How do founders go from a couple of people toying with an idea, to managing a great team with values, good rapport, and everyone’s favorite phrase, strong culture?
Recently I set out on a fool’s errand to gain some insight on building organizational culture in startups. The truth is, this field of research is still in its infancy — not a lot is known.
We know a lot about organizational behavior in established firms and how they design their culture. But, startups are trying to build something that’s never been built before and they are brand new companies. By nature, startups are super weird and hard to make sense of in a way a researcher would like to.
There are lots of organizational culture theories out there when it comes to startups. It is 80 percent the founder of the company. It is established in the first 20 people. Things get weird after 150 employees.
A while back, researchers published a study in the California Management Review about different models of organizational culture in high-tech startups, which I believe are still hold relevant lessons for entrepreneurs today.
The study looked at five types of organizational models: Star, Engineering, Commitment, Bureaucracy and Autocracy. The researchers identified how each model retains, selects, and controls talent.
Star model employees are high-skilled talent that will grow and develop with the startup.
The Engineer model has high-skilled employees producing high-quality work, but they may expect to have beer and ping pong tables around.
The Commitment model treats employees like they are family.
The Bureaucracy model formalizes the work environment.
Finally, the Autocracy model pays their employees a lot for more transactional assignments.
Many companies choose a hybrid of these employment types. I will share some of the study’s findings and the implications for startups.
Choice Model of Startups
While startups vary on the model they choose to use, the Engineering model seems to be the Silicon Valley default. Furthermore, while VCs more commonly bureaucratize startups, VCs also attract many other different types of cultures and like the emotional bonds of the Commitment and Star cultures.
Does the Founder’s Background Impact the Model?
Founder background does not link to a particular employment model. The founders’ intended business strategy seemed to have the most bearing on the employment model chosen — marketing, service, and customer based models went more toward a Commitment employee model.
Think Zappos, which continues to be a company that is known for their organizational culture and customer service.
How HR is Leveraged in Startups
Companies that had a Star or Commitment model brought HR expertise in earlier than the other employee models. According to the researchers, star companies need HR expertise to recruit and attract Star talent. Commitment companies use HR to build a strong culture as a talent and retention plan. Engineering companies make sure employees have access to enough caffeine, sugar, and alcohol to fuel their startup environment. Bureaucratic companies rely on HR mainly for administrative purposes.
Success and Pitfalls of Employment Models
According to the research, companies with a Commitment model are the fastest to IPO. Companies with the Autocracy model were most likely to fail. However, Star and Commitment models can be more difficult to scale. Star models deal with turnover issues because of the need to screen out the non-stars, and they rely most heavily on equity options, so when it does not look like the equity will work out, employees are more likely to leave.
Transitioning to a New Model
Transitioning from one model to another can be negatively disruptive and costly. Companies that were founded on Star or Commitment models that switch to another model have a hard time with the transition. Bureaucracy, for example, would be a difficult adjustment from the Commitment model, particularly because this often involves the departure of their founder-CEO.
The researchers explain that it is incredibly common for startups to not put the thought into culture and HR, however they cannot imagine a scenario where a startup does not have a strong and thought-out plan for marketing, pricing, fundraising, and the milestones attached to those things.
Knowing how important talent is for startups, this non-strategy strategy can be a big limitation down the road.
At Techstars, we try and help companies think through organizational culture and other points along the way to success. By helping companies understand the type of organization they want to run, hopefully they will think more about their plan to build a sustainable organizational culture.
What model does your company follow? If you could have thought more about this earlier into your startup, would you?