Finding (and Keeping) Your Company’s Soul

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Welcome to the hbr ideacast from harvard business review. I'm alison beard. Three years ago, our magazine and website published an article that explained exactly what startups needed to do if they wanted to scale into larger, longer lasting organizations. It talked about hiring functional experts and adding management structure and learning to plan and forecast in a disciplined way. Today, the author of that piece is here to talk about the flip side of that idea. His most recent research delves into what startups have to retain as they grow and what more mature companies might want to think about getting back. The answer is their soul, their essence, their energy. That thing that first made employees, customers and investors so excited to give their talent or money or both to the cause. Ranjay Gulati is a professor at Harvard Business School and he's the author of the HBR article the Soul of a Startup in the July August 2019 issue of the magazine. Ranjay, thanks so much for coming in.

Thank you, Alison. My pleasure to be here with you.

So we hear a lot about startup culture and how it changes as companies grow. Why did you choose the word soul?

Well, I think culture is a very important construct, but I think it's focused much more on understanding manifest behavior. What are those implicit and explicit rules and assumptions that regulate our behavior? I found something deeper than just that. It was really about the core essence of why we are here, what are we trying to do, what gives us meaning and purpose, and where do we get our energy from? So sure, culture could be a part of the story, but I think what I was trying to get at was really the core essence of the organization.

Now you've studied lots of companies through this lens. What were some of the ones that you immediately looked at and thought, now there's a company with a soul, I want to investigate further?

My first, I would say exposure to the idea was actually a video of Steve Jobs when he came back to Apple and his talking about how it wasn't just that Apple needed to build better products and redo their supply chain and their distribution channels and figure all that out. But he said that we need to reconnect with our soul. And he said soul is something that we seem to have lost our connection to and who we are. Why do we exist? But it was left kind of high level, loose, open ended. I then looked at Netflix, which I wrote a case on, and Netflix was one where I first saw a deliberate attempt to hold on to some kind of fundamental ideas. And so as I looked at kind of life histories of companies, some of them like these, held onto what they believed was valuable to them. Another one was Warby Parker.

So what did you find were the key components to this soul? Can we break it down at all?

Sure. There are three parts to the story, and this was the hard, the tough nut for me to crack. I think the first part is what I call business intent. Intent is a very loaded word. Intent is not just defining your purpose, but what are the actions through which you're going to try to achieve your purpose. This is not a vision statement, this is not a mission statement, this is not a strategy statement. It's really about intent for why we are here and what we are trying to do. Are we trying to change the way entertainment is consumed in the world? Are we trying to make flying fun again? Are we trying to bring people home safely and into that is a business intent. It's not just a save the world or the environment intent. And so that's the first pillar. The second one is really around customer success. I found that some of these companies were really serious about injecting the sense that we exist to support and serve our customers. And take that from a slogan to really making customers real, personifying them. What are they here? How do we make them successful? If we make them successful, then we are successful. The third one was around this employee success idea. And the idea here was, how do we make the experience of work meaningful? Energizing. And it isn't just having ping pong tables and foosball tables in the corridor. It was really about giving employees meaningful voice and choice. And when people experienced that work was energizing, they were willing to do extraordinary things at work.

So these three pillars are things that successful startups absolutely have to have to make it. How do companies lose it as they get bigger?

To me, the fascinating thing was first of all, when I would ask many observers, they couldn't pin it down. When you don't know what you want to hold on to, it's hard to hold onto it. The other part that was a little bit disconcerting to me was there's almost an acceptance of inevitability. That scale means stale. Once we scale, we're gonna go stale. We're gonna have to be bureaucratic, we're gonna have to bring in systems and structures. And then you would see pressures from external stakeholders like the investor community who would say, time to bring in the grownups. And it was almost an acceptance that once you bring in bureaucratic systems, that the idea was to crowd out, and then there would be the early employees. Time for you to leave. You guys like to work in a unstructured environment. You know, maybe this is not for you now. And I found that interesting and sometimes, you know, sad to see. But then I would see large companies saying, oh, we want to become like a startup. How do we have an entrepreneurial mindset in our organization? So I was caught in this middle ground where large companies wanted to be more like small, and small companies are trying to emulate large. And can we have the best of both? Can we actually have scale while having that entrepreneurial energy in the organization?

Yeah. How do you do things, though, like adding management structure, professionalizing, bringing in more seasoned executives while still preserving these things, especially something like employee voice and choice.

So I felt that the first part was to call it out and identify it. What is it that we want to hold onto? I then try to document what these companies do, and I think they do it in a disciplined way. Just the way in a disciplined way, you put in place system structures and processes in a disciplined way, and in a methodical way, you say, what am I doing to hold on to our soul? Have we been very clear about what our intent is? Is it getting lost? Our new hires as we get bigger and bigger? Is the idea of intent why we exist? Getting internalized in the organization or not? So how do we want to make sure that messaging is sinking in? The second one around customer? How do we retain clarity on that as we have more heterogeneous customers? As we get bigger, how do we make sure that that customer voice doesn't get lost? There are symbolic things people do. There's a legendary old. We have a red chair in the room, the customer sitting there, or another organization. Cisco, in the early days, used to have something called the customer advocacy group. There would be a chief customer advocacy officer whose job was to be an advocate for the customer in the organization on employee voice and choice. There are companies where the belief is that nobody can work in a pod more than 30 or 40 people. We want to make sure that we hold onto that smallness while we get big.

So how early should leaders start thinking about preserving these three pillars?

I think the earlier the better. I think every successful company that I looked at, the founders and the early leadership team is planning for scale. They're planning to be big, they're planning to grow. But I think the attention is so much focused on survival early days, it's so much focused on getting business and getting customers. In early days, somehow the internal climate is not that much of an attention point of attention. And I think the soul dies mostly with neglect.

And how much is this tied to the founders sticking around?

So in many instances, the founder sometimes becomes the carrier of the soul. They personify the soul. It's deeply embedded in them. Their Persona is larger than life. People look to them for cues and signals. Founders serve themselves well when they are able to decouple and make it not just about them. I also think when there is founder succession, one needs to be really clear about who are you bringing in? Do they understand the soul? Do they understand what they need to do? I've interviewed a number of people who are hired professionals who would say, I'm the professional who comes in when we kick out the founder, and my job is to clean house. And some of them had no appreciation for this. They were like, we need to build a large company now. And I think there has to be a delicate handoff here if you're going to hold on to that entrepreneurial energy that got them here in the first place.

And what about those companies that have made the mistake of not focusing on the pillars, have botched the succession and. And they want to go back to having a soul or even find a new one. How do you go about that?

So I think look at the revolving door of how many founders come back to salvage or sometimes, you know, Steve Jobs was just one of them. Howard Schultz came back. Phil Knight came back to Nike.

I'm hoping there's another solution, though.

Yes, and I think that's the question we have to ask ourselves that, you know, I think it's on everybody there. The founders should have found a way to decouple themselves from the soul if they have to be the carrier of the soul. And as they manage that transition and succession, that whoever comes in should have a fuller appreciation of what that soul looks like. And maybe there is a role for the founder to be played in that transitional period till the organization can carry on on its own. I think we are very good at spending time and attention on strategy, markets, supply chain, understanding our financial situation, our cash flow. We need to bring that same discipline and rigor to how are we attending to the soul of the organization as we scale.

I want to delve into each of the three pillars a little bit more deeply. Talk to me a little bit more about how business intent is different than purpose or mission, because I do think companies are doing a Much better job of outlining that grand goal, that thing that everyone's getting behind.

So, first of all, they're related constructs. I wouldn't disagree with you on that. I think my idea was to have clarity around the notion that this is about my business intent, why we exist as a business. What is happening with some of these other adjacent terms is they're either going 50,000ft into the sky, in the clouds, or we're going super tactical. And there's nothing in that mid space where we're trying to articulate why do we exist to serve customers of any kind, or what is the problem we are here to solve. So Netflix could have said we are here to rent DVDs and mail them to people, but they define their intent around trying to change the way entertainment is consumed in the world, and that.

Allowed them to pivot from mailing DVDs to producing content now.

Exactly. But there was a sensibility. What was my true north, if you will, you know, what problem are we here to solve? Or if we cease to exist, you know, what will? The gap we will leave behind. And it forces you to think strategically, it forces you to think existentially. You can use this to convince your customers, to convince your investors. But I think we should not forget that this statement is as important for the people you bring on board that if you do it right, a in a startup you're trying to sell to high, get people to come and work for you because they're better off getting a real job than coming to a startup with high risk. We know that. But I think all of us deep down want to have this idea of being part of something exciting. It doesn't have to be a noble cause, necessarily, a social cause, but something that is energizing and exciting. That. Do you know, where do I work? I work at a company that is changing the way blank gets done. This is an even older story that, you know, way back in Italy, a bricklayer is laying bricks and somebody says, what are you doing? Are you laying bricks or are you building a cathedral?

Right, and let's talk a little bit more about customers. So lots of large organizations are very good at serving their customers. How do companies with a soul do it differently or better?

So once again, the idea of customer success is it can be a marketing message for your customers, but it's as important for your employees. That was the aha to me, that employees care and are energized when they feel that they are actually making a material difference in. In somebody else's life. It's not only that, oh, they'll pay me for it. Now that is also very much a big driver. I'm not disagreeing with that. But that it also gives inner meaning. And I understand whose life am I making a difference in and how I'm making a difference. And so how do you bring that voice of customer into the organization when each of us is doing our own part of the job? You know, how do I bring customer stories into the organization? How do I bring customers into the organization? How do I take my employees out into the customer organization? How do I retain that customer connection, that people viscerally feel that what they do has a material impact on somebody else's life?

And what are some specific ways that organizations you've studied give their employees when you're one of 10,000? Maybe that same level of voice and choice that they felt when it was startup days.

So let's look at this third pillar from the employee standpoint. So I belong to an organization first that has clarity of intent. I know what we are here for, I know who I'm here to serve. And now how is that experience meaningful to me as an employee in the organization? What I've learned from my interviews is people want to have impact and people want to feel they're productive, they're getting something done. So how do I create the space for them to have impact and feel that they are part of a productive enterprise and making a difference in that job? In my mind there are two clusters of things. There is voice and there's choice. Voice is about them feeling heard, that they have access to people who may be making decisions, that their voice may not be taking that advice, but they feel they've been heard. The other one is choice. That I have some discretion in what I'm doing, that I'm not encumbered by administrative rules and systems only. I had a previous HBR article where I talked about freedom within a framework. And what I'm saying here is not that this is completely open ended freedom. Go do whatever needs to be done. It's really saying freedom within a framework. And how do I create a context within which you're free?

You talk in the article about Warby Parker being an example of a company that almost went off the rails, was maybe losing some of its engineers enthusiasm and then managed to reel it back. So tell me a little bit about how they did that.

So Huobi's a great example where a company kind of caught itself I think probably in the right time, growing really fast. And as you Grow, you need to put in place all the expected system structures and processes. And what they discovered was that they had in the process taken away most discretion from their engineers. Not that the engineers weren't doing their job anymore. They were still working, but they had lost or were losing that entrepreneur spirit. They didn't feel that it was the same old Warby Parker. And I think the management realized that. And then they decided to put in place some systems where they could have voice and they call it warbles, where before they pick on a project they actually get to vote in. And they have kind of a crowdsourcing of prioritizing the ideas which lets everybody feel that what they work on is not just top down imposed on them, but their voice was part of the decision making process. And I think it's important to understand that it's really easy to feel really busy and we crowd out the soul.

So how much time should leaders be spending thinking about this, making sure the soul is being preserved while they're trying to grow and be better managers and put in processes and policies? It's a really tense situation.

I think that's the balancing act. But I think the question to ask ourselves is how important is my employees energy and drive and enthusiasm and commitment to my enterprise? And if it's really important to me and I want to look for ways to preserve that, then I think they should be acting on that very early on. I think it's just we take it for granted, we assume it and then later on we assume that oh, it's inevitable it's going to die. Do we have to just presume this is something that only exists when we're young? It's sort of like saying, you know, you can only have fun when you're a teenager and then you gotta grow up. And I think is that how do we retain that youthful spirit?

Most of the examples that we've talked about so far are from the United States. But this is a global phenomenon, right? So what are some companies from different countries that you've studied where you've seen this soul develop and be preserved or get lost and come back.

So I've been looking at companies around the world now and I've written previous case also on a company called Micromax that went through many trials and tribulations and they got caught in this yin and yang between putting in place administrative systems and the soul. And reconciling the two was something they couldn't really get done. They bring in more administrative systems than they were. Seoul would fight it back and it was a tug of war between two, I would say, ideas of how the organization should be run. The case I'm writing right now is couple of hundred employees. And it's fascinating to see the founders who are in their late 20s, I think, are very deliberate about this idea that the organization has an essence. They're not calling it a soul, and I haven't discussed the article with them yet.

They will soon.

But they understand that there's an essence that is something special about the energy that they want to bring into the organization and they want to hold onto it. And they've been very thoughtful about it from the time they were very young.

How does this happen in companies that are in more staid industries? Tech companies obviously are very focused on their mission and giving employees a great experience and customer service. Where else has it worked?

Well, a great example actually is BlackRock. And I was fortunate to write a case series with my colleague Jen Rifkin on the entire arc and sequence of blackrock's history in this story, what I learned from the very get go, you have some committed founders. You have a CEO who is deeply committed to a clear business intent. Right? And the business intent was defined around a set of key ideas. One was we're fiduciary to the client, which means we're not going to trade on our own account. You know, we're always going to have no conflict of interest over there and we're going to use technology to understand, quantify and manage risk. And once they did that, I think that was the first piece of the puzzle. And in this process was also woven this idea of customer success, because we are here to serve clients. So the business intent and customer success were kind of blended into each other. And then you have a deliberate effort to create employee success. How do we make sure that as we scale, we have voice and choice? So here you have an organization that is thousands of employees. It's managing, you know, assets under management of over several trillion dollars and at scale is thoughtful about what is their soul. Even as some of the founders have transitioned out, there's a very deliberate effort to make sure that we don't lose. What is it that we made us unique in the first place?

Either when you're defining your soul in the very beginning, when you're in startup stages, or if you're trying to figure out exactly what it is, if your organization has become very big and it's unclear anymore, how much should the leaders of the organization talk to the employees when they're defining these three pillars?

So the usual answer is these things are both top down, bottom up. Right. There is definitely some bottom up elements to this where you are engaging with them in a dialogue. But at some point you have to come up with an architecture and a frame and then you've gotta go into sell mode. You've gotta get them to buy into it. And it has to be real and authentic. You know, you can't fake it. You can't do soul washing. You know, we call it kind of like, okay, we're gonna do a little washing and call it checkbox and you know, have a communication PR messaging out there. Then that the cynics will kick in. So people are cynical about these things and so how do we make it meaningful and real? And that's the piece, I think, where leadership really has to come through. Leaders need to understand that this has to go from cheap slogans to being real and internalized behavior. And to do this at scale gets challenging. But I think we have to be very rigorous and disciplined about saying, I don't want to lose that. I don't want to have people in this organization who don't understand why we're here. I don't want them to not have a sense of voice and choice. We're getting bigger. We want to be very methodical about making sure customer voice and who we are here to serve comes through loud and clear. Bringing that rigor the way we do to other parts of our business I think is really important because once you lose it, you can try to regain it. And companies do do it, but it gets much harder.

Great. Well, thank you so much for joining us.

Thank you.

That was Ron J. Gulati. He's a professor at Harvard Business School and the author of the HBR article, the Soul of a Startup. This episode was produced by Mary Dew. We got technical help from Rob Eckhart. Adam Buchholz is our audio product manager. Thanks for listening to the hbr ideacast. I'm alison beard.