Karl Hughes

Karl Hughes

Building a Great Startup Culture

Building a Great Startup Culture

I once shared office space with a quickly-growing startup in downtown Chicago. This company seemed to be printing money, and they spent it accordingly. They had one of the most prestigious office buildings, free meals for employees, a company barista, and yoga classes on Tuesdays.

Everyone in the city was enamored with this company. They were on the front page of the Tribune, the mayor came by to speak to them, and their founders made a big deal about the strength of their culture.

A few years later, the founders were indicted for defrauding investors based on deceptive sales practices. The once-prestigious startup was cut down to a shell of its former self, and the founders are now facing jail time.

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Why Care About Startup Culture?

This experience reminded me that culture isn’t defined by the perks your startup offers, and a toxic culture can kill your business.

Culture is the difference between a sales force that lies to customers and one that provides real value. It’s the difference between a team that works for the weekend and one that believes in and supports your company’s mission. It’s the difference between political backstabbing and a team that collaborates to solve problems.

Working for the weekend to go windsurfing

After ten years as an early employee (and now founder) at several startups, I have some thoughts on what makes a good startup culture. In this post, I’ll offer some tangible tips for founders who want to intentionally build their startup’s culture. This won’t be your typical cookie-cutter listicle, so brace yourself for a slightly unconventional perspective on company culture.

Note: If you’re looking for more reading material to help you on your journey to create a healthy startup, I created this list of my favorite books for founders.

What is Startup Culture?

Culture is the collection of the behavioral norms people within an organization exhibit. Behaviors are a product of each person’s values and the rules that are enforced, so I think of the culture equation as something like this:

Rules + Values = Behaviors 
Behaviors * Team Members = Startup Culture

In a startup, the founders’ behaviors often have a stronger influence on culture than the employees’, so the startup culture equation is probably a little more complicated:

(Team Behaviors * Team Members) + (Founders' Behaviors * Founders)² = Startup Culture

This is a pretty standard way of thinking of culture, but there are some unique considerations when you think about defining your startup’s culture.

Startup Culture vs. Corporate Culture

The primary difference between startup culture and corporate culture is that startup employees are united behind an idea. In the early stages, every employee is a foot soldier in an ideological battle. Startup culture is the embodiment of the company’s vision, the heartbeat of the company’s ideology.

On the other hand, corporate culture tends to be more aligned with the company’s bottom line. When a startup tries to build a culture based purely on this sort of bottom-line thinking, it can be a recipe for disaster. Startups that sell employees on their potential financial gain will struggle to retain them when things inevitably get tough.

Culture Can Change…Eventually

The larger an organization is, the longer it takes to change its culture.

Startup culture is active because startups are (typically) highly-malleable organizations. It changes as your company grows because the people in your company will change along the way, but some parts of your culture will be very hard to change.

“Growing a culture requires a good storyteller. Changing a culture requires a persuasive editor.” - Ryan Lilly

For example, if you set impossible sales goals, you will build a culture where salespeople never hit their quotas. What do you do as the business matures and you figure out how to set more realistic numbers? Now do the quotas actually matter? How will you square your earlier forgiveness with your new stringency?

This won’t be an easy transition to make. Every time I’ve been with a startup that made a major structural change like this (including a business pivot), a large portion of the employees turned over with it. Changing culture and changing your team goes hand-in-hand whether you like it or not.

Empty board room

How Not to Build Culture

Most startups who decide it’s time to invest in this squishy idea of culture start by defining the culture they want and then telling everyone in the company something like:

“Hey, everybody! We sat down this weekend at the retreat and decided that we want our values to be X, Y, and Z. This will make us have a totally great culture. Can’t wait!”

As Ryan Vaughn points out, in this fantastic Reddit post on culture:

“This is the single most common way to disillusion your team and hurt your culture with the best of intentions. Because culture work must start with discovery, not generation.”

So, the first step to creating a company with a great culture is understanding your existing culture and the factors that influence it.

If you attack this problem early by manipulating these factors towards the culture you want to build, then the culture-building process will just take a little bit of maintenance work.

If you wait until your startup is 50-people strong to tinker, you’re going to have a bad time.

Trying to manipulate your culture at a large startup will just make you have a bad time

Factors That Define Your Company Culture

Ok, let’s get a little more concrete here.

If you want to take an active role in building your startup’s culture, you first need to understand what defines culture in a small organization. Startup culture has nothing to do with the perks you offer employees - those are just window-dressing.

Here’s an incomplete list of what does matter:

1. The Founders

“We just treated others the way we wanted to be treated. We were normal, decent people who loved building things. If this is your vibe also, please don’t be afraid to show it because even in business, it resonates with people.” - Tracy Young, Founder of PlanGrid

By far, the #1 factor in an early-stage startup’s culture is the founders.

I had an interview with a startup a few years ago. Their Head of Product brought me in to interview for a VP of Engineering role, but the CEO who I was supposed to meet with was unable to meet with me.

The Head of Product apologized, “Sorry, but it looks like CEO has to review some pull requests, so he won’t be able to meet today.”

My mind was blown.

They were bringing me in because the CEO needed to hire someone who could help him get out of the engineering work, but he couldn’t meet because he was stuck doing engineering work.

Something was terribly wrong with this startup’s culture, and I had a feeling it all started with the CEO.

My general advice to potential startup employees is to spend time with the founders before you commit. On the flip side, if you are a founder, think about what your behaviors are showing others in your company. It doesn’t mean anything if you say all the right things but act like a jerk.

People will do what you do, not what you say.

2. Communication and Transparency

The way founders communicate with their team will then carry over into how teams communicate with one another.

  • What do you do when you need something from a team member?
  • Do you interrupt your engineers to ask them to change the colors on a button?
  • Do you yell across the room when you want to get someone’s attention?
  • Do you call people out in public or behind closed doors when they make a mistake?
  • Do you tell your employees how much runway you have left or keep it a closely-guarded secret?

Communication choices like these have a huge impact on your startup’s culture, and I’m an especially outspoken skeptic of secretive startup founders.

A friend of mine joined a startup a few years back as one of their first full-time employees. He asked my advice about a problem he was facing with the founder:

“Founder keeps changing my tasks. First, he wanted me to work on Problem A for Client B, but halfway through that project, he made me switch to Problem C for Client D. He won’t tell me why we’re making the rapid changes or what happened with Problem A because he says he ‘doesn’t want me to worry about the business side.’”

This is a huge red flag.

Eventually, he found out that the founder was losing clients like wild, but didn’t want to let anyone know. I don’t think you need to broadcast your revenue and profit margins to the public, but if you can’t tell your employees that you recently lost a big client, there’s something seriously wrong.

3. Expectations and Enforcement

What do you do when you set a clear goal for an employee, and they don’t hit that goal? Do you even set goals for your employees? Do you set them together or alone?

I’ll admit, setting concrete goals in an early-stage startup is mostly an exercise in imaginative thinking because you’re unlikely to hit them. Still, setting goals forces you to focus your startup’s efforts and helps everyone feel a sense of purpose.

“I don’t care if you call them OKRs, sprints, or something else entirely. Just set a deadline when you want to have something done and a metric you want to move or some other concrete result.” - Calvin French-Owen, Co-founder of Segment

Setting made-up goals based on almost no data is easy. The second half of this section is the hard part. What does enforcement say about your startup’s culture?

Extreme 1: Hard Driver

On one extreme, you might set goals and then fire every team lead in your organization who misses their targets for more than two quarters in a row.

This will push people to cut corners, cheat, undercut, and throw blame on everyone else. And as your company starts crumbling around you and morale plummets, you as a founder will start to miss your goals. What then? Tell the board you resign?

Extreme 2: Loosey Goosey

On the other hand, you could ignore the outcome of goals altogether. Team leads who miss their targets consistently will be allowed to set “more reasonable” (i.e.: lower) targets every quarter until nobody really does much of anything.

This will breed complacency and push your best employees out to pursue more challenging opportunities.

So, if you’re looking to build a culture that encourages high-performers, you need to set goals that are hard to reach but reasonable. This means different things, depending on your startup’s funding and growth goals.

A wild goose appears!

4. Spending, Hiring, and Compensation

Another telling factor in startup culture is how the company spends money.

One startup I worked for had a very frugal culture. This is admirable in many cases, but it has its limits. For example, I was once asked to spend two weeks of engineering time figuring out how to save money on our relatively meager hosting bill. We shaved $40 off it, but everything else was essential.

“What about turning off the servers at night?” My boss asked.

When you show employees that you value their time and expertise less than $40 per month in server savings, you have set a dangerous cultural precedent.

This happens in other ways too. For example, many startups outsource the first version of their software product or push employees to take equity instead of a market salary.

Equity should be used as an incentive for key employees to stay. Beware founders who are too quick to give it away.

Negotiating over salary is also something that shapes a startup’s culture. For example, I’ve had a startup founder ask me to present my previous pay stub during an interview so he could “prove to his investors that he wasn’t overpaying.” This is illegal in many states, including mine.

Alternatively, you might come up with standard pay rates and career ladders for all your employees from the beginning. The problem with this strategy is that it leaves you very little room to reward outstanding performance.

I’ve found that startups tend to attract a higher percentage of aggressive top performers. These people are motivated by having a big impact, so be sure you compensate them fairly when you find one.

Finally, you should assume that your employees will talk to each other about their salaries. If people find out they’re unevenly compensated, it will put a significant damper on your culture-building efforts.

5. Working Hours and Performance

Finally, your company’s culture is influenced by your expectations around working hours and performance.

There are two extremes in this category too:

Extreme 1: Pay for Hours

The traditional measure of a startup employee is based on the number of hours they spend in their seat, banging out work. The more lines of code an engineer can push and the more calls a sales rep can make, the more respect the founder will give them.

This is naive. I have rarely worked more than 40 hours per week, but sometimes I’d sit at my desk for a couple of extra hours every evening working on side projects. These furthered my career but didn’t do much for the company. Still, I was perceived as a hard worker, while my coworkers with families were spurned for not being team players.

The other problem is that in knowledge work, more hours is not necessarily better.

“Employee output falls sharply after a 50-hour work-week, and falls off a cliff after 55 hours—so much so that someone who puts in 70 hours produces nothing more with those extra 15 hours.”

Extreme 2: Pay for Performance

On the other hand, you could reward employees purely based on performance. This is most common in commission sales roles where your employee’s paycheck depends on their ability to bring in revenue for the business.

Performance-based pay sounds nice, but how do you do this for engineers? I have yet to find a system that rewards software developers for performance without encouraging short-term thinking, but I welcome suggestions.

Most startups adopt a hybrid (minimum hours + performance) system for rewarding employees. The amount you lean towards one extreme or the other will help define your culture.

Two hands holding a trophy

Is Changing Your Culture Worth It?

The last question I’d like to explore is whether it’s worth trying to change your startup’s culture at all?

Some startups with very poor cultures have succeeded (read Dan Lyons’ book about working at Hubspot for a case study), and some startups with great cultures have failed. I don’t believe it’s always a make-or-break issue…at least in the short term.

The other problem (which I’ve already discussed above) is that it’s tough to actually change your culture without changing the people in your company. Can your startup really afford to turn over half its employees who don’t fit with your new cultural paradigms? What if the source of your culture is you (the founder)? Are you going to leave to make the culture better?

On the other hand, what if you’ve created an organization with a toxic, backstabbing culture where teams refuse to work together? When this happens, it could kill the company or at least inhibit growth. As the founder, it’s your role to fix problems that prevent the company from achieving its goals, and I’ve definitely seen culture become one of them.

One Last Story to Illustrate This Point:

I was hired into a small startup where I worked directly with the four founders. Over the course of my time there, it was clear that two of the founders weren’t contributing at the same level as the other two, and it was putting a damper on morale.

Eventually, the Founding CEO decided to let two of the founders go, and it made a significant impact on our culture. The company was leaner, more performance-focused, and ultimately more successful because of it, even though it was incredibly awkward and stressful at the time.

The ideal path is to understand and build your startup’s culture intentionally from the start, but if that doesn’t happen, you might need to clean house to get the culture you want.

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