Wednesday July 06, 2022

The soul of a startup

July 14, 2019

There’s an essential, intangible something in startups — an energy, a soul. Company founders sense its presence. So do early employees and customers. It inspires people to contribute their talent, money and enthusiasm and fosters a sense of deep connection and mutual purpose. As long as this spirit persists, engagement is high and startups remain innovative, spurring growth. But when it vanishes, ventures can falter, and everyone perceives the loss.

As a business matures, it’s hard to keep its original spirit alive. Founders and employees often confuse soul with culture and, in particular, the freewheeling ethos of all-nighters, free soda and a family like feel. They notice and wax nostalgic about it only when it wanes. Investors sometimes run roughshod over a company’s emotional core, pushing a firm to “professionalise” and to pivot in response to market demands. And organisations trying to recover an “entrepreneurial mindset” tend to take a superficial approach, addressing behavioural norms but failing to home in on what really matters.

I’ve studied more than a dozen fast-growth ventures in an attempt to better understand this problem and how it can be overcome. I’ve learned that while many companies struggle to retain their original essence, some have managed to do so quite effectively, thereby sustaining strong stakeholder relationships and ensuring that their ventures continue to thrive. So often entrepreneurs, consultants and scholars emphasise the need to implement structure and systems as a business grows, missing the importance of preserving its spirit. We can and should focus on both.

In search of organisational spirit

In my research I found most founders believed that their startups were about something more than their missions, business models and talent, even if those founders couldn’t articulate it precisely. For example, in his book “Onward,” Howard Schultz described the spirit of Starbucks this way: “Our stores and partners [employees] are at their best when they collaborate to provide an oasis, an uplifting feeling of comfort, connection, as well as a deep respect for the coffee and communities we serve.”

Across spiritual traditions, the human soul is often described as “the real self.” While Christian theologians and western philosophers have long had debates about the soul, many have believed in it and in its persistence over time. The founders and startup employees I interviewed felt similarly, perceiving their organisation as having a “true” self in which all stakeholders are intertwined.

Dimensions of the soul

What aspects of a startup do leaders really need to preserve as the business grows?

My investigation pointed to three elements that combine to create a unique and inspiring context for work: business intent, customer connection and employee experience. These are not simply cultural norms designed to shape behaviour. Their effects spark a different, more intense kind of commitment and performance. People form emotional ties to the company.

Business intent: All the ventures I studied had their own animating purpose. Usually this “business intent” originated with the entrepreneur, who communicated it to employees to persuade them to trade stable jobs for long hours and low pay. Although many factors drove the people I interviewed to join their companies, all had a loftier desire to be part of something bigger. They wanted to build businesses that improved people’s lives by changing the way products or services were created, distributed or consumed.

Customer connection: A close bond with customers also figured prominently in the successful companies I studied. Founders and employees intimately understood the perspectives and needs of the people to whom their products and services were targeted, and felt personally connected to them in a way that unleashed their energy and creativity. In its early days, Nike sent sales reps around the United States to not only market to sneaker buyers but also gather insights from them.

Employee experience: What set apart successful young firms was not a “fun” or “crazy” culture, as the stereotype goes, but rather the unusual creativity and autonomy that employees encountered on the job, which fostered greater engagement and better results. Leaders gave their people the liberty to operate within well-delineated boundaries as well as opportunities to influence key decisions, such as which products to develop. With both “voice” and “choice,” employees valued their work more and bonded with peers and the company itself.

How the organisation’s soul dies

At some of the companies I studied, the startup spirit eroded over time as a result of investors’ interventions, leaders’ own actions or both as they pursued growth.

Young companies often move into a mode of frenzied expansion. Their leaders can become highly tactical and pivot quickly and repeatedly, which is fine if the underlying business intent remains constant and continues to be communicated. But when it doesn’t, the shifting focus of leaders may be problematic. They can become so enamoured with their products and services and so obsessed with generating cash that they stop listening to and partnering with both customers and employees.

Preserving the soul

It is possible to find a middle ground in which high-growth companies add structure and discipline while still retaining the three critical elements that provide meaning.

As Netflix looked from its DVD-by-mail business to its next frontier, the company pivoted from video distribution to movie and TV production, while also exporting its model from the United States to the far reaches of the world. It’s hard to imagine that an organisation could retain its original essence through so many changes. But Netflix did, in part because those moves were aligned with its core intent of becoming the best global entertainment distributor and helping content creators around the world find an audience. They also supported its brand promise of providing customers stellar service, suppliers a valuable partner, investors sustained profitable growth and employees the chance to have a huge impact. Netflix remained both stubborn and flexible as it grew. When it came to business intent, customer connection and employee experience, it took an uncompromising stance, strengthening and protecting them over the years. It worked to pre-emptively protect its soul.

Idea in Brief

As companies grow, they need new systems and structures to manage their evolving businesses. Too often, however, they lose sight of the original spirit and essence that during their early days attracted and energised stakeholders.

Interviews with more than 200 founders and executives at a dozen fast-growth ventures show not only that this “startup soul” is real but that it can be broken down into three key elements: business intent (the company’s reason for being); customer connection (a crystal-clear focus on those being served and what they want); and employee experience (allowing people to have voice and choice).

If a company follows the lead of Warby Parker, Netflix and BlackRock and thinks more consciously about what it needs to do to keep the three elements at the forefront of its strategy and daily operations, it can preserve its soul — or revive it.