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?
Why do accelerators work and why should companies go through them?
While we know there is no one single entrepreneurship personality, many entrepreneurs start their own companies to get out of the grind of daily structure. And, as I wrote in a previous post, accelerators put infrastructure around something so traditionally unstructured.
When companies join a Techstars accelerator, they fall into a strict routine. Meet 50-100 mentors, report weekly on KPI progress, send a weekly update to mentors and investors, pitch practice, and so on.
Companies get out of their garage and into an intense routinized work schedule.
One paper I recently read explains that while there is little evidence explaining how exactly accelerators affect startups, there is one critical benefit of an accelerator program: “structured accountability.”
Structured accountability “induces entrepreneurs to articulate and reflect about specific strategic tasks, an increase in self-efficacy, and knowhow about building a startup. We find no support for causal effects of basic services of cash and co-working space.”
Accelerators force what we often have no time to do — deep reflection. Often, that sort of contemplative time can only be found in structure. Sending out weekly updates to a captive audience, meeting with 75-100 mentors and investors pitching and iterating all of the time builds greater self-efficacy around a founder’s company.
There are other reasons why accelerators work. From making key startup milestones faster and providing intensive learning, developing the entrepreneurial ecosystem around the accelerator, and others. But, this focus on structured accountability I find really striking.
Another Brookings article asked one of our own founders, Brad Feld, why accelerators are so valuable, and different from other entrepreneurship support and early stage investors.
“[H]e likened the accelerator experience to immersive education, where a period of intense, focused attention provides company founders an opportunity to learn at a rapid pace. Learning-by-doing is vital to the process of scaling ventures, and the point of accelerators, suggests Feld and others, is to accelerate that process.”
Feld’s philosophy on why accelerators can work is validated by the findings around structured accountability.
When companies make the decision to join an accelerator, they’re certainly gaining a lot of important financial and network resources. But, they’re also gaining a critical training on teaching their teams how to create good work habits. And, while we hope all of our teams have really good work habits, we know that there’s always room to improve.
Learn to work like someone’s watching, even when no one is.
Research on startup accelerators is new, and its development is important to today’s founding teams.
Prior to Techstars, I worked in research at the Kauffman Foundation. We marveled at the newness of the general academic study of entrepreneurship.
The Beginning of Entrepreneurship Research
There are many theories to the different epochs that developed research in entrepreneurship, but no doubt that it is growing and evolving now more than ever.
In the past couple of decades more and more resources have gone into entrepreneurship research. The development of data on the subject has grown and expanded. Over time, entrepreneurship research has become a rapidly evolving and critical field of study from top universities.
Research and data in entrepreneurship has necessarily grown into a fully interdisciplinary field of study. We need to consider psychology, sociology, anthropology, management, finance, economics, and on and on, in order to get a full understanding as to the individual, team, company, and market factors that affect whether the endeavor will be successful. Each of those disciplines take on a different type of data and methodology for study, together giving a more complete picture of entrepreneurship.
And we took this enigmatic topic, and put infrastructure around it.
Building Infrastructure Around the Phenomenon of Entrepreneurship
College campuses rapidly began embracing entrepreneurship. My friend Arnobio Morelix wrote a terrific timeline on the development of entrepreneurship on college campuses. From 100 formal entrepreneurship programs in 1975, to 500 in 2006, to many schools requiring education in entrepreneurship in 2013. From 250 entrepreneurship courses in 1985 to more than 5,000 in 2008, a strong focus on entrepreneurship is practically an expectation at universities today.
And then, accelerators. The first accelerator, Y Combinator, was started in 2005. A year later, Techstars was founded. And now, somewhere between 300 and 2,000 accelerators exist around the world, according to researchers Susan Cohen and Yael Hochberg. And, we’re getting better at identifying what it takes to qualify as an accelerator. As the researchers explain, programs such as Techstars fall into the category of seed accelerators, or “a fixed-term, cohort-based program, including mentorship and educational components, that culminates in a public pitch event or demo day.”
Accelerators are only 12 years old. That is incredibly young in terms of research. Data is still very early, and there is much debate going on into how to develop and study this field of research. CrunchBase, AngelList, and the accelerators themselves are commonly used data sources for researchers in this area. New methodologies are being developed using techniques like randomized controlled trials to measure certain interventions in entrepreneur’s success.
Improving Conditions by Understanding our Unknown Unknowns
So, why does this matter for entrepreneurs? Simply put, research improves conditions.
In starting up an accelerator program, I’m learning quickly that unknown unknowns naturally arise. (How can accelerators best serve a diverse pool of founders? When is the right time for a company to join an accelerator?)
Research seeks to better understand unknowns. Accelerators seek to better improve outcomes for entrepreneurs. The two go hand in hand.
The more unknowns we face, the harder it is to run a successful program. And, when companies join us, we’re putting emphasis on our beliefs (say, the particulars of building a pricing structure) that we as an accelerator hold as truth for long term success in a company, and we ought to know with certainty and evidence that those things really do matter for founders.
It matters that we get better at collecting data on entrepreneurial outcomes. It matters that researchers are able to conduct studies on the work that we do.
One thing I love about Techstars is that because it was started by engineers who love data, and love making that data public. Transparency and honest data is critical to improving the conditions on something that we are all on the very cutting edge of developing (accelerators).
So, entrepreneurs, with every passing year, we know more about how to make companies more successful who enter our accelerator programs. We know more about how to best serve you. It is an exciting time to be a part of this experiment — creating infrastructure on the phenomenon of entrepreneurship.
We’ve been getting a lot of questions around where we are looking for companies for our first Techstars Kansas City program. The answer is simple: everywhere!
This week is Global Entrepreneurship Congress (GEC) in Johannesburg, South Africa. Every year, GEC gathers entrepreneurship supporters from around the world to figure out new ways to help founders start and scale their companies.
Our Techstars Kansas City Managing Director Lesa Mitchell is at GEC celebrating entrepreneurship and on the hunt for new companies!
Techstars is a global startup ecosystem for entrepreneurs. And, all of our founders have access to the entire network. We work with global network partners and investor partners from all over the world. Our Techstars accelerators are now in Africa, Australia and Europe. We host close to 50 Startup Weekends across the globe every week!
In observation of this week, check out this data vizzie, which maps where our accelerator programs are located around the world.
What are you doing to celebrate entrepreneurship globally? Are you interested in being one of our international Techstars companies in Kansas City? Feel free to reach out to me to connect!
Today is International Women’s Day, and our program is actively meeting with potential companies for our first class, so what better time to talk about this problem/opportunity of finding women-led tech companies?
Over the past couple of years, I’ve written and researched on the topic of women in entrepreneurship. Now, I’m taking that research to practice.
One of the reasons I joined Techstars after studying diversity in entrepreneurship and accelerator programs is because I believe Techstars is a socially aware and self aware company. We are thinking about this issue and talking about it everyday, hence our Diversity Commitment for the White House Demo Day.
It is absolutely possible for accelerators to be gender-equal, so long as the program is (a) representative of the targeted population and (b) intentional in their recruitment efforts.
Our program, Techstars Kansas City, is led by two women, and we wake up and go to sleep thinking about this. Yet, finding women founders can be tough. Maybe we aren’t looking in the right places or exploring all of our options.
Challenges for Women Entrepreneurs
In Labor after Labor, I wrote about the need for startup culture to embrace balance for moms and the overall need for a societal shift in thinking about women and moms at work, and the particular challenges they face.
- The need for better role models and access to mentors who look like them
- Family dynamics, and the “second-shift” for childcare
- Financing and how the gender pay gap and personal and professional networks limit women’s ability to raise startup capital
- Cognitive biases and the stereotypical expectations of entrepreneurs
Beyond the challenges, women are well equipped to be entrepreneurs! They can do more with less. Research suggests that women grow revenue faster while raising less money. Further studies explain that women work better in teams, which is essential for startups, being that they are more successful when there is a founding team.
Challenges for Women in Accelerators
Never shy to be the contrarian, I’ve had my critiques about how accelerators are hard for women and moms, because:
- Women are less likely to relocate for their jobs than their husbands (and often times accelerator programs require temporary relocation)
- The hours are not always mom-friendly in the traditional sense of mom-responsibilities
- Role models, mentors and investors cannot connect to their particular challenges as women and/or moms when they do not look like them
Facing the Challenges Head on
One of my favorite lines from a paper by Candy Brush states:
“Perhaps the most fundamental contribution of women’s entrepreneurship research lies in acknowledging and documenting that entrepreneurship is not a gender-neutral phenomenon.”
Not a gender-neutral phenomenon. Entrepreneurship is not gender-equal! I believe in the work of accelerators, but also believe we have a certain responsibility to be very intentional with women entrepreneurs. Accelerator programs must make it a priority to proactively reach out to them and recognize their differences by:
- Having women run accelerators
- Going out to women founders and directly meeting with them
- Using inclusive language
- Having mentors, role models and investors that are women
It’s International Women’s Day, and we know how much work we have to do this year for women everywhere. So long as less than 3 percent of VC-funded companies have women CEOs, and we can almost count on our hands how many black women-owned companies have received more than $1 million in venture capital financing (11 to be exact), we’ll be working.
What are you doing to support women in entrepreneurship, today and everyday? Let me know, I would love to hear it! Are you a part of a women-led startup? Feel free to reach out to me to connect!