A personal take on benefits and costs of company culture and companies that are crushing it

The value of company culture has become a popular topic and many companies these days have rebranded their HR teams to People and Culture. Company culture certainly is a term anyone working in a dynamic environment has come across and one of those buzzwords everyone agrees are important for a modern company and especially for a young and innovative one. But what does it actually mean to have a good company culture, why is it so important and how to get there?

Already when looking at companies more from an investing angle, culture seemed to be a crucial factor to me. However, over the last couple of years, working in different start-ups, meeting and talking to many more and seeing first-hand the implications of good and poor culture, I’ve come to realise company culture’s full merits for the future success of a business and for reducing risk. This article does not claim completeness. It’s way too short for that. It’s rather a practical summary of some key ideas around culture that I’ve come to consider crucial.

In short: What is culture?

Consider a company with an interesting business model and, perhaps more important to most employees, working on an interesting problem or sector and growing fast – in short: the typical hype company. It won’t have any problems in attracting top talent (often even at below market compensation). A superb workforce is a great ingredient for creating a top company culture but alone won’t do the trick. A company may have a top team and culture may still be poor.

Culture is more than the sum of all employees: It’s crucial how employees are treated, what ownership they are given and asked for, how people treat each other at work, if a company is willing to invest in its employees, and whether new ideas are encouraged and considered, irrespective of who brings them up and level of seniority.

Poor company culture dangles over a company like a sword of Damocles

As long as a company is successful and overachieving objectives, it can often conceal or partially compensate for a lack of culture. The company’s success in itself acts as a strong motivator for the team.

But in any company, there will be times when things don’t go according to plan. Tough times are when a strong culture shows its full potential. Once the motivating power of success is gone, the team needs a new force to compensate for it; else disillusion is inevitable, as the team suddenly realises the lack of appreciation and investment in it. Reciprocity is a basic psychological pattern and if people feel that their employer has really cared about them in the past and is still doing so, they are more likely to fight for it.

In an adverse moment, poor culture can lead to a chain reaction: Employees become unsatisfied which leads to lower motivation, which in turn leads to inferior results – and these make it even more challenging to overcome any initial problems there were.

Sure, for companies with an appealing vision and mission, in which employees fully believe and identify with, these factors may be able to step in for a lack of culture to some extent. The question is, whether that will be enough to keep morale up and stop employees from leaving the company in the worst moment. It is likely that at least for some it won’t, resulting in a loss of talent and enhancing the feeling of the remaining team that they are on a sinking ship.

Culture is an important topic for any company and it pays to think about it when things are running smoothly – to avoid possible disaster when they aren’t.

Costs of a poor company culture exceed short-term profits foregone

A good culture usually comes at a price. It requires investment in people, respecting that there should be a work-life balance and possibly spending money on fun activities and perks that show appreciation.

Given the potentially disastrous consequences, it may be obvious that such investments are worth it in case of crisis. Interestingly, even if management were to believe the company was on a one-directional path to success, it pays to invest in culture. Even in good times, a great culture significantly reduces staff turnover and creates better products that are more likely to prevail.

Especially in ‘hot’ start-ups but also in many other companies, it is not uncommon that management – whether consciously or not – thinks that whatever great their employees are, they are fortunate to work for that company. As a consequence, if any, emphasis is put on talking about great culture but not on putting in the effort, appreciation and money to create it.

A good example are excessive hours employees are – explicitly or implicitly – asked to work at some young companies without the corresponding compensation. With a great culture, many people are probably willing to put in the hours and commitment for a limited period, if there is a good reason for it and they feel honest appreciation.

What’s problematic is, if either it’s a one-sided extra effort without feeling to receive anything back and/or – what happens commonly – one reason for temporary extra effort turns into the next. I’m referring to “that next big project after which everything will be much more normal again”, but once finished, there’s already the next project with the same promise looming.

Intrinsically motivated employees may go with this for some time but at one point or another will feel they are not receiving enough in return or will simply be exhausted from working in such fashion. If they come to realise this is how the company operates and there is nothing to be done about it, that’s when they quit.

Some companies may factor this wear-out of their employees in, assuming that there are enough good people out there interested in working for the company. Hence, they figure it makes economic sense to take as much as possible from employees, not invest much in them and, once they are worn out, simply get new ones.

Aside from being morally questionable, I doubt this calculation makes sense in many cases: Not only does it significantly increase direct (HR) and indirect (time of other team members spent on interviews and lost focus on product and business) hiring costs, but the team also is less motivated to achieve great things for this company and overworked people are much less efficient.

A good company culture starts at the founders / top-management level

Ideally, everyone at a company understands and cherishes a great culture. The higher the management the more important, though, that there is an understanding of the importance of a great culture and what it takes. What is imperative for a good culture, is that top-level management buys into it and makes it a priority.

What I mean by understanding here is more than just an understanding that in theory, it makes sense. To create a great culture, management needs to be deeply convinced that culture is essential and be inherently motivated to prioritise it. Also, it appears to me, some character traits are essential: A management that can create a strong culture does not take itself too seriously, is humble, foments a truly entrepreneurial and independent working style and is convinced that for most questions there is someone in the team who is better placed to make the decision.

Examples of terrific company cultures

Both from the inside and the outside, I’ve seen companies with great and poor company cultures. Here are two examples of companies that in my opinion do an outstanding job at culture:

The first one is Personio, a B2B HR-Tech SaaS company from Munich. I haven’t worked for them but their apparent great culture was one major reason for me to contemplate doing so – and speaking to them confirmed my conviction.

I had read about them somewhere, when I saw a fireside chat with Hanno Renner (CEO), where it was clear that

• the founders were humble, clearly not pretending to have all the answers themselves, and being lucky to have had the right guidance by some of their experienced investors at the right time
• they have a very granular approach on the strategic and execution levels, making sure everyone knows what their specific role and purpose in the organisation is and then providing people with the ownership for it, thereby enhancing entrepreneurial thinking
• there is a strong focus on finding the right characters for the team (i.e. not only from a functional perspective) and a tendency to prioritise taking the right and motivated people in, rather than having people who have x years of experience on their CV. It also seemed the company put a lot of effort into helping people grow and develop.
• they have lots of team events, both at the office and outside of it, e.g. going to Oktoberfest or skiing with the entire team – which means a lot of costs for the company but is money well spent.

As I wasn’t sure whether they had a position that was a good fit for me at the time, I just sent an email, describing what sort of job I was looking for. It was followed by the best recruitment experience, I’ve ever had. A great exploratory chat with one of their recruiters focusing on what I (!) would be happy with and looking for, was followed by a very open and honest talk with their head of international.

Nowadays Personio’s software has many integrations with other software and tools, creating an edge over most competitors that aren’t as deeply integrated. However, the company had to get here first and there were many other HR tech companies trying to do something similar. SaaS is scalable but especially at early stages, and when the potential market is big enough, also possible and worth being copied / competed for. Without having analysed the situation closely, my best guess is that the culture the founders started building early on, played a major role in getting the company to a more tangible competitive advantage.

Finally, Personio is a great example that a terrific company culture is possible at bigger companies likewise (they already had a few hundred employees back then) and that it pays to invest in company culture from the early days on. As with processes, it is much easier to grow culture with a company than starting to invest in it when the company is bigger.

Another company with an amazing culture is Berlin-based Afilio, a company I know from the inside and the leading German platform for life-long provision planning. With about 30 employees, the team is much smaller than at Personio, but the company is similarly successful with more than 2m registered users in Germany alone.

In everyday work, there are no hierarchies whatsoever. Everyone knows exactly what their job is and is expected and allowed to take full ownership of it. OKR sessions are used to steer the direction of the company and align everyone. Here, it’s not management setting the OKRs but the team together thinking about what makes sense.

For the vast majority of decisions, it’s those who are closest to the problem who take the decision, as the founders know that they have the big picture but their opinion is not per se more accurate than that of any other team member. Decisions are based on facts and expertise for the specific problem and not the status of the person.

From day one, an absolute atmosphere of trust is established and most of the time, once something is discussed and agreed upon, you will not be checked in with for the status of it until you get back with the finished work or ask others for feedback. No one is ever given narrow instructions but everyone is just expected to ask for feedback themselves whenever it is needed or involving someone else might be beneficial.

There’s a strong and tangible belief that team members are capable of anything and if they need something they will come forth with it. Everyone is completely in charge of setting their own schedule and meetings are held on an ad-hoc basis when needed.

A big thank you, Till, Philip and Richard, for my time at Afilio and for making building a great culture look simple! (Btw, Afilio is hiring!)

Some closing remarks

Culture is not primarily about spending money, but about truly caring about employees and both their professional and personal success in life. Yet, building a good company culture will oftentimes require investments, both in worktime that is spent on fun activities together or by not asking people to permanently sacrifice their private life for work, and in expenses incurred for the development of employees and on great team events.

Investing in culture makes sense from a human perspective – it’s simply the right thing to do – but also from a business perspective: Both direct and indirect costs are saved, staff churn is lower and it helps to build better products. There’s no better downside protection for when things don’t go according to plan and if not before, that is when you fully reap your return on investment, as employees don’t leave a sinking ship but come together to fight any sort of problem.

Writing about creating a good company culture is challenging, as it’s such a vast and complex topic. (I am sure many important aspects could be added here.) What is much more difficult is creating one. I am convinced it is worth the effort and it will be a priority at any business I am to start.

On a side note: While writing this post, I am working on making investment in the UN’s Sustainable Development Goals simpler and more accessible for non-professional investors. We are currently looking for a co-founder as CPO. Essentially, we are looking for a product all-rounder with an entrepreneurial mindset, who is humble, analytical, yet creative and has a bias to action.

If that is you or you happen to know someone who wants to tackle the lack of capital to finance the Sustainable Development Goals (and build a company with – hopefully – a great culture ??), I’m happy to hear from you!