Jun 252015

The Difference Between Culture and Values

The Difference Between Culture and Values

This topic has been bugging me for a while, so I am going to use the writing of this post as a means of working through it. We have a great set of core values here at Return Path. And we also have a great corporate culture, as evidenced by our winning multiple employer of choice awards, including being Fortune Magazine’s #2 best medium-sized workplace in America.

But the two things are different, and they’re often confused. I hear statements all the time, both here and at other companies, like “you can’t do that — it’s not part of our culture,” “I like working there, because the culture is so great,” and “I hope our culture never changes.”  And those statements reveal the disconnect.

Here’s my stab at a definition.  Values guide decision-making and a sense of what’s important and what’s right.  Culture is the collection of business practices, processes, and interactions that make up the work environment.

A company’s values should never really change. They are the bedrock underneath the surface that will be there 10 or 100 years from now.  They are the uncompromising core principles that the company is willing to live and die by, the rules of the game. To pick one value, if you believe in Transparency one day, there’s no way the next day you decide that being Transparent is unimportant. Can a value be changed?  I guess, either a very little bit at a time, slowly like tectonic plates move, or in a sharp blow as if you deliberately took a jackhammer to stone and destroyed something permanently.  One example that comes to mind is that we added a value a couple years back called Think Global, Act Local, when we opened our first couple of international offices.  Or a startup that quickly becomes a huge company might need to modify a value around Scrappiness to make it about Efficiency.  Value changes are few and far between.

If a company’s values are its bedrock, then a company’s culture is the shifting landscape on top of it. Culture is the current embodiment of the values as the needs of the business dictate. Landscapes change over time — sometimes temporarily due to a change in seasons, sometimes permanently due to a storm or a landslide, sometimes even due to human events like commercial development or at the hand of a good gardener.

So what does it mean that culture is the current embodiment of the values as the needs of the business dictate?  Let’s go back to the value of Transparency. When you are 10 people in a room, Transparency means you as CEO may feel compelled to share that you’re thinking about pivoting the product, collect everyone’s point of view on the subject, and make a decision together. When you are 100 people, you probably wouldn’t want to share that thinking with ALL until it’s more baked, you have more of a concrete direction in mind, and you’ve stress tested it with a smaller group, or you risk sending people off in a bunch of different directions without intending to do so. When you are 1,000 employees and public, you might not make that announcement to ALL until it’s orchestrated with your earnings call, but there may be hundreds of employees who know by then. A commitment to Transparency doesn’t mean always sharing everything in your head with everyone the minute it appears as a protean thought.  At 10 people, you can tell everyone why you had to fire Pat – they probably all know, anyway.  At 100 people, that’s unkind to Pat.  At 1,000, it invites a lawsuit.

Or here’s another example.  Take Collaboration as a value.  I think most people would agree that collaboration managed well means that the right people in the organization are involved in producing a piece of work or making a decision, but that collaboration managed poorly means you’re constantly trying to seek consensus.  The culture needs to shift over time in order to make sure the proper safeguards are in place to prevent collaboration from turning into a big pot of consensus goo – and the safeguards required change as organizations scale.  In a small, founder-driven company, it often doesn’t matter as much if the boss makes the decisions.  The value of collaboration can feel like consensus, as they get to air their views and feel like they’re shaping a decision, even though in reality they might not be.  In a larger organization with a wider range of functional specialists managing their own pieces of the organization, the boss doesn’t usually make every major decision, though guys like Ellison, Benioff, Jobs, etc. would disagree with that.  But in order for collaboration to be effective, decisions need to be delegated and appropriate working groups need to be established to be clear on WHO is best equipped to collaborate, and to what extent.  Making these pronouncements could come as feeling very counter-cultural to someone used to having input, when in fact they’re just a new expression of the same value.

I believe that a business whose culture never evolves slowly dies.  Many companies are very dynamic by virtue of growth or scaling, or by being in very dynamic markets even if the company itself is stable in people or product. Even a stable company — think the local hardware store or barber shop — will die if it doesn’t adapt its way of doing business to match the changing norms and consumption patterns in society.

This doesn’t mean that a company’s culture can’t evolve to a point where some employees won’t feel comfortable there any longer. We lost our first employee on the grounds that we had “become too corporate” when we reached the robust size of 25 employees. I think we were the same company in principles that day as we had been when we were 10 people (and today when we are approaching 500), but I understood what that person meant.

My advice to leaders: Don’t cling to every aspect of the way your business works as you scale up. Stick to your core values, but recognize that you need to lead (or at least be ok with) the evolution of your culture, just as you would lead (or be ok with) the evolution of your product. But be sure you’re sticking to your values, and not compromising them just because the organization scales and work patterns need to change.  A leader’s job is to embody the values.  That impacts/produces/guides culture.  But only the foolhardy leaders think they can control culture.

My advice to employees: Distinguish between values and culture if you don’t like something you see going on at work. If it’s a breach of values, you should feel very free to wave your arms and cry foul. But if it’s a shifting of the way work gets done within the company’s values system, give a second thought to how you complain about it before you do so, though note that people can always interpret the same value in different ways.  If you believe in your company’s values, that may be a harder fit to find and therefore more important than getting comfortable with the way those values show up.

Note:  I started writing this by talking about the foundation of a house vs. the house itself, or the house itself vs. the furniture inside it.  That may be a more useful analogy for you.  But hopefully you get the idea.

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Dec 062012

Book Short: Culture is King

Book Short:  Culture is King

Tony Hsieh’s story, Delivering Happiness (book, Kindle), is more than just the story of his life or the story of Zappos. It’s a great window into the soul of a very successful company and one that in many ways has become a model for great culture and a great customer service model.  It’s a relatively quick and breezy read, and it contains a handful of legendary anecdotes from Zappos’ history to demonstrate those two things — culture and customer service — in action.

As Hsieh himself says in the book, you can’t copy this stuff and believe it will work in your company’s environment as it does in Zappos’.  You have to come up with these things on your own, or better yet, you have to create an environment where the company develops its own culture and operating system along the broad lines you lay out.  I think Return Path has many similarities with Zappos in how we seek out WOW experiences and in our Core Values, as well as the evolutionary path we took to get to those places.  But as much as I enjoyed reading about a like-minded company, I also recognized the specific things that were different and had a good visceral understanding as to WHY the differences exist.

It is the rare company that gets to $1 billion in revenue ever – let alone within a decade.  For that reason alone, this is a worthwhile read.  But if you are a student of organizational culture and believe in the power of values-driven organizations, this is good affirmation and full of good examples.  And if you’re a doubter of the power of those things, this might just convince you to think twice about that!

Oct 052011

Building the Company vs. Building the Business

Building the Company vs. Building the Business

I was being interviewed recently for a book someone is writing on entrepreneurship, which focused on identifying the elements of my “playbook” for entrepreneurial success at Return Path.  I’m not sure I’ve ever had a full playbook, though I’ve certainly documented pieces of it in this blog over the years.  One of the conversations we had in the interview was around the topic of building the company vs. building the business.

The classic entrepreneur builds the business — quite frankly, he or she probably just builds the product for a long time first, then the business.  In the course of the interview, I realized that I’ve spent at least as much energy over the years building the company concurrently with the product/business.  In fact, in many ways, I probably spent more time building the company in the early years than the business warranted given its size and stage.  This is probably related to my theme from a few months ago about building Return Path “Backwards.”

What do I mean by building the company as opposed to building the business?

  • Building the business means obsessing over things like product features, getting traction with early clients, competition, and generating buzz
  • Building the company means obsessing over things like HR policies, company values and culture, long-term strategy, and investor reporting

In the early years, I did some things that now seem crazy for a brand new, 25-person company, like designing a sabbatical policy that wouldn’t kick in until an employee’s 7th anniversary.  But I don’t regret doing them, and I don’t think they were wasted effort in the long run, even if they were a little wasted in the short run.  I think working on company-building early on paid benefits in two ways for us:

  1. They helped lay the groundwork for scaling – what we’re finding now as we are trying to rapidly scale up the business, and even over the last few years since we’ve been scaling at a moderate pace, is that we are doing so on a very solid foundation
  2. The company didn’t die when the product and business died – because we had built a good company, when our original ECOA business basically proved to be a loser back in 2002, it was a fairly obvious decision (on the part of both the management team and the venture syndicate) to keep the business going but pivot the business, more than once

Starting about four years ago, for the first time, I felt like we had a great business to match our great company.  Now that those two things are in sync, we are zooming forward at an amazing pace, and we’re doing it perhaps more gracefully than we would be doing it if we hadn’t focused on building the company along the way.

I’m not saying that there’s a right path or a wrong path here when you compare business building with company building, although as I wrote this post, my #2 conclusion above is a particularly poignant one, that without a strong company, we wouldn’t be here 12 years later.  Of course, you could always argue that if I’d spent more time building the business and less time building the company, we might have succeeded sooner.  In the end, a good CEO and management team must be concerned about getting both elements right if they want to build an enduring stand-alone company.

Jul 142011

Retail, No Longer

Retail, No Longer

I’ve evolved my operating system as a CEO many times over the years as our business at Return Path has changed and as the company has scaled up.  I’ve changed my meeting routines, I’ve delegated more things, and I’ve gotten less in the details of the business.

But there’s one specific thing where I’ve remained very “retail,” or on the front lines, and that is the interview process.  I still interview every new hire, usually on the phone or Skype and in most cases only for 15-30 minutes, and then I also do an in-person 15-30 minute check-in when someone is around the 90-day mark as an employee.  For me, these have both been great mechanisms for collecting data about the organization, for making a personal impression on the culture, and for continuing to get to know all employees, at least a little bit.

But the system is starting to break as we scale.  Last year, we hired 82 people.  In the first six months of this year, we hired 80 more.  My calendar is groaning under the strain — and I assume, though they’ve never uttered a complaint about it, that my assistant and our recruiters feel like they’re playing a game of Sudoku with invisible ink trying to make it all work.

So today I changed the policy.  I’ll still do interviews and 90-day check-ins for all manager hires, but otherwise I’m delegating it to my staff.  We all feel that it’s critical for executives to stay as close as possible to the front lines, so we’ll share in the responsibilities.

It’s definitely a bittersweet moment.  It’s great that we’re big and growing fast, and it’s important for us to evolve.  But I will miss the personal connections with everyone, and I’ll have to work harder just to remember names as I walk through the hallways, particularly of our Colorado office, which has the majority of our staff but which I only visit 6-8 times/year.

Dec 032010

Selling a Line of Business

Selling a Line of Business

It’s been a couple of years since Return Path decided to focus on our deliverability business by divesting and spinning out our other legacy businesses. That link tells some of the story, and the rest is that subsequently, Authentic Response divested part of the Postmaster Direct business to Q Interactive.  Those three transactions, plus a number of experiences over the years on the buy side of similar transactions (Bonded Sender, Habeas, NetCreations), plus my learnings from talking to a number of other CEOs who have done similar things over the years, form the basis of this post.  The Authentic Response spin-out was also partially chronicled by Inc. Magazine in this article earlier this year.

It’s an important topic — as entrepreneurs build businesses, they frequently end up creating new revenue opportunities and go off on productive tangents.  Those new lines of business might or might not take off; but sometimes they can take off and still, down the road, end up being non-core to the overall mission of the company and therefore candidates for divestiture.  Even if they are good businesses, the overall enterprise might benefit from the focus or cash provided by a sale.  Look at the example of Occipital building the Red Laser app, then selling it to eBay to finance the rest of their business.

Here are some of the signs of a successful divestiture:

  • Business is truly non-core or relies on starkly different competencies for success (e.g., one is B2B, the other is B2C)
  • Business is growing rapidly and requires assistance to scale properly (either technology, or sales)
  • Business has its own culture and operations and “a life of its own”

Conversely, here are some of the reasons why a divestitures of a business unit might stall or fail:

  • Lack of a very compelling story as to why you’re selling the business unit
  • Stand-alone financials of the unit are too hard for the buyer to determine with confidence
  • Operations of the unit too tethered to the mothership
  • There is some problem with the leadership of the unit (there is no stand-alone leader, the leader isn’t involved in the divestiture, the leader isn’t squarely behind the divestiture)
  • Business performance weakens during the process

I have a couple points of advice to entrepreneurs in this situation.  The first is to clarify for yourself up front:  are you selling a true line of business, or are you selling assets?  If you are selling assets, you need to clearly define what they are, and what they aren’t, and you need to make sure all legal details (contracts, IP, etc.) are buttoned up before the process starts.

If you are selling a true line of business, beware that buyers will not be interested in doing any hard work, or if they feel like they have to do hard work, the price they pay for the business will reflect that in the form of a steep, steep discount.  The financials must be understandable and credible on a stand-alone basis.  The business must be completely separated from the core already.  The business must have its own management team, completely aligned with the decision to sell.

You also have to be extremely cognizant of the human aspects of what you’re doing.  Every culture is different, and I’m not advocating one style over another, but selling or spinning out a business is very different than selling a company.  There’s going to be a big difference in reactions, perceptions, hopes, and fears between the people in the core who are staying, and the people in the business unit that’s going.  Having a heightened awareness of those differences and factoring them into your communications plan is critical to success, as a poorly managed effort can end up harming both sides.

In terms of valuation expectations, don’t expect to get any credit for synergies.  You have to present them and sell them, and they may make the different between getting a deal done and not, but they will most likely not impact the price you get for the divestiture.

Finally, remember that buyers understand your psychology as well.  They know you’re selling the business for a reason (you need to raise cash, you’re concerned about its future performance, it’s become a distraction or has the potential to suck scarce resources out of your core, etc.).  They will completely understand the costs you carry, whether financial, opportunity, or mental, in continuing to own the business.  And they will factor that into the price they’re willing to offer.  Of course, as with all deals, the best thing you can do to maximize price is have multiple interested parties bidding on the deal!

Aug 262010

Style, or Substance?

Style, or Substance?

I had an interesting conversation the other day with a friend who sits on a couple of Boards, as do I (besides Return Path’s).  We ended up in a conversation about some challenges one of his Boards is having with their CEO, and the question to some extent boiled down to this:  a Board is responsible for hiring/firing the CEO and for being the guardians of shareholder value, but what does a Board do when it doesn’t like the CEO’s style?

There are lots of different kinds of CEOs and corporate cultures.  Some are command-and-control, others are more open, flat, and transparent.  I like to think I and Return Path are the latter, and of course my bias is that that kind of culture leads to a more successful company.  But I’ve worked in environments that are the former, and, while less fun and more stressful, they can also produce very successful outcomes for shareholders and for employees as well.

So what do you do as a Board member if you don’t like the way a CEO operates, even if the company is doing well?  I find myself very conflicted on the topic, and I’m glad I’ve never had to deal with it myself as an outside Board member.  I certainly wouldn’t want to work in an organization again that had what I consider to be a negative, pace-setting environment, but is it the Board’s role to shape the culture of a company?  Here are some specific questions, which probably fall on a spectrum:

Is it grounds for removal if you think the company could be doing better with a different style leader at the helm?  Probably not.

Is it fair to expect a leader to change his or her style just because the Board doesn’t like it?  Less certain, but also probably not.

Is it fair to give a warning or threaten removal if the CEO’s style begins to impact performance, say, by driving out key employees or stifling innovation?  Probably.

Is it fair to give feedback and coaching?  Absolutely.

This is one of those very situation-specific topics, but probably a good one for others to weigh in on.  I do come back to the question of whether it is part of a Board’s role to shape the culture of a company.  Is that just style…or is it substance?

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