Startup Ethos, Ethics and 4 Common Traps of Startup Culture
In the startup scene there is a lot of discussion around company culture, however there seems to be more focus on the superficial, observable elements of organizational culture, rather than
its core, a company’s ethos and ethics. A culture without ethos is but an empty shell, a soulless body. Ethos is the heart of every culture and you should protect it at all cost. Ethos is character, authenticity and integrity. Ethos is the good name that as a magnet attracts great people and ensures longevity. Business ethics are also crucial to a company’s survival, if you don't act ethically, you cannot have ethos.
What is a company’s ethos, culture and what its ethics?
Ethos is the character, spirit and moral compass of a person, organization or movement and therefore determines one’s credibility, trustworthiness and authority. Ethos is in essence what gives you a good name. Patti Smith said in an interview that William Burroughs advised her once: “Build a good name. Keep your name clean. Don’t make compromises. Don’t worry about making a bunch of money or being successful. Be concerned with doing good work. And make the right choices and protect your work. And if you can build a good name, eventually that name will be its own currency.”
A startup’s ethos derives from the ethos of the founder of a company or its CEO and develops constantly throughout a company’s lifetime. Key to ethos is integrity and can only be sustained through constant self-examination, as it may change in response to new ideas or as your organizational structure changes. As your team grows you need to foster a shared ethos and ensure you add people that their ethos is in line with the company ethos. If teamwork is one the core characteristics of your team, but you keep hiring antagonistic, imperious personalities you’ll end up with a very different company, as in the words of Aristotle, you are what you repeatedly do. In the words of Heidi Roizen: “How you act – and how you reward or punish the actions of others – will determine how everyone else in the company will act. And that in turn will set the culture – honest or cheating, respectful or disrespectful, friendly or mean, trusting or mistrustful”.
Business models, product development and funding can only get you that far. At the end of the day, at the core of business, are human relationships, relationships with your employees, customers and investors, and successful relationships demand ethos, authenticity and respect.
To determine your company’s ethos you need to consider what characteristics you’d want people to associate with your brand and how your management and employees should address hypothetical dilemmas that call for trade offs between profits, customer experience, and ethically questionable practices.
Ethos is also the origin of the word ethics. Ethos and ethics are intertwined, ethics derive from ethos, but you also can’t have ethos if you don’t behave ethically. Business ethics is the analysis and reasoned reaction to any business situation, from deciding the promotion of an employee, to releasing a product to market and deciding your product’s price point. Ethics is a constant check of “this is how we do it around here”, posing the question of “how should we do it”, and keeps a culture consistent to its ethos and values.
Culture on the other hand is but the expression of your company’s ethos, the traditions, habits, beliefs and ways of communication. According to Edgar Schein's Model of Organizational Culture, there are two facets of a company’s organizational culture: its core and observable culture, with the first intrinsic aspect referring to a company’s ethos and value that define an organization's cultural framework and ethical behavior, and the latter referring to the reflection of this cultural perspective. As an example, core culture is having teamwork as one of your company’s values, observable culture is having weekly team building activities for your employees. On the other hand, if a company has meritocracy as one of its core values, but there is a lack of diversity among its employees there is an obvious schism between its core, its ethos and its observable culture, that sooner or later will affect negatively its course.
At a startup organizational culture, both observable and core, stem from the founding team’s ethos, incentives and relationship between its members. As the company grows, the founding team instills its work ethos to employees leading by example, rewarding ethical behavior and setting traditions consistent with its values, in short via building an authentic culture with a strong core consistent to the company’s values.
In Corporate Cultures: The Rites and Rituals of Corporate Life, McKinsey consultants, Terry Deal and Arthur Kennedy, distinguish four essential ingredients of a company culture:
Values/beliefs – the philosophy that drive a company’s decision and represent its brand
Stories/myths – stories about how founders built the company, got over obstacles,etc.
Heroes – who gets rewarded and celebrated
Rituals – what and how does a company celebrate?
David Norris, Brian Chesky, Reed Hastings and Brad Feld have written some great posts on the topic.
Heidi Roizen in her posts also mentions the importance of your choices when faced with ethical dilemmas: “All the fancy office furniture, designer juice bars and and swinging vodka parties don’t really matter. It's been proven time and again that even direct compensation matters only to a point (and even then, fairness is more important than absolute dollars.) All that stuff is nice, and makes life more pleasant, but it does not change the core of who you are as a company.
How you act – and how you reward or punish the actions of others – will determine how everyone else in the company will act. And that in turn will set the culture – honest or cheating, respectful or disrespectful, friendly or mean, trusting or mistrustful.”
Google has influenced a lot of startups in shaping their culture and publicly shares its mission statement,"to organize the world's information and make it universally accessible and useful.", its philosophy, aka its ten core values and its code of ethics, the ethical rules that guide the business decisions.
Entrepreneurship is a journey, ethos is your compass, ethics represent the decisions you make trying to stay on course, while culture represents the day to day life on board. Like Odysseus you will face tons of temptations, conflicts and hardships, not only at sea but also on board and at home.
The sum of all this is what makes or breaks a company, it drives decisions, attracts and retains talent, and dictates the prioritization of a company’s resources and conflict management. It’s what makes a brand authentic and attracts loyal customers.
3 + 1 Common Traps of Startup Culture Today
It is easy to build a false identity and company culture that isn’t authentic, but derives from the overall current entrepreneurial culture of the startup ecosystem, however, although popular, this may not be sustainable. In many cases the observable culture seems to overshadow the core one, and is disconnected from the company values, that are left still and dusty on a wall.
Fred Wilson writes: “Companies are not people. But they are comprised of people. And the people side of the business is harder and way more complicated than building a product is. You have to start with culture, values, and a commitment to creating a fantastic workplace. You can't fake these things. They have to come from the top. They are not bullshit. They are everything.”
Startups move at such a fast pace that it’s sometimes easy to go with the motions, forget to reassess their culture and ethical behavior or simply try to fit in the overall vibe of their ecosystem.
Let's take a look at four common traps relevant to culture and ethics startups fall into.
Perhaps the most well known, human, customer centric culture in the startup community is Zappos. Zappos’ legendary culture is living up to its ethos, making it its most popular product, even more than shoes perhaps. Zappos has become the poster company for culture in the startup scene and the charismatic CEO of Zappos, whose ethos inspired all this, Tony Hsieh, a celebrity and business guru. Mr Hsieh shares his views in his top selling book Delivering Happiness, that later translated into a company, with the mission to spread happiness through companies to the whole world. He started forming his vision after failing to form a healthy culture at his first company, LinkExchange, and was heavily influenced by rave culture. Now he’s introducing a new self-management system at Zappos, Holocracy, encouraging employees that don’t want to be part of this flat organization, to accept a buyout. This shift in Zappos organization, along with his controversial Downtown Project that aims to turn LA into startup paradise have brought a lot of criticism of Hsieh’s philosophy.
This happiness/positivity centric philosophy, along with the view work-life integration over work-life balance is not only embraced by Mr Hsieh, but also many other founders and CEOs in the startup scene. Katia Beauchamp, co-founder of Birchbox, expects all employees to have positive attitude: “If somebody is negative at all about anything, it’s done for me. If they describe a past job as not fun, I am literally done because it’s your job to make your life fun, and it’s in your hands.” Jenn Lim, the CEO of Delivering Happiness, suggests that “at the end of the day you hire the people that are smiling and not the ones that you have to train to smile because that’s an untrainable thing to do.”
Focusing on happiness as an end goal though, can be toxic and risky, especially in a scene that suffers from mental health issues. Many high profile entrepreneurs and investors like Brad Feld and Tim Ferris have talked publicly about their struggle with depression and suicidal thoughts. Of course there are a lot of other factors that make entrepreneurs more vulnerable mentally, but “forcing” a smile can make someone chose to ignore and shamefully hide negative emotions in an effort to fit in, putting extra stress on one’s psychological health.
In his article "The Pursuit of Happiness," Andrew Solomon writes: “While being optimistic reduces stress, trying to be optimistic can increase it. The notion that positive thinking is correlated with good health puts enormous pressure on people to cleave to beliefs that they don’t actually trust. Someone develops cancer, and everyone around her tries to encourage her good moods and reprimands her when she is weepy or negative. It makes for a terrible sense of failure. And if she tries to be positive and gets sicker anyway, the tendency is for her to feel guilty, somehow culpable for the degeneration.”
As Leo Widrich, co-founder of Buffer, says there is a difference between being positive and sweeping anything negative unders the carpet. He elaborates: “Our “no complaining” rule springs from our focus on positivity and is one of our most strongly held values.” and clarifies there is a difference between complaining and speaking up. Disagreements, hard decisions and confusion are part of the process of building a company bringing on some social awkwardness and some cloudy days. Strive for happiness by striving for excellence, by providing a useful service to others and don’t seek shortcuts behind an “I’m doing great” vitrine.
2. The Wolf of Silicon Valley
A day doesn’t go by without seeing in my Facebook newsfeed some entrepreneur sharing a quote about the heroic nature of entrepreneurs, which is a great confidence booster I guess, through the ups and downs of building a company, but there is a thin line between being confident and being condescending.
There is a lot of talk about whether entrepreneurs are born or made, but either way the fact that someone is different doesn’t mean they are superior. Do entrepreneurs naturally have stronger narcissistic tendencies and higher chances of suffering from delusion of grandeur? In case you are wondering about both your entrepreneurial potential and your psychopathic tendencies this test by Tomas Chamorro-Premuzic may give you some answers.
Startup universe has its own mythology, Gods and heroes, like Steve Jobs, Bill Gates, Peter Thiel, and is aligned on a single mission to make the world a better place. When entrepreneurs portray themselves as the rebels that broke the chains of a monthly wage, the lions that rose from the sheep, I cannot help but wonder though, how do they think that appeals to the rest of the “sheep” that they’ll try to hire for a monthly wage? If you want to attract talented entrepreneurial people to your company, remember that they want to work with people, not work for people. A great entrepreneur without good employees is like a great idea without execution.
Investors, journalists and politicians promote the glorification of entrepreneurship, which is great, as this has driven more people in entrepreneurship and has lifted the stigma of failure. At the same time it offered a sparkly wrap up to the rise of inequality of wealth and incomes and the shrinking of social welfare in the western world. Entrepreneurs, much like farmers, educators or scientists are only as important as their contribution to society. Let's not fall into the illusion that entrepreneurs are some sort of Aryan tribe engineered for greatness, and focus on putting our best work forward.
3. Hiring to Cultural Fit: The Trojan horse of Mirrortocracy
Hiring to cultural fit is a very popular practice - recent survey found that more than 80 percent of employers worldwide named cultural fit as a top hiring priority - in order to preserve and strengthen a company’s culture. Without constant assessment though, it can be a very dangerous practice as well. It can be the Trojan horse of mirrortocracy – a term coined by Kapor Capital’s Mitch Kapor to describe founders who hire the people similar with them. This may lead to a less diverse company and the exclusion of talent and personalities that compliment the original team. Mr Hsieh says that when hiring he would ask himself: “Is this someone I would choose to hang out with or grab a drink with….if we weren’t in business together? If the answer is no, then we wouldn’t hire them.” Hiring with happy hour in mind makes it easy to leave out certain demographics, e.g. someone at a senior age, may not be a beer buddy in your mind, but could still be an excellent talent with shared work ethos.
Subjective criteria, like likeability, common interests and gut feeling may trick you into hiring a fit to the observable culture, to your company’s vibe, and not its core values. Lauren Rivera in her NY Times opinion piece suggests some practical methods for using cultural fit for competitive advantage: “First, communicate a clear and consistent idea of what the organization’s culture is (and is not) to potential employees. Second, make sure the definition of cultural fit is closely aligned with business goals. Ideally, fit should be based on data-driven analysis of what types of values, traits and behaviors actually predict on-the-job success. Third, create formal procedures like checklists for measuring fit, so that assessment is not left up to the eyes (and extracurriculars) of the beholder.”
A false use of cultural fit may not only lead to a less diverse and underperforming team, but can also lead to poor or unethical decisions. A homogenized team who think and act the same can also be less critical of the evolvement of the cultural norms, leading to a distortion of the original cultural with the passing of time (e.g. 1, 2), making the majority of employees more comfortable, but a portion of employees unwelcome and unsafe.
Let’s rethink what cultural fit means in the overall startup culture, so we can build inclusive, hospitable, healthy ecosystems, with focus on solid work ethic and creative problem-solving, instead of a frat-like, self congratulatory, monotonous communities, with a focus on comfort over improvement.
4. Tech Entrepreneurs Are The Good Guys
Technological advancements have always had a strong impact in society, and the revolution in communications in the past few years has changed drastically the flow of information and the pace of our world. Tech entrepreneurs dream of making a dent in the universe, are opinionated about politics (e.g. SOPA and PIPA protests, UK elections, The Pirate Party) are frequently involved in charity and volunteering and are always up to leveraging their technical skills to address broader sociopolitical problems (e.g. Techfugees).
However startup community seems more reluctant to examine its own impact on society, openly discuss the ethical dilemmas and challenges it faces. Startups have an overall positive attitude towards transparency, but pausing to self-exam their contribution to society, as well as critically think how they navigate ethical challenges, runs counter to the “move fast and break things” enthusiastic philosophy. It’s easy to give in small ethical compromises, like a more flattering version of you pitch deck, or a more glamorous portray of your company when you compete to attract top talent, but these can be fatal to your integrity and lead to rapid erosion of a company’s cultural values.
It is telling, perhaps, that the majority of startup related exposé in the recent years, like Zynga shares scandal, Theranos scandal, Draftkings and Fanduel scandal, NSA Surveillance Scandal and Wonga scandal were published by traditional press, not tech blogs. The tech scene seemed initially hesitant to engage in discussion around Ellen Pao/Kleiner Perkins trial, while other less controversial topics, like the impact of startups on the day-to-day life of San Francisco and the ethical framework of “sharing economy” have been more openly discussed. On the other hand the commentary seems to come down to black and white views, labeling often scepticism around startup practices as anti-entrepreneurialism, rather than a constructive discussion around ethical social responsibilities. A striking example of the defensive response of the startup community when it clashes with segments of the society is the Je suis Uber campaign after the violent Uber protests in France and the Airbnb ad campaign prior to Proposition F vote. Ethics according to Aristotle comes down to asking tough questions. Startups should spend less of their resources on lobbying and more on analyzing ethically their actions, focus less on their investors and more on their employees, prioritize clear rules of conduct, over cool offices.
Ethical culture and positive social sentiment cannot be built overnight as you approach an IPO, it needs to be embedded at the core of your business. Founders should consider that the way they face their ethical social responsibilities trickles down the company culture and in the ways their employees will identify and respond to ethical issues as well. In order to respond to an ethical issue, employees should first be able to identify it and have a clear decision making process at hand. Diversity in the workplace can lead to more ethical decision-making, as well as a culture that welcomes dissent. Kissing up may be good for the ego, but is bad for business. Founders and top management are not the only ones that heavily influence business ethics. The ultimate responsibility for a company’s ethical behavior lies with its board of directors. Founders should have that in mind when strategizing the synthesis of their board and bring in directors, with diverse perspectives, but with the same work ethos and values. As a majority of board seats usually goes to VCs, before taking investment, founders should consider the ethical dimension of their investors as well. Independent voices are also needed as part of the board to bring a neutral perspective and better monitoring.
A solid ethical reputation not only results in greater employee commitment, satisfaction and therefore efficiency, but also leads to increased partnership opportunities as well as customer and investor trust.
The end is only the beginning
Brad Feld has written a great post on the illusion that you can achieve product/market fit for SaaS companies, and the same goes pretty much for company culture. It’s just not something you can cross off your to-do list. A company culture is a living thing and its values need to be re-introduced frequently, especially at the early days when you have a wave of new employees joining the team. As startups grow, the organization’s culture may be quite different from the values and ethical beliefs that are actually guiding its employees, therefore constant monitoring is vital. The startup ecosystem has grown exponentially as well the past few years, and we should make sure its collective culture isn’t getting stale, but inspires young entrepreneurs to seek for excellence in business and society.
“Excellence is an art won by training and habituation. We do not act rightly because we have virtue or excellence, but we rather have those because we have acted rightly. We are what we repeatedly do. Excellence, then, is not an act but a habit.”
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