I’ve been reading Bill and Dave (subtitled: How Hewlett and Packard built the World’s Greatest Company) by Michael Malone. He’s a great writer, and it’s an important business story; I heartily recommend it.

Being an ex-HPer, I have tremendous respect, bordering on reverence for the “HP Way”, which was the basis for the corporate culture at Hewlett Packard for so many years. With the benefit of hindsight, it wasn’t perfect and there were definitely things I’d change. But you can’t argue with the results. Bill and Dave essentially founded Silicon Valley, and built an unbelievably successful company that grew like clockwork for nearly four decades. The HP Way is long gone and the company is nearly unrecognizable from the one I worked in. But to this day I don’t believe they’ve ever had a full year of negative profit results.

The term “Corporate Culture” has been defined many different ways by a lot of people, some of them so complex as to be unreadable. Here’s a definition that’s probably as good as most:

“The specific collection of values and norms that are shared by people and groups in an organization and that control the way they interact with each other and with stakeholders outside the organization.”

Maybe you have a better definition, but this one’s probably adequate for our discussion here.

Anyway, Malone’s book got me to thinking about corporate cultures at tech companies and their effect on a company’s performance. It’s something that I think is really undervalued in too many of today’s corporations. It’s often dismissed as a squishy, “soft” issue that’s unimportant to analytical senior managers.

Regardless of my HP bias, there have been a lot of very successful companies that have been built with very different cultures relative to HP’s in its heyday. One notable contrast would be IBM, a peer and competitor which as an east coast-based company had a much more traditional, hierarchical, button-down culture. But the IBM culture was revered as well, and the company was also wildly successful for a long period of time. As the saying goes, there’s more than one way to skin a cat (a very unfortunate idiom–who thought that one up?).

Cultures have been categorized many different ways including but not limited to “Work Hard, Play Hard Culture”, “Tough-Guy, Macho Culture”, “Process Culture”, “Bet-The-Company Culture”, and many more. In my mind, none of that matters much. What matters, in my opinion is does the culture drive positive results.

So you might surmise that the easiest way to define a great corporate culture is to look at financial results. That’s fine in the long run; with the benefit of hindsight, there probably is no better way to identify a great corporate culture than the decades of financial success such as HP and IBM enjoyed. But in the short run, financial results can be deceiving. It’s entirely possible to have a great short run of success even with a poisonous company culture.

So what’s the best way to measure whether you’ve built a great culture? The details vary at various successful software and hardware companies, but what are the common ingredients of a culture that sets the stage for long-term success? Here’s my shot at a list of the key attributes of winning corporate cultures:

Employees want to stay

For me, this may be the best gross indicator of a winning corporate culture. I know, you might say “That could means it’s a country club” with excellent compensation and low demands. But how often do you actually see that in a high performing company? Very seldom in my experience. In reality there is a great propensity for employees to take the view that “the grass is always greener”, and long to go somewhere else.

The best people rise to the top

This is another really key indicator of a company culture “clicking on all cylinders”. Particularly in larger organizations, political skills often are the dominant talent required to rise to the top of the org chart. There’s nothing wrong with this–it’s a skill set that’s very important to successfully influencing large, complex organizations and moving them in the right direction. The ability to connect with people and bring them to your position cannot be understated as a needed attribute of a corporate leader.

But it’s important that these political skills are also paired with strong business savvy. The best leaders not only have the ability to “win the internal meeting”, but also the analytical and decision-making skills to drive the company to win in the marketplace. Sadly, all too often I’ve seen that those rising to the top are not exceptional in both these categories. A great corporate culture should facilitate the identification, retention and promotion of such well-rounded leaders.

Employees speak well of the company to outsiders

Everyone loves to bitch about their job and idiosyncrasies of where they work. But I find that in companies with the very best cultures, the word gets out about how great a place is to work, because great places to work are frankly, very rare. This means that you’ve created such a great environment that your employees brag about it to their friends and external colleagues, overcoming that very strong human propensity to view their jobs in a negative light.

Opinions flow freely without fear of retribution

This one probably isn’t a hard and fast rule. I’ve seen traditional hierarchical organizations that were very successful. In those instances, you tend to see opinions flow down from the top much more often than you see them flowing openly from below. But I believe in most successful “modern” corporation cultures, this is a pretty typical attribute.

Corporate Culture: Don’t have to overpay to attract talent

You might think of this one downstream result of positive vibe from the previous four categories. If you’ve created a fair, stimulating, challenging and comfortable work environment, you don’t have to work very hard to restock it with new employees. In many cases you won’t even have to look for them–they will find you. In companies with the very best cultures, outsiders practically beat down the door to get hired. That means your pay packages won’t need to “set the market”, they’ll just need to be “in the market” to attract great executive talent.

So that’s my list–what’s yours? What’s your view on which company has the finest corporate culture?

You’ve seen it too many times before – the free-spending startup company which burns through their funds like a cocaine addict on vacation in Columbia. It’s ultimately a sad tale, with great potential often wasted, many jobs lost and multiple lives hurt. But it is sometimes hard to feel sorry for the management teams that put these companies in precarious positions with poor judgment and lack of self-control – they should know better, and end up getting what they deserve.

1. Spend it almost as fast as it comes in, because the market is overheated. This was endemic during the Internet bubble years, when even formerly conservative VCs were imploring their portfolio companies to “spend money faster”, and “get the eyeballs now, we’ll figure out how to monetize them later”. A lot of that was going on back then. Crazy, as we all look back at it now.
   
2. A more common situation where money tends to get spent way too fast is when a startup management team is staffed primarily with “big hitters”, coming from big company backgrounds. I remember in particular a mesh networking company here in San Diego, which burned through over $60M in VC money, while creating almost no revenue along the way. They hired an almost endless list of VPs from name brand, blue chip companies, paying them well over the going rates at early stage companies. The CEO came from a big telecommunications company (with no startup experience). He was paid a SALARY of $750,000/year. Yes, you read that right–I’m not even counting his bonus and option grants. In a company that was barely past the pre-revenue stage, and nowhere near profitability. It still amazes me.
   
3. Another scenario I have seen quite a lot, are pioneer companies that are developing a novel technology or product, attempting to create a truly new market. What happens often in this situation is what I’d call an “itchy trigger finger”. That’s when it’s still too early to create the critical mass needed in a market. Instead of being patient, marshalling their resources and continuing to develop their products while educate the market, these innovators get impatient. They blow through their investment capital with a premature, huge ramp-up in Sales and Marketing, well prior to their product or the market being ready for this expansionary phase. Their large expenditures in Marketing serve only to prime the market, to the great advantage of their fast-follower competitors.
   
4. The final situation that you often see leading to overspending is the company that has been bootstrapping successfully (but also painfully) for a very long time – then finally is able to attract a round of Institutional Capital. Every startup has a long list of “like-to-haves” that they would spend money on – if they only had it. So it’s ok to knock off the most important areas at the top of the list, when that initial funding finally comes through. But like a starving man let loose after hours at McDonalds, some of these formerly prudent managers gorge on the newfound capital – spending it like its ongoing cash flow – not the precious investment capital that it actually is. Not being miserly with investment capital is one of the cardinal sins indicative of bad startup management. In this particular situation, it is otherwise sound managers who undergo a bout of “temporary insanity”– a particularly sad story.

So that’s one side of the coin – overspending. We’ve all seen it, and when you’re not inside the eye of the hurricane that is a startup company, it’s pretty easy to recognize. There is no doubt that this free-spending behavior has killed many promising startups.

But what about the flip side of the coin – when managements are TOO miserly, and spend too little? This is an area that I have not seen discussed very much lately, in early stage tech circles.

Now please keep in mind, I’m not advocating spending funds that you simply don’t have. Borrowing is rarely a good idea for an early stage software or tech company. If you don’t have the money – please, don’t try to find a way to spend it anyway! Conservation of capital is one of the basic pillars of good startup management practice.

Yet, there are some places where an early stage company simply HAS to invest, or the outcome will be almost certain crib death. Below are a few important examples:

STAFFING THE STARTUP WITH GOOD PEOPLE

Good companies are built with good people. Great companies are built with great people. Even the company with great brand equity and outstanding IP, are doomed for a fall without the continued benefit of committed, smart staff. In a startup, it’s even more critical, because you don’t have any of the built-in advantages that a big company has, which might allow the enterprise to coast for a bit before heading south. Without good people, startup companies will not thrive for long. Even if a profitable business can be built, it will eventually hit a wall, as a result of lack of depth in the employee pool. The initial founders can only take it so far without a strong supporting cast-growth will eventually stall. I have a client, a young CEO, who has done a great job building a strongly profitable, multi-million dollar business in a large and competitive market. But his growth appears to be stalling, because he views much of his staff like desk chairs, or any other overhead line item – an expense item to be minimized. Don’t make this mistake. Your staff is your lifeblood, not a ball & chain to be jettisoned at every opportunity.

CREATING A GOOD PRODUCT

Almost important as good people to a software or high tech startup, is a killer product. Although there are many, many things that are important to a successful startup tech business, by their very nature, tech companies are almost always driven by a great product. There are exceptions, no doubt – but this is a pretty good rule. It makes little sense to cut expenses in product development (assuming that you’re spending the money wisely!), until you have created a product that can lead to winning in the marketplace. With a startup, that almost certainly means something that’s not “me too” – it needs to be faster, cheaper, more capable. A strong product is the muscle that allows you to break though the barrier of embedded competitors with strong positions and brands. Don’t kid yourself and save your money for other things, until you’ve hurdled this bar.

BUILDING A CRITICAL MASS OF UNIT SALES

Lastly, you’ve built a killer product and have a savvy staff pushing it out into the market. With whatever you’ve got left in your tank – use it. Stomp on the gas peddle, spend whatever you can muster on outbound sales and marketing programs. This is where the proverbial “crossing the chasm” really takes place. There are a certain number of successful customers you need to sell, before you get over the peak of that initially steep sales curve – and things start to get easier. Once that happens, people know your company name and product. Enough happy clients are out there so that word of mouth marketing kicks in. Instead of fighting for every new customer, they start coming to you in increasing numbers – without any effort at all. Your product is now showing up in the market share figures. The press and analyst community start to call you, instead of you leaving endless unanswered messages in their voicemail boxes. Yes, at some point, believe it or not, it really does get easier! But this happens only if you are able to close the number of initial sales necessary to reach critical mass in your specific market. Until you reach this point – SPEND WHATEVER MONEY IT TAKES – AS LONG AS YOU HAVE IT.

About the author: Phil Morettini is an experienced High Tech senior manager with functional expertise in product marketing, new product planning, business/corporate development and sales management in a BtoB and BtoC environment.

View Phil’s short bio