In Silicon Valley, it is often said that the founder is the startup.
One of the components of initial resource endowments of NTBFs, being also a differ-entiator, is corporate culture which plays an important – though generally hidden – role. It emerges in the first few years of the startup. Particularly as an intangible asset a unique culture offers an advantage over competitors. It will affect product design, prototyping and realization, hiring practices and the values empowering employees to live the mission [Lowry 2011].
Usually it is assumed that the entrepreneurs play the key role in shaping corporate culture which is “intrinsic” to the initial architecture. Focusing on the founders we put forward a model of corporate culture to be formed essentially by a self-replicating pro-cess. Figure I.120 illustrates this for “behavioral patterns” as the important and ob-servable expression of culture.
Self-replication is any process by which an entity will make a copy of itself – usually by distinct steps increasing the number of entities by one or more. The important ingredi-ents to such a step comprise entrepreneurial leadership by example, influence and employee development (Figure I.141). Establishing behavior and “how things are done here” through “leading by example” (“walk as you talk”) is a characteristic of many CEOs of Hidden Champions (ch. 4.1.1).
Metaphorically, assuming the founder(s) to determine the DNA for behavioral patterns can be compared with gene expression, which is the process by which information from a gene is used in the synthesis of a functional gene product.
An NTBF usually starts with up to five persons. That means shaping culture starts al-most from scratch with the entrepreneurs/owners driving its direction. There is al-mostly one “leader” who has the greatest influence – usually the founder or the “primus inter
pares” of a team. Disregarding situations were only two persons form the new firm, the model of a self-replicating system can start with a three-person constellation.
Figure I.120: Development of firm culture expressed by behavior of a firm’s leader or founder by a self-replicating system.
Whereas Figure I.120 refers to a pattern-related process of firm culture evolution an interpretation of this process takes the following route. A small group, such as the founding members of a firm, does not face substantial difficulties in coordinating effi-ciently. Once they have done so, they can establish a set of self-reinforcing rules or norms either tacit or formalized governing what actions and behavior are appropriate.
These norms allow the group or organization to continue to successfully coordinate activities.
As the group grows, new entrants’ exposure to these norms allows the entrants to be aware of the appropriate behavior and creating an expectation for everyone in the group of what everyone else (including the new entrants) will do. Therefore, relatively slow growth and exposure of new entrants to the group’s previously established norms can overcome large coordination failure.
The missing part of this interpretation is the “new employee” (“entrant”) of the firm, which is associated with the firm’s hiring process. A complement to the interpretation could tentatively refer to a “targeted selection” process which is ubiquitously applied by large firms for hiring activities focusing on a primary facility (a technical, commer-cial or administrative/managing specification) and a secondary facility of importance and additionally “needed to have” or “nice to have” competencies or personal traits and overall fitting with the corporate culture. 80
Creating NTBF culture is the leader’s responsibility to drive employee development by a directing or supporting style according to the employee’s status of competence and commitment (Figure I.121). Leadership focusing on people in startups will emphasize influence rather than power as a means of assertiveness and execution (influence >
attitudes > behavior; ch. 1.1.2).
Delegation and transfer of responsibility to the individual employee increases the level of identification with the firm. The leader’s goal must be:
Keep the corporate culture across growth processes.
The human resources philosophy of 3M made in 1948 can serve as prerequisite of the interconnection of employee development and firm growth: “As our business grows, it becomes increasingly necessary to delegate responsibility and to encourage men and women to exercise their initiative. This requires considerable tolerance. Those men and women to whom we delegate authority and responsibility, if they are good people, are going to want to do their jobs in their own way.” [McLeod and Winsor 2003]
It is interesting to note that Greiner’s staged model of firm growth and associated style of management (Table I.68) for growth of the firm also emphasizes directing and dele-gating as emphasized for leadership style for (individual) employee development in Figure I.121.
Figure I.121: Leadership styles for employee development referring to employees’ de-velopment levels.
Self-reinforcing mechanisms as described above occur specifically in the context of coordination (ch. 1.2.1, 2.1.2.5; Table I.8, Figure I.73). There is ample evidence in ex-periments on coordination games that what a team did previously is likely to become a self-reinforcing norm about what to expect in the future. Game theorists have also recognized that organizational culture is one way in which a precedent helps select an equilibrium by reinforcement.
Based on game-theoretical experimental settings with group sizes of 2 – 16 persons it was shown [Weber 2002] that the ability of large groups or organi-zations to coordinate successfully is critically affected by the group’s growth process itself. Consistent with previous experimental research, coordination is much easier in small groups. It was shown that, even though coordination does not occur in groups that start off large, efficiently coordinated groups can be “grown.” This corroborates also the interpretation of self-replication.
The experiments, indeed, indicated that efficient coordination in large groups is pos-sible when groups start small and then grow slowly (coupled with the exposure of new entrants to the group’s history). Moreover, the early failure of groups in the growth sessions of Weber’s experiments appeared to produce an instance of the common view in the business world that firms can “grow too fast.”
Following Kaplan [2003b] skills related to building the firm’s culture comprise Leadership (ch. 1.1.2; Equation I.1): ability to build consensus in the face of uncertainty
Communication: ability to keep a clear and consistent message Being a good team player: knowing when to trust and when to delegate Decision-making: knowing when to make a decision.
Trust, competencies and commitment will always be the foundation of success through leading decision-making and related courses of actions and execution (Figure I.111, Figure I.117). However, the starting point is always beginning with communica-tion to ensure understanding of the vision and mission (ch. 2.1.2.7) and agreeing on common priorities.
Hence, 1) the leader must share his/her goals and objectives with the staff. And, after having a concept of activities and operations and specification of tasks in place he or she must 2) clarify coordinating instructions and 3) explain control and how to measure level of achieving objectives – having success (ch. 4.1).
Building consensus means achieving agreements among a set of possibly very di-verse people. Building consensus is in the context of risk and uncertainty (ch. 4.2.1) and making decisions (ch. 4.2.2) at the right time. The expected result is that every-one of the new firm is aware what his/her role and job is and what he/she contributes to success. This implies to continuously check whether the firm’s operations (Figure
I.5) have generated value and, moreover, whether value creation has been achieved efficiently.
Communication based on explaining what is and why what to do is a key capacity to influence someone else’s behavior as compared with one’s own behavior. In the con-text of entrepreneurship and building consensus among all the people of a startup it is advantageous to refer to operational facets related to each individual’s decision pro-blem in the context of objectives introduced by R. Ackoff.
Ackoff’s suggestion as cited by Runge [2006:341] is concerned with the valuation of the objectives, the possible courses of action and the efficiency of each course of action in achieving each objective and the individual’s probability of choice for each course of action. Accordingly, there are three effects of communication with a related basis, options and results referring to individual behavior and actions:
Motivation: Values of the objectives
Information: Possibilities of choice of the available courses of action Instruction: Efficiencies of the available courses of action.
Information usually affects a person’s mental state of cognition. Instruction refers to a finite number of actions to achieve a result which, as the simplest case, may proceed sequentially, but will become complicated through conditional branching options or loops. An everyday example of an instruction is the “cooking recipe.” Motivation is the major effect leaders should focus on.
Concerning operations, behavior and social interactions corporate culture in large firms develops for new employees usually quite differently. Here one often observes three paths:
Official and Codified:
“Manuals”; for instance, Operations Manual, Office Manual etc. (on paper or the firm’s Intranet); spelled out by supervisors
Official and Not-Codified:
Expected behavior; “tacit,” rarely spelled out Unofficial & Not Codified:
Do’s and Don’ts; individual leaders’ approaches to coaching and supporting.
This means, it takes rather long (and is costy) before a new employee has learned not only about the firm’s offerings and strategies, but also the culture.