Business & finance professor, digital lawyer, restaurant owner, board member & traveler.
Last week, I was in Rome to talk about the digital transformation and its effect on startups. The audience was knowledgeable and well prepared, but they failed to appreciate the power of culture and its impact on a business’ prospects of building and maintaining success.
The audience in Italy wanted to establish a platform business that would disseminate earth observation data to software developers and scientists. They hoped that this would accelerate research and development in the crucial areas that the United Nations refers to as Sustainable Development Goals, such as Zero Hunger, Good Health and Wellbeing, Clean Water and Sanitation.
The focus was on digital technologies and the products and services that these technologies could deliver. They understood how digital technologies, such as big data, cloud services, artificial intelligence, and even blockchain technology, are impacting organizations, products, and services.
They also seem to have embraced Eric Ries’ Lean Startup “build-measure-learn” feedback loop in which you first build a “minimum viable product” (MVP) based on an idea and some identified assumptions. The MVP (and idea and assumptions) are then subjected to rigorous testing and measuring, and the findings and data are incorporated into a learning process that allows the company to refine the MVP and the underlying idea/assumptions.
While this focus on “technology” and “content” is crucial in building a sustainable business, it fails to acknowledge the power of culture. My audience didn’t seem to understand that “culture” is the crucial “third dimension” (along with technology and content (i.e. product) that drives a startup’s performance and success.
This first reason is explained by Brian Chesky (Co-Founder of Airbnb) in his letter of October 21, 2013.
The stronger the culture, the less corporate processes and procedures are needed. We all know how processes and procedures will — over time — kill creativity and destroy the organizational culture.
This is such an important observation because many companies I know use corporate processes and procedures to try to ensure that the core values are upheld. They see “procedure” as a solution to a problem when it can easily become the problem.
Instead, constant dedication to identifiable core values is essential in building and maintaining a strong culture.
To create such a culture of genuine entrepreneurship, trust, freedom, and responsibility, a business has to identify and then “live by” a set of core values in all its decisions and operations. The culture needs to become an authentic, lived manifestation of these core values.
When done “right,” company culture can make an important contribution to better decisions and better, more productive “outputs.”
For example, who you “hire and fire” should be determined by these core values. A strong culture can lead to greater loyalty and a strong sense of community that attracts and helps retain the best talent. This ensures that the whole organization is unified, working together to achieve a common goal.
Culture has become an important element or “component” of a company’s products or services.
In a digital age, the culture of business cannot be concealed. Sooner or later, it becomes visible and determines how products or services are perceived by consumers. As such, culture is no longer distinguishable from the product but is part of the product. And if the culture is “wrong,” in some way, users and consumers are much more likely to reject a firm’s products and migrate to rivals.
A recent article in the New York Times put the same point as follows:
“Don’t just consider how well a product works but look at who is making it and how it is sold.”
This has become very clear in the gaming industry recently. For instance, consider the effects of Kotaku’s publication of the article “Inside the Culture of Sexism at Riot Games.”
Riot Games understands that a toxic “bro-culture” let down employees, former employees, contractors, but also players and fans:
“We know that the studio behind a game can be an important part of how you feel about that game. We know we’ve let you down and we’re committed to fixing that.”
Fixing the culture is widely recognized as a vital next step for the future prospects of Riot Games.
Or, take the recent Blizzard-Diablo Immortals fiasco. The clumsy announcement — at an event for hardcore fans — that the new instalment in the Diablo series would be a “mobile-only” game revealed a serious disconnect between internal firm culture and the broader fan base.
The result? Serious damage to the Diablo franchise and (probable) fan migration.
Such missteps reveal how intimately connected product and company culture have become in a digital age.
Failures in culture — even the perception of a disconnect between a company and consumers — will kill a firm’s prospects of success. Getting the culture “right” allows a much closer alignment between all stakeholders that creates a better perception of “output” and maximizes opportunities for success.
One of the other issues raised in Rome was the fact that most of the largest platform companies rely on one main revenue stream: mostly advertising (Facebook, Google), transactions (Amazon) or subscriptions (Spotify, Netflix).
In the medium-long term, such an approach seems risky. In a business with a strong and open culture, the “stakeholder voice” can become an extremely important source of inspiration driving expansion into new fields and, as a result, revenue diversification.
The stakeholders are consumers, investors, but also other companies (i.e., suppliers, partners, start-ups) and developers. The stakeholder’s voice is important in providing impetus and determining other revenue streams.
I have written about Indonesia’s Go-Jek before. Go-Jek is a clear example of how an open culture helps propel and direct the necessary “revenue diversification” and “product expansion” that is necessary.
As mentioned already, a strong culture is related to the core values of a company. These core values can change over time, but a closer look at the most successful companies in the digital world suggests that three principles are crucial.
It is always about communication. In the digital age, stakeholders don’t just want to be informed; they want to engage with the company. Building and maintaining an open dialogue. is important. Social media makes this easier than it has ever been before and leveraging new forms of communication (blogs, vlogs, Twitter etc.) is vital.
As Satya Nadella correctly puts it:
“The real power comes when every developer can create together, collaborate, share code and build on each other’s work.”
Building an environment that provides an engaged and meaningful experience also requires an investment of time and resources by business leaders. Stakeholder engagement needs to be encouraged and sharing needs to come in different forms (e.g., information, revenue sharing, perks, etc.).
One of the reasons why start-ups fail — particularly when it comes to sustained scaling — is that they don’t embrace “diversity.”
Again, Riot Games offers a good example. Their “bro-culture” was initially very successful. It led to one of the most successful games in history: League of Legends. But to scale and grow further, they now see that inclusivity, diversity, respect, and equality are non-negotiable in today’s digital world.
Of course, diversity isn’t always easy. It can result in problems and requires managing. But harnessing the creativity that such tension generates is important.
My impression is that the “softer” aspects of an organization get dismissed too quickly. “Culture talk” and investing time in building a strong culture is often seen as an irrelevant luxury that a struggling start-up cannot afford.
But such an attitude could not be further from the truth. Building a fulfilling work environment of inspirational and collaborative co-workers committed to a common vision and value set is the only way to ensure sustained success and to maintain the constant drive for the “new.”
And, after all, this is what is necessary to have any chance of succeeding in today’s hyper competitive and fast-evolving global markets.
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