So among the many other worries that you have in the early days of your start up is actually setting up your start up for the right cultures that can grow properly. If you don't actually put the energy in this early on, your company will have a culture but it won't be the one you wanted to have. And so we have a lot of evidence in research that shows that company culture is important for a success. And so I want to talk about some of those intriguing research we have on company culture for start-ups which comes out the Stanford Project For Emerging Companies, the SPECs study. There is three scholars Baron, Burton, and Hannan, who all did this research. And they actually studied 175 Silicon Valley start-ups, and followed them throughout their history. Really looking at how they hired, how they retained people, how they handled employees, and reached some important conclusions about the kind of culture that makes a start-up successful. And so what they found was that there are really three sets of menus that start-ups are picking from in order to make decisions about culture. The first is what we call the basis of attachment & retention. So this answers the basic question of, why are people coming to your job in the morning, right? Why are people working for you? And they found that entrepreneurs had very different views about why people were working for them, and they fell into three major categories. The first was people worked for you because of computation, because of money. So, the basis of attachment was that they would get paid, right. That's why they were in the job. The second basis of attachment that people found was the quality of the task, that the work itself was interesting. So, people went to your job because they found the work exciting. And then another option was that they came to work because they like the people there. The community at work was great. They called this love, that you love the environment that you're in and you felt love for the other people there. So those are the three options for attachment retention, which is money work or love. They also looked at employment, how people were being selected for the job. And in my previous discussion, we had talked about some of these issues. But they found that there were three basic techniques people used for finding who would work with them at their company. So the first of those was skills, that they had the skills for today that did the job. So if you're trying to hire somebody who is a clerk for your restaurant, then you'd be hiring someone who has that previous clerk experience that you need right now. A second option was that you're hiring people based on their potential. So you don't actually have any experience in the job, but you're really smart, and you're flexible, and I think you'll be amazing. That's a second option. And the third is that we're hiring you because you fit with our existing team. So we still pay attention to skills and we still pay attention to fit. But we care a lot about the fact that you are part of us, you're part of the kind of culture we have, you'll fit in in our organization. Then the third set of menu items was how you coordinate and control people. So this is the answers the basic question of, what are people doing at the job? And how do I know they're doing what they're supposed to when I'm not there and watching them? So the first option is that you directly monitor people. So you stand around the office and make sure people are doing the job that they're doing. You have people punch in and punch out. You have security cameras. You have some sort of monitoring service where you're monitoring peoples usage of the teleconference facilities, or something similar. So, this is direct monitoring. We're keeping a close eye on you and that's how I know you're doing what you're supposed to. A second kind of control was about peer or cultural control. Some peer cultural control it's about the organization itself. So the people in the organization are all working together. If you start to slack, you're going to end up feeling bad, because the rest of the organization's going to make you feel bad about this. So, there's some sort of social pressure inside the company. The third is professional standards. So, if you're running a doctor's office, you'd expect all the doctors to have similar standards about what a doctor should do. Similar with lawyers, or MBAs or something similar. So, I'm counting on the profession itself to give this sort of coordination and control. And finally, you get a formal process and procedures. So, here is the handbook, this is how we do things and I expect you to do this as well. Maybe I'm not monitoring you as directly, but everyone's going to follow the same process and procedures. What turned out to be interesting in this study is, there's a lot of ways that you could combine these basis of attachment and retention, criteria for selection, and the means of coordination control. But there were just a few stable configurations that happened in company after company, start up after start up. So I'm going to walk you through these sort of stable configurations and we'll talk about the advantages and disadvantages. The first of these is what we call the Star Model. And the Star Model, the basis of attachment, why people come to the job is work. So the work itself is interesting or intriguing. How star companies select people is based on exceptional potential. They select stars, people who are terrific and amazing and have a great potential for the future. And the control is professional, so I know people doing their job because I treat them like professionals. I expected they've been like professionals in the industry. I don't need to monitor them, I don't need to tell them what to do. So here's a couple of quotes from the study looking at these sets of people to give you a sense of how a star company works. So we recruit only top talent, paid the top wages I give the resource so how they may need to their job, that's one founder of running a star company. Another said a science based company scientist like autonomy and independence. I value it myself, and it's important to make sure they have that. They feel the environment's exciting and leadership is there to provide the kind of place where their career is constantly renewing and growing. This essentially is most of my work, to ensure that they reach their maximum potential and to grow. So this is a star company, right? We stand out of the way, we hire the best people, we give them room to grow. A second model was the Commitment Model. In the commitment model, the attachment is to love. It's to the people and the culture of the company. You come in to the morning, you're coming to the work every morning because you are exited to work with this group of people that's like a family for your good group of great friends, and your organization is like a home to you. When you actually are hiring people that become a base company, you hiring them based on cultural fit. You're hiring them because these people will fit into the organization. They're like one of us. And the control then is cultural, right? The organization itself, because people are there and they like being there. You feel pressure to be helpful and help out the organization as well. So examples of this from the quotes from that study is that I wanted to build the kind of company where people would only leave when they retire. Or, I think people should be treated as human beings, as real people and really care for them. We're still pretty much like family. We try and keep as much of that as possible even as the company is bigger. That's one thing I learned from Hewlett-Packard. Bill Hewlett still flipped hamburgers for us at the company picnic. So this is building a family, an organization where people feel like they fit and they belong and they want to stay as a result. A third model is the Engineering Model, and in some ways, I think this is a unfortunate name. Because while it's an engineering model silicon valley, this is the same model that's followed by management consultants in many other industries as well. Here, again the attachment is to challenging interest at work. So people usually get paid quite a bit but their main reason they want to do this job is because the work is impressing and challenging. You select people because of the skill set that you need for them to fill out the tasks their working on and the control is peer. So, these teams of people working together on a particular task and they are all watching each other, making sure each other are doing the work that they are suppose to do. And again a couple quotes to illustrate this. We were very committed. It was skunk-works mentality and the binding energy was very high. Or we wanted to assemble teams of people who are turned on my difficult problems. The emphasis was to build an environment with individuals who are performance driven, achieve and oriented, customer focused, feel relatively at ease to join the bare specific teams. Skilled at interdisciplinary problem solving verse irrespective of culture or discipline. Teams that assemble to solve a problem and deal with an issue and then may disassemble and then handle another problem. So programming teams consulting teams, they all look like this. Then there's the Bureaucracy Model. When you think bureaucracy, you think red tape. This is not so in the case here. Again, this is not about just payment, the attachment still to interest in work. That's why people want to do this job as opposed to other jobs. And this lecture's still for the competence for the current tasks but it's mostly improvisational nature of those engineering based teams. In this case, there are formal procedures that tell people what to do. So again some quotes, we're not hierarchical as much as we are procedures, methodologies, and systems oriented. I really like to see that everyone in the company maintains procedures rather than just handwave and do things any way. We don't want to be so hierarchical as to be startling, nor do we want to be so flat that everyone's in each others business. Or we want to make sure things are documented, have job descriptions, project descriptions and rigorous project management techniques. So again, this is not a bureaucracy where you're going in, waiting at an office to see you passport get stamped. This, instead the fact that there's actual procedures that control things, rather than the improvisation we typically see in startup companies. The final stable model was the Autocracy Model and in this case, this is about the founder who runs things. This is a default model that founders often run into that can be very problematic. In this case, the main goal is that you expect people to work for you because you're paying them. You're hiring them because they can do the job today and you're watching everything they do, right? So one thing we want to avoid is consensus management. I think it lends itself to slowdowns and development schedules. We have good communications around a core group, but we certainly know who makes the call on things. We don't have the resources available to spend a lot of time getting everyone warm and fuzzy, rather than gain through a decision, or even more directly, you work, you get paid. So that's the autocracy model. There are many potential models out there, but these five stable models, star, engineering, commitment, bureaucracy, and autocracy are the ones that seem to be dominant in the startup culture of Silicon Valley. You could see each of them differs on attachment. Why people are working for you, on selection, how you're hiring people and control, how you're making sure they're doing what they're supposed to do. The stats in Silicon Valley showed that the Engineering model was the most prominent, had the plurality, followed by the Commitment, the Star, Bureaucracy and Autocracy models. You'll notice that 32% that's hybrid. Those are the people that didn't follow one of these dominant six models. Now, what's interesting is you'd expect there to be many more Hybrids because there is a lot more hybrid options. The fact that it's actually just 32% indicates that the stable models are much more common than the hybrid approaches. Now these models aren't just a guideline, they actually make a difference in the kind of company you're running. The kind of company you build will actually be influenced and the level of success it has by the kind of model you pick. So that star-based model where you're hiring based on potential and you're going for the people who accomplish the most amazing things, and you sort of stay out of their way, that works well for companies based on innovation. So when you're hiring star scientists or star programmers. It also works well for enhancement based models, models where you are doing small improvements to existing things. So maybe better design, [INAUDIBLE] innovation, so, Star works well there. It does not work well for sales, marketing or service jobs and it doesn't work very well for jobs where cost is the issue because hiring Star is expensive. The commitment model on the other hand is not very good in innovation because everyone thinks alike, that's part of why you all come in to be together. But it works really well for sales marketing or service models. So organizations where people are doing selling, where they do consulting work, this is a very powerful technique. The engineering model is rarely the best at anything but is usually good at anything potentially. So you can always assemble teams of people to handle a problem. So even though you're not optimize for anything from innovation to enhancement, to sales and marketing, to managing cost, engineering is a good default choice. Autocracy model is miserable that could operate in. It's a really good of web date which is cost control that's because the founder who actually can watch every penny that goes in the organization doesn't give people a lot of autonomy. And can really keep control on costs and count every paper clip. Finally, the Bureaucracy Model. This model of having clear process and procedures, not as great for innovation for the obvious reason that all these processes and procedures get in the way of truly innovating. But it can be good for enhancement, making something 10% faster, 8% smaller, where there's a clear set of goals because Project Management's usually done well. And it would be very good for sales marketing or service. Have your franchising, creating a national retail brand. This bureaucracy model is often ideal but it's more expensive so the cost issue won't be as helpful there. So it's not just an overall issue of Strategy. These models also have very different impacts on the long-term success of your company. So the commitment model is the fastest. It was most likely to IPO in this study, to actually go on the public markets. And the hybrid models, as we keep finding, are the worst. Hybrid models the slowest and least likely to do this. Commitment firms are also much less likely to fail. That's because if you happen to miss a payroll or you go through a rough patch. In a commitment based firm, people are working because they love the company and they'll actually redouble their efforts rather than start complaining and leaving you. While if they are working purely for pay a rough spot may cause them to jump ship. So in this case, commitment companies are least likely to fail as well. And the following IPO, the Star firms actually do best followed by commitment and autocracy and engineering do the worst. One important thing to realize is once you create a model like so many other things in startups, you're stuck with that model. Any attempt to change models even from a bad to a good model will actually increase failure rate and increase turnover. So people can get used to anything, they can't get used to change. So, whatever company you create, there's a lot of momentum in keeping it in place. What you see here is the number of people who stayed with their initial model, which is in pink, versus changed their initial model. And you can see that commitment were most likely to stay the same, as was bureaucracy. And the other models were more likely to change. If you have to shift, engineering models are generally the best to shift to. So, the things to realize is the Star and Commitment models are, by far, the best models you can take. But they're the hardest to do. So the commitment model means that you have to spend a huge amount of time building a company culture early on at a time when you have the least time and money to spend on culture building. And it requires you to have a real leadership and view of where the company's going. On the other hand, star companies require you hiring the top talent when you don't really have a reputation for doing that. And it takes a lot of money. You don't have money at that stage. And it also requires you to go through a rigorous hiring process. And then you have to figure out how to keep these people occupied and not at each other's throat. So if you can do star commitment, there's clear advantages, but it means you have to spend more time early on in your organization thinking about these concerns. The final things to think about is these models are important because they're based on culture, and they tie together who you hire, how you reward them, and ultimately, how you control the organization. It's better to be consistent. A bad model, consistently applied, is better than switching multiple times. That's much more likely to sink your company. And so you need to think about the implications of your model, and what model you want to pick. You have to realize your model gets locked in, so you make this choice early on. You have to be careful not to dilute yourself. So if you run an autocracy-based company and you ask people are you happy they're going to say yes because they're terrified of you. That doesn't mean they're actually happy at the company. So you have to be careful not to dilute yourself and actually realize what model organization you're building. And you have to realize that you could gain strategic advantage from thinking about these models. So even as you're thinking about product to market fit and innovation, you should be thinking about company culture as well.
