There’s a better way to build your startup

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If a startup founder could peer 8 years into the future and see a company that has become the symbol for disruptive culture, one that has raised over $8 billion on a valuation of $67 billion, that has a worldwide presence in hundreds of cities, millions of app downloads,12,000 full time employees and thousands more working for your service, chances are they would start it.

Every startup founder craves success, but the question is, how far are you willing to go to achieve that success. Uber is the company that generated those heady results, but it did so at a cost. After months of one scandal after another at Uber, CEO Travis Kalanick stepped down last week.

The takeaway for startup founders should be that culture matters as much, if not more, as a good idea and some funding — and you need to start thinking about this from your earliest days.

Who are you? Who? Who?

Under the leadership of Kalanick, Uber appears to have chosen ‘The Lord of The Flies’ as its cultural roadmap, and it’s a cautionary tale that startup founders everywhere need to contemplate as they build their companies. What kind of value system do you hope to cultivate? Do you want to have a no-holds barred approach that leads to bullying, harassment and grossly inappropriate behaviors, or do you want to build a legitimate meritocracy where the best ideas and the most talented people are rewarded?

It doesn’t seem like this should even be a question, but it’s something the core first group of employees need to define early on, encouraging positive internal values. It’s not something that develops by accident.

As we’ve seen, an aggressive cultural strategy can lead to a toxic work environment in which the more powerful people in the organizations (the managers and executive team) hold an inordinate amount of power over employees and that leads to the kind of gross abuses we heard about at Uber.

Let this be a lesson, kids

It would be a mistake to think that Uber stands alone as some sort of isolated case. It’s not. Last year, fast-growing human resources firm, Zenefits, which had raised over $583 million — including a whopping $500 million on a $4.5 billion valuation in 2015 — ran into serious trouble when the company was accused of selling health insurance in several states without a license and building pernicious culture.

In a matter of a few days, CEO and company founder Parker Conrad and head of sales Sam Blond resigned under a cloud of scandal. To be fair, the company has tried to move on from this, but it was yet another example for startups everywhere that culture matters.

Need further proof? There are many cases including Whitney Wolf’s sexual harassment lawsuit at Tinder that resulted in the suspension of co-founder Justin Mateen and eventually co-founder and CEO Sean Rad leaving his post (although he stayed on as a board member and president).

Each of these cases, and unfortunately, many more like them, show that if you cut corners and fail to cultivate a positive culture, it eventually catches up with you, no matter how successful you may be in the short term.

They’ve got to be carefully taught

Freada Kapor Klein

Freada Kapor Klein of Kapor Capital, who along with her husband Mitch Kapor, was an early investor in Uber, has publicly criticized the company’s culture. She says, the time to think about building a positive culture is at the earliest stages of forming the company.

“It’s almost impossible to overemphasize the importance of intentionally building a positive culture from the start. Finding time to articulate values, principles and how you want to be known is critical. There’s always too much to do, but retrofitting culture or diversity and inclusion in a big company is much harder,” Kapor Klein told TechCrunch.

It’s almost impossible to overemphasize the importance of intentionally building a positive culture from the start. Freada Kapor Klein

Steve Herrod, who was an early employee at VMware and today is the managing director at venture capital firm General Catalyst, says this is a topic that is top of mind and something the partners at GC always talk about when evaluating whether to fund a startup.

“A substantial part of our investment decision, especially at Series A, goes into assessing the values and style of the founders,” Herrod told TechCrunch. “We have passed several times when we sensed a founder was cutting corners, overly exaggerating achievements, bragging too much, or indicating any form of moral ambiguity,” he said.

General Catalyst goes even further to ensure a startup is building a positive culture by having one partner who is entirely focused on team assessment and development. “[This partner] joins the lead partner in ongoing assessments of our startups with a particular eye to cultures trending negatively. We [also] have a stable of coaches and other development resources that we can bring to bear when needed,” Herrod said.

Thinking ahead

Kapor Klein says culture needs to be front and center as part of the business plan. “Companies set business goals all the time. They use these goals to check their progress and hold themselves accountable to the metrics. If a company is not taking the same approach to culture then they’re showing you that they aren’t taking it as seriously as they take other business goals,” Kapor Klein explained.

“If these aren’t genuine concerns of the founders, there will always be a disconnect between what’s stated and what’s practiced. That gulf between words and actions is the quickest way to create distrust and cynicism,” she added.

Danny Crichton, a NYC investor in early stage companies, agrees it’s something that needs to be foundational for the company. “It’s mostly just thinking about it from the earliest possible moments. And to start with the right cultural thinking. Ultimately culture is an extension of the founder. Uber’s culture [was] Travis Kalanick,” Crichton said.

Ultimately culture is an extension of the founder. Uber’s culture [was] Travis Kalanick, Danny Crichton, startup investor

Crichton says if you don’t think about it early on, it gets harder to change as you grow. “It’s very difficult to undo a negative culture. And the problem is that once culture gets baked in, it’s basically done. I think nothing will really repair it, but we’ll see,” he said.

Kapor Klein sees it not being so much about the organization as the people in charge, and the more ingrained the negative culture, the harder it’s going to be to change. “Cultures don’t spin out of control—people do. If the core culture is sound, it can be reinstilled. If the core culture caused the problems, it’s a longer, messier process of rebuilding. Sometimes we just need guardrails, sometimes we need a complete overhaul,” she said.

Taking a positive approach to culture

Salesforce CEO Marc Benioff

There are examples of highly successful companies achieving growth and building a positive internal culture. The two don’t have to be mutually exclusive.

A prime example is Salesforce, a company currently on a $10 billion run rate, which very early on decided to be as intentional about the company culture as they were about their products and how they would go to market.

“We believe that culture cannot be left to chance; it must be deliberate, measured and consistent from day one,” Cindy Robbins, Executive Vice President of Global Employee Success at Salesforce told TechCrunch.

We believe that culture cannot be left to chance; it must be deliberate, measured and consistent from day one Cindy Robbins, Executive Vice President of Global Employee Success at Salesforce

For Salesforce, it’s about putting together culture, technology and data as a formula for employee engagement, she said, and they take it even further with an integrated philanthropy model called 1-1-1. While you could dismiss all of this as PR fluff, the company has devoted thousands of hours to community service and donated or discounted software to non-profits , and according to the company website, has given more than $160 million in community grants over the years.

Further, it has attempted to eliminate the gender pay gap at Salesforce and last year hired Tony Prophet as the company’s first chief equality officer to bring equality issues to the forefront of the company. The company has also exported the 1-1-1 model through the Pledge 1% program and 2000 companies are following a similar program including Appirio, Box, DocuSign, Glassdoor, Optimizely, Twilio, Xactly, Yelp and Zuora.

Startups behaving well

Graphic: Bryce Durbin/TechCrunch

As much as the negative examples of culture get the vast amount of attention, there are plenty of people working hard to build a positive culture and a solid business.

While Salesforce is a long established company, Clef, an identity startup launched in 2013, that became part of Twilio in March, put culture at the center of its hiring process, and went so far as to create a handbook, which it then “open sourced” for others to use. Founder B Byrne put it this way when he wrote a blog post in 2015 announcing the company was open sourcing the handbook:

“Building a company is hard. Building a company that prioritizes inclusion in an industry that doesn’t is even harder. Both this handbook and our company are a long way from perfect, but this is a start. One of our values is to be better today than yesterday, and we’re excited to have help making this core part of our company better,” he wrote.

Another company trying to do it differently is Trivago, the German hotel search site, which claims to be building the company to be a meritocracy where no single person has total power over another person’s career.

“Removing workplace politics/stereotyping bias from decision making should be the focus. Individuals should not have to worry about these coming into play when it comes to their personal growth and development within the company,” Trivago CFO Axel Hefer told TechCrunch.

While Rolf Schrömgens, CEO and founder at Trivago admits that it really wasn’t something they thought about right away, as the company grew, the earliest employees began to recognize they needed a system in place to ensure a positive cultural approach, especially with a diverse staff from all over world.

“It was less an active decision that we made in the beginning, and more of a necessity that we realized over time. If you want to keep your company constantly learning, if you want your organization to stay liquid and have decisions [made] fast, if you believe in the superiority of intrinsic motivation, then you have to realize a culture of trust, respect and authenticity is the only way to go,” Schrömgens explained.

Nobody’s perfect

Photo: New York Daily News/Getty Images

Trivago reports a male/female employee split of 58.2% to. 41.7% with over 50 nationalities working at the company’s Düsseldorf, Germany headquarters.

It’s worth noting that Glass Ceiling reviews of the company don’t paint quite as rosy a picture of the company’s culture as the company’s executives, especially when it comes to advancement opportunities and salary.

Still, Trivago has nearly doubled its stock price since it went public last December growing from an IPO price of $11.85 to $20.86 this week. Salesforce, which has been around since 1999 and went public in 2004, has a market cap of almost $63 billion and it’s stock price has grown steadily over the last five years from $34.28 in June 2012 to $86.82 this week, proving at least for these companies that a positive culture and positive business results can go hand in hand.

It shouldn’t be about the money though, it should be about doing the right thing by your employees, and the financial success should follow.

In fact, there is no perfect approach to culture, but we know that setting goals around compassion, diversity, charity, a willingness to share ideas, while providing mechanisms for all employees to grow and be appreciated — all of these things make for a more positive culture.

That clearly seems to be a better approach than a noxious culture. As we’ve seen repeatedly, that cultural approach eventually catches up with a company. Surely, Uber’s case (and others) should be a lesson for every startup that it’s better to start that process of building a positive culture from day one — and not have to go back and fix it or retrofit it down the road.

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