Professor of Management, JB Kassarjian, told me in an April 10 conversation, instead of making that decision quickly, most companies wait too long and hope things improve before letting the person go.
That's why you should screen potential employees for cultural fit so you don't hire people who -- while competent in their functional areas -- would poison your company.
Fredette was interviewing a candidate for an engineering position and asked him, "'What do you think of our team?' The candidate replied, 'Just OK.'" Fredette thought to himself, "He did well on the technical questions but why would you say that? If we hire someone toxic, it will spread."
Culture is powerful if it helps your startup to scale. These three tips can help.