We should be more like samurais when building a company
The Operating System for Evolutionary Organisations Part 6/10
Foto von Susann Schuster auf Unsplash
Act according to your virtues
In your career, you probably heard many times already that it is important to define values — the things you believe in as a company. Who hasn’t seen values hanging on some companies' walls or displayed in some presentations? But then, actually, no one cares about them, and even if someone does, most employees don’t live by them or use them as a guiding compass for their actions.
Only by acting according to them, do they matter at all. This is where the idea of virtue comes into play. The samurai called their principles “virtues” rather than “values” because virtues stand for what you do, while values are merely what you believe. It is doing that matters most. What you say means far less than what you do in life.
This is the 6th article of a series of 10 where I will dive into why traditional organizations are doomed to fail and how a new breed of evolutionary organizations offers a better way forward. These innovative companies are complexity-aware, nurture self-determination, and act developmental. Thus fostering happiness and achieving lasting success. On top of that, I sprinkled in a little bit of science, distilled a framework of 3 universal principles, and defined an operating system for organizations consisting of 8 essential components, with which any CEO or founder can transform their organization into a workplace that thrives.
The 8 essential components of the operating system are:
Purpose and Direction
Virtues
Density of high-quality talent
Radical candor and transparency
Autonomy
Flexible roles
Developmental practices
Careers and compensation
In this article, we will deep dive into the 2nd and 3rd component “Virtues” and “Density of high-quality talent”
You will start receiving these articles on a bi-weekly basis right here in your inbox. You can also go to the website to read all the articles there or find them here directly: 1, 2, 3, 4, 5
What you do is who you are
According to Ben Horowitz, author of the book “What You Do Is Who You Are: How to Create Your Business Culture”, action is the crucial element here: “‘Do as I say, not as I do’ never works. So refrain from choosing cultural virtues that you don’t practice yourself. Make decisions that demonstrate your priorities.”
To illustrate his point, Horowitz recalls the example of Toussaint Louverture from Haiti, the leader of the only successful slave revolt in history. For Louverture, it was never enough to say that his culture wasn’t about revenge. Instead, he demonstrated it by forgiving and not punishing slave owners, which was the action that actually proved his intention.
Consider the case of Uber: Uber has received a ton of publicity for having a totally broken culture, so it may come as a surprise that Travis Kalanick deliberately crafted and implemented the company's culture with meticulous precision. The core value that dominated Uber's culture was competitiveness, a trait ingrained by Kalanick, one of the world's most competitive individuals. The strategy proved successful, with the company reaching a valuation of $66 billion by 2016. However, Uber's culture, meticulously designed by Kalanick, harbored a significant flaw. Any behavior or decision that contributed to the company's competitive edge was approved, regardless of its ethical implications. This approach led to the approval and support of actions that were unethical, unfair, potentially illegal, or conducive to a sexually abusive environment.
During Horowitz's tenure at Netscape Communications in its early days, the company functioned akin to a debate club, where everyone sought to have a say in every decision, leading to constant revisiting and a lack of progress. Recognizing the need for a cultural shift, CEO Jim Barksdale aimed to instill a new ethos. However, implementing a directive like "disagree and commit" proved challenging in a culture accustomed to the opposite. Barksdale opted for a more memorable approach, creating a lasting piece of lore during a company-wide meeting. He articulated three rules for dealing with challenges at Netscape:
“We have three rules here at Netscape. The first rule is if you see a snake, don’t call committees, don’t call your buddies, don’t form a team, don’t get a meeting together, just kill the snake. The second rule is don’t go back and play with dead snakes. Too many people waste too much time on decisions that have already been made. And the third rule of snakes is: all opportunities start out looking like snakes.”
The clarity and humor of this story resonated widely, and the message quickly permeated the company culture. The emphasis shifted from the process of decision-making to the importance of decisiveness. As people realized that the method of dealing with challenges mattered less than the timely execution, the new culture at Netscape sparked a surge of creative energy. The story became a powerful tool for conveying the shift in mindset and contributed to the transformation of the company.
Ray Dalio of Bridgewater, one of the biggest hedge funds in the world, exemplifies his organization’s value, radical transparency by recording everything. All meetings, calls, and conversations are recorded. By that, he eradicates the inefficient talk of people going behind each other's backs. If you have to say something about someone you should feel comfortable saying it to their face. It also helps to go back to the situation, to look at it, and to recall what happened in detail. This helps everyone to get a more objective picture of their behavior and improve. The truth is sometimes hard but at least you know where you stand.
It was the summer of 1995, back when Jeff Bezos could count his Amazon employees on one hand, and those few employees needed desks. Bezos’ friend and employee number five, Nico Lovejoy, says Bezos himself found a scrappy, cost-effective solution right outside their doors. “We happened to be across the street from a Home Depot,” said Lovejoy. “He looked at desks for sale and looked at doors for sale, and the doors were a lot cheaper, so he decided to buy a door and put some legs on it.” With that, the Amazon “door desk” was born. What neither of them knew at the time was that the scrappy, do-it-yourself desk would turn into one of Amazon’s most distinctive bits of culture. More than 20 years later, thousands of Amazon employees worldwide still work each day on modern versions of those original door desks. As Amazon grew, a decision was made to keep using door desks as a symbol of one of the company’s core values — frugality.
Another example comes from my personal experience as an entrepreneur. At one of my previous companies, 99chairs, I was raising a financing round. However, as it sometimes happens, it was taking longer than I expected. We were running out of money. In most companies, this information is kept behind closed doors. We decided to go a different route and live up to our value of “building open and honest relationships”. We addressed the issues in front of the whole team and discussed our options. In the end, the team agreed that they would be willing to continue working for a few weeks without their paycheck, which allowed us to close the round instead of shutting down the company. Because I was honest with my team, they were able to trust me not only in that situation but also in the future. I showed them that I have their backs.
Horowitz has a good proxy to identify what your company's values are: check what is appreciated when people start at your company. People learn more about what it takes to succeed in your organization on the first day than on any other. Don’t let that first impression be wrong or accidental by actively communicating your company’s virtues and acting according to them.
Define your values, turn them into virtues, and recalibrate them regularly
So, how do you define values and, more importantly, make sure to act on them? The first step is, of course, to understand what is actually important for your company and the whole team. It begins normally with the leaders of your company deciding what they value most. It is important to make sure this aligns with both their personality and the company strategy. The important thing here is not only to write down words but to really identify their meaning by defining each virtue in detail and adding stories and examples to illustrate how it works. Ideally, the examples should come from actions that happened within the company.
“Finding values that cut across a group of people can take an entire tribe to this zone of appreciation and emotion, and lead to a level of performance that from the outside can seem miraculous,” — Logan and his colleagues, authors of the book “Tribal Leadership” write.
But how do you go about not just defining them but truly living them? You need to hire people based on your virtues so that they add value to your company. The people you hire should also act as guides when you are making important decisions. Your employees should also be used to giving feedback and having autonomy in deciding if someone behaves according to the team's beliefs. If someone is recurrently not behaving according to the company's values, they should go. In the end, if everyone acts according to their virtues every day, these virtues become reality.
Virtues also tend to trickle down from top to bottom, from management to less senior employees. When the top management does not actively live the values, it’s unlikely the rest of the teams will. One important habit in an organization is to recalibrate at least every quarter, by reflecting on the virtues and reassessing them.
Dave Logan makes a good point about placing values above all: “When a tribe commits to values, it makes those principles superior to the edicts of executives and managers. One of the pitfalls we caution company leaders to avoid is to identify values and then make decisions based on expediency as if the values didn’t exist. Such behavior depresses a culture… and creates a perception that values are created for the employees while executives are above the law.”
Based on the above ideas, we can see the importance of helping everyone in your organization to practice behaviors that reflect those virtues. If the virtues prove ambiguous or simply counterproductive, you need to change them. When your culture lacks crucial elements, you have to add them. Finally, while you need to pay close attention to your people’s behavior, you need to pay even closer attention to your own. How is it affecting your culture? Are you being the person you want to be? This is what it means to create a great culture, and this is what it means to be a leader.
To conclude, Horowitz believes that a truly evolutionary organization needs three universal virtues that are acted upon consistently. These virtues are trust, openness to bad news, and candor. Each of these elements allows leaders to truly align with what’s important for the development of their organization, as well as employees working for it, and adapt to challenges by maintaining flexibility.
Everyone has the obligation to shape their virtues
Many organizations encourage their team to live the virtues of their company. But in evolutionary organizations, it is not sufficient to merely live your virtues. Every team member, from an entry-level analyst to the CEO, is expected to contribute to shaping the culture. They are expected to step forward at any time and make the necessary changes to see how the organization can be improved.
In developmental organizations not only living but shaping is essential. In many companies, employees receive recognition for living the values of the culture through their attitudes and standards, ways of behaving, and interactions with others.
Increase your Talent Density
Building great organizations with an innovative and evolutionary structure requires that you work with as many exceptional people as possible, so you need to increase your talent density. In this article, we will explore what talent density is, why it’s essential for the success of any company, and, most importantly, how you can achieve it in your organization.
The idea of talent density was described very well by Netflix CEO Reed Hastings and author Erin Meyer in the book “No Rules Rules: Netflix and the Culture of Reinvention”. In their work, as it is obvious from the title, they consider the example of Netflix as a company that focuses on high talent density as a prerequisite for its international success.“Your number one goal as a leader is to develop a work environment consisting exclusively of stunning colleagues. Stunning colleagues accomplish significant amounts of important work and are exceptionally creative and passionate. Jerks, slackers, sweet people with non stellar performance, or pessimists left on the team will bring down the performance of everyone,” — Hasting says.
When you ask high-performing employees what they appreciate, it revolves around the joy of being surrounded by people who are both talented and collaborative. The synergy when every team member is excellent, results in an upward spiral of performance, fueled by continuous learning and mutual motivation.
Behavior in the workspace is contagious
Professor Will Felps of the University of New South Wales in Australia demonstrates how behavior can be contagious in the work environment. Felps was the first to have found that, even when other team members were exceptionally talented and intelligent, one individual’s bad behavior negatively affected the effectiveness of the entire team. The researcher conducted multiple month-long trial periods, showing how, in groups with one underperformer, the effectiveness levels were consistently down by 30 to 40 percent.
As Felps explained, “Eerily surprising was how the others on the team would start to take on his characteristics.” When the underperformer was a slacker, the rest of the group gradually lost interest in the project.
A "rotten fruit" symbolizes that well. Much like a decaying fruit affecting its neighboring fruits, a rotten fruit's negative influence can spread to other employees, impacting their morale, productivity, and overall work environment. This underscores the importance of identifying and addressing such individuals promptly to prevent the spread of detrimental attitudes and behaviors that could compromise the team's cohesiveness and success. Recognizing and removing the "rotten fruit" is crucial for maintaining a healthy and thriving workplace culture.
Be ready for tough calls
This study shows us something else that’s important: in order to achieve the highest level of talent density, a leader has to be prepared to make tough calls. This sometimes means firing a good employee when you think you can get a great one.
Hastings and Meyer suggest something called the Keeper Test: “Which of my people, if they told me they were leaving for a similar job at another company, would I fight hard to keep? Avoid stack-ranking systems, as they create internal competition and discourage collaboration.”
They go on to say that the Keeper Test allows to maintain both the high talent density and strong collaboration, detailing how things are done in Netflix in order to ensure both take place at the same time: “On the Netflix team there is no fixed number of slots. Our sport isn’t being played to a rule book and we don’t have limits on how many people we play with. One employee doesn’t have to lose for the other to win. On the contrary, the more excellence we have on the team, the more we accomplish.”
A high-performing team is a sports team not a family
In a high-performing culture, the things that are most important is a sense of commitment, cohesion, and camaraderie on the team, fostered by effective managers who are capable of challenging their employees and making tough decisions. But this also means being able to let an employee go when they have nothing else left to learn on their job and no longer develop.
If you've worked at a company in the last decade, you've likely come across the term "family" being used to describe a company's culture – "We're like a family."
However, this metaphor of a family is more problematic than it seems; it's actually detrimental and counterproductive for cultivating a high-performing culture.1
Consider the idea of being bound for life by blood, regardless of your actions or performance – how much worse could it get? Additionally, if you're endorsing a family culture, does that position the employer as the parent and the employees as the children? Not everyone has positive relationships with their parents or siblings, and emotions from family dynamics can easily spill into professional relationships if given the opportunity.
A professional sports team or a tribe is a way better metaphor than a family. In such an environment, you encourage your managers to make tough decisions and challenge their teams to learn from mistakes. While you want your team to feel connected, you don’t need them to feel like they are bound to their jobs for life. Once your employees stop learning or stop excelling, it’s time for them to pass that spot onto someone who is better fitted for it and to move on to a better role for them.
You have to actively remind people not to use the word "family" because it tends to sneak into conversations, especially since it's been tossed around so much over the years. At first glance, it sounds nice. I remember dealing with this issue at one of my previous companies, 99chairs. We were a tight-knit group, and many of us became friends, giving it that family or friends vibe. While the camaraderie and support were great, the downside is even bigger. To tackle this, we told our leaders to ditch the family talk and focus on the sports team analogy instead. We wanted them to speak up if they heard someone using the word "family" to avoid any unintended associations.
Letting people go is also an art that every great leader needs to master. Instead of putting your team on some sort of performance improvement plan, which will undoubtedly be humiliating and costly, take all that money and give it to the employee in the form of a generous severance payment.
By letting people go gracefully, as a leader, you do not increase negative emotions and fear among other employees. When someone gets fired, be open about the situation with your team and answer their questions honestly. This helps ease their worries about their own job and builds trust in the company and its managers.
In the next article, I will dive into the 4th essential component of the operating system of evolutionary organizations: Radical candor and transparency. If you are interested, please subscribe. I will then notify you when I release the 6th article (in around 2 weeks) and send you the full white paper about the operating system for evolutionary organizations when it’s done.