How founders, leaders, and investors are almost always leaving money on the table
by Natalie Grogan, CEO of The Outstanding Company
Preface: People and Culture = Money
A quick note before you read, so you know where I’m coming from when I talk about People and Culture. I’m a business strategist, talent optimization consultant, and soon-to-be master of I-O psychology. I don’t buy into fluffy employee ‘engagement’ techniques. I use data to develop strategies, coach leaders and employees, and build out hiring, management, and review processes.
My focus is getting the right people in the right seat, being managed in a way that helps them develop and grow, by an excellent leader, who has the support they need. The outcomes we achieve are reduced voluntary turnover, improved productivity, job satisfaction, organizational commitment, and a positive impact on business results.
Every effort must have a three-fold purpose that improves productivity, employee experience, and the bottom line.
The Missing Piece
Most investments, and companies in general, under-perform because of issues with people and culture. Sometimes they don’t even know it.
On due diligence committees for investors, my focus is on the people. Who does this organization currently have working for them? What are they wired to do? Who are they missing? Who do they need that aligns with the organizational goals?
People are what stands between an excellent business strategy and achieving exceptional results, so we need to get that right.
The problem is, we tend to only look at founders and key players, and we focus on their knowledge, skills, and past successes. We don’t look much deeper into people and culture.
Who Are These People?
During due diligence, we look at founders and leaders, along with their knowledge, skills, and experience. We look to their past and subjectively attempt to predict the future.
This is usually a combination of the ideas people and the business people. They have already created something of value and are looking to expand their reach. Some of these people are new entrepreneurs and some have had success in other ventures.
Regardless of individual successes, this is a new team. We can’t predict how this team will work together and the team make up is vastly more important than the individuals on it.
Think about it this way, if your leadership team is made up of 4 fast-paced, change driven, independent, and assertive people, who is on quality control? Who is saying, “hold on, let’s talk about why we need to make this change”? Who is documenting the processes and all of these changes and holding the team accountable to results?
Hint: it’s not those 4 people because that is not how they operate. But, how do you know that? Do they even know that? We have scientifically validated tools to figure out. Email me if you want to know more about that.
A Look at Our Team Analysis Process
What About Everyone Else?
Say we fund this company. We still really don’t know who works there. When an organization has 20 employees, everyone’s contributions are absolutely critical.
Startups are usually made up of a few specialists (the technical people) and a lot of generalists who can take on a variety of roles like operations, sales, and marketing. How do you know who’s a generalist or specialist?
Take marketing for example. If you’re looking for a marketing generalist, most marketers will say they can be a generalist. They may have experience dabbling in digital, print, paid, PR, etc. but their real talent is marketing strategy or data analysis.
Just because they have experience executing on marketing doesn’t mean they like it, are good at it, or are wired to do it. Trust me on this one–I just described myself in a past career.
The Wrong Person is Easy to Find
Every day and every dollar counts in a startup, yet people decisions are largely based on either saving money or hiring a ‘superstar’ from another successful company.
The cost of hiring the wrong person is expensive in any organization. Replacing a $50k salaried, entry-level employee costs a minimum of $17k and it only goes up from there. Startups (or any org) can’t afford to lose that kind of money, time, momentum, or morale. You need to get the right fit for the job, team, and organization the first time. Calculate turnover cost here.
The point I’m trying to make here is that we don’t do enough when it comes to aligning people and strategy. Startups can make hasty and subjective hires (90% of companies hire subjectively) and investors have no idea.
We need to do better at aligning people and teams. Why wouldn’t you? If you don’t know how, we can help. It pays for itself if you prevent ONE employee from leaving and you’ll see much better results than that. Find out more about that here.
Culture as a Liability
The second issue with startups, investments, and fast-growing companies is culture. No matter how badly a company wants to keep their startup culture, it’s going to have to change.
Lots of the amazing tech startup culture stories you hear are mired in complaints from the non-Kool-Aid drinkers. Organizations have expensive publicists that push the ‘we’re so cool’ narrative. Don’t believe everything you read.
Believe it or not, culture is one of the biggest reasons that investments, whether M&A, PE, VC, or AI, do not perform as well as expected.
What people fail to realize is that, without effective intervention, big culture changes lead to less organizational commitment and employee engagement. Less organizational commitment and reduced employee engagement lead to reduced productivity, increased voluntary turnover, and a slew of other tangible, costly failures.
M&A is an obvious challenge-bringing together two companies whose cultures most likely differ substantially. There are four approaches to integrate the companies: preservation, absorption, symbiotic, and transformational.
Preservation: Each company operates on its own, maintaining control and culture.
Absorption: Dominant company absorbs and integrates smaller company.
Symbiotic: New organization forms, bring the best of company A and the best of company B.
Transformational: New organization forms, merging the best of company A and best of company B while also integrating new external best practices.
Changing Culture
Startup culture is not ping pong tables, boozy lunches, and happy hours (although that often happens and I’ve never complained). Startup culture is about commitment, hustle, and driving the greater good of the organization.
As mentioned above, startups are usually made up of a few specialists and the rest, generalists. Once you’re funded, that changes, or at least should. You’re able to, and need to, hire more specialists and divide responsibilities differently. In itself, that changes the culture.
There are many studies and data that address organizational culture changes, before and after mergers and investments. The data examines the cultural dimensions of the original organizations–clan, adhocracy, market, or hierarchy, and predicts outcomes post-merger.
If you’re not familiar with those buckets of culture, here’s a quick overview:
The Clan: Human affiliation – employees value attachment, collaboration, trust, and support
The Adhocracy: Change – employees value growth, variety, attention to detail, stimulation, and autonomy
The Market: Achievement – employees value communication, competence, and competition
The Hierarchy: Stability – employees value communication, formalization, and routine
The elements that form each type of culture are: adaptability, detail orientation, results orientation, people/customer orientation, collaboration/team orientation, and integrity.
Cultural fit requires employees to have a shared understanding of the organization, how things are done there, and how they are supposed to behave.
Here are two distinct cultures at company A and company B. What do you think happens when they merge or need to grow fast?
The Bottom Line
You don’t have to go in blind, when it comes to people. A company is much more than just the individual leaders.
In mergers and acquisitions, both companies’ cultures should be evaluated and an intentional culture determined before the merger is even announced.
Startups should have clearly documented and agreed to plans for future culture development and the new culture should be embraced as the next step in an awesome journey.
The Outstanding Company uses I-O psychology principles and data to analyze company culture, facilitate culture development among leadership teams, and supports managers at reinforcing culture at all levels.
Talent Optimization Advisory services will help you understand, develop, and implement impactful culture initiatives that will transform these organizations into power-houses full of highly productive, committed, and engaged employees.
If you want to learn more, please reach out to hello@theoutstandingcompany.com
What do you really know about your people at work?
Managing without people data is managing blindly. Talent Optimization provides a framework to harness the value of people data and easily turn it in to action. Using the Talent Optimization framework, you remove the guess-work, simplifying major aspects of leadership, management, and development and it always results in saving money and improving productivity.
We welcome the opportunity to introduce you to Talent Optimization, implement these tools within your organization, and work with you to continuously improve your business results year after year. We empower your teams to use the tools and are here for you when you need us.