3 Ways Leaders can Build & Scale Company Culture

If Team and Culture Matter Most for startup success, then what do founders need to know about creating great cultures that will continue to be great? As an advisor to many founders -- from early-stage startups to late-stage multi-billion$ companies --  I have seen a pattern emerge. This pattern becomes very clear when founders start talking about how to preserve a particular culture when change starts to stress the organization.

The changes that stress the culture and pose new problems for founders include:

• Fast scaling or growth, and the need for founders to lead differently
• A merger or acquisition, and founders face the need to explain to their organization how the culture is going to change as a result
• A change in leadership - either forced or voluntary - and founders need to preserve what made the organization successful

Under each one of these stress points, founders often face needing to transition from a mode of Charismatic Culture to Rational Culture. Charismatic Culture is a model by which the organization’s culture is embodied and maintained by the founder, who has both the moral authority and the positional authority to define the principles, behaviors, and mechanisms of the organization. Rational Culture is a model by which the principles, behaviors, and mechanisms are developed as a self-perpetuating and self-reinforcing system, so that it does not rely on any one individual to continue to function. In Rational Cultures, moral and positional authority is split. The CEO, who occupies the position of the leader, does not necessarily have the moral authority to define the principles, behaviors, and mechanisms that everyone else in the organization will need to adhere to and does not get to define or arbitrate what is appropriate for the culture -- and in fact, the CEO is subject to that rationality and its rules themselves. This model comes from a well-known theory in sociology/anthropology from Max Weber’s 3 Types of Authority. (Note: the third one is Tradition-Based Culture, which is I would never recommend a founder transition their organization to, for reasons I will touch upon later).

Now, let’s look at how these stressors often cause the need for a shift from Charismatic to Rationality Culture and how organizations have dealt with this, based on some first-hand experiences.

#1: When scaling quickly, re-assess the cultural and leadership model

When a company is scaling quickly, the Charismatic Leader can find themselves stressed and unable to manage the relationship mode which they have been accustomed to. As this happens, an “anything goes” culture that can be mediated by a strong and charismatic CEO can start to spiral out of control, since the CEO can no longer personally be there with their strong moral authority to enforce the right behaviors, establish the right principles, and set up the ad-hoc mechanisms that feel right for the situation. A tech company faced just this dilemma, as the founder-CEO, who worked very hard to establish a strong culture from the get-go but was not fond of establishing bureaucratic Rationality, started to grow very rapidly and at the same time started to face a culture that, in pockets, was breaching the bounds of what the founder found acceptable. At this point, it was clear that, as the organization started to get above 500 people, the bureaucratic rules that were so anathema to the CEO were actually a necessity to preserve the culture, and the organization. The establishment of a Rationality-Based System started to become a priority and the founder established Values, Systems, Iconic Stories, and Annual Rituals to keep the organization’s culture healthy. Now, this founder-CEO can focus more on customers and check in via reporting mechanisms to make sure the company culture is on track -- even as the company scales into the thousands.

#2: When facing a merger or acquisition, plan the culture change or risk culture shock

Another tech founder-CEO was faced with a shock when, after announcing to his organization that they were going to be acquired, several employees burst into tears and others immediately threatened to quit. Almost unconsciously, this very charismatic founder had created a culture that was so invested in his own story of rugged independence and fighter spirit, that the acquisition (which was a huge boon financially) felt, emotionally, like a defeat. During the first few weeks of the announcement, the founder-CEO had to carefully explain how the shift to a being part of a larger organization would change things and how it would not. What helped him do that was outlining exactly what the principles and product of the team would continue to be and how those principles and product would overlap (and how they would not overlap) with the acquiring company. After a few rough months, when some top talent did end up leaving, the team’s culture stabilized and the founder-CEO was able to himself leave (voluntarily) without too much drama or negative impact to the business.

#3: When a founder needs to leave (by choice or by force), the culture needs to be ready

In another instance, a founder of an organization knew she was under attack by her governing body and started preparing her culture for a leadership change at the same time the organization was quickly scaling. This leader was extraordinarily charismatic, and convinced some of the best tech people in the country to take massive salary cuts to sign on to her mission and join her organization. The stories of people who joined for her -- and only for her -- echoed in the hallways during the first few months of the organization’s founding. However, this leader knew that she had to quickly shift the culture from one that relied on her as the linchpin to one that could function on its own, even if she had to step away. She spent a great deal of time and effort establishing a the Values, Language, Communications, Tools, and Rituals (like weekly Lunch and Learn sessions that all employees were invited to, even as the organization ballooned to over a thousand people across multiple locations) that would allow the culture to function in her absence. When the founder had to leave, the organization’s culture had become codified enough to continue to function without her, and she did not leave a vacuum of leadership or authority in her wake.

Over and over, I see founder-CEOs struggle with how to keep the company culture healthy without having to “be there” as the charismatic leader to keep the organization on track. I’d ask CEOs to learn from each other and talk about the burdens of being a charismatic leader, and reach out to those who have successfully established healthy Rationality Cultures. Learn from those that have managed to preserve the innovation and energy of the early phase start-up with maturity and predictability. That maturity and predictability often come from an organization using the framework of Principles-Behaviors-Mechanisms to establish and reinforce the company culture without constant reliance on the founder-CEO’s guidance and authority.

At the same time, organizations should also be aware that a very unhealthy way this can go is the establishment of a Tradition-based culture -- which is a “we’ve always done it this way around here” type of culture. While this might look like a Rationality Culture, it does not have well-established and self-reinforcing Principles, Behaviors, and Mechanisms that allow for agency and creativity to emerge. Tradition-based Cultures instead often spiral into sclerotic and rote patterns that cause top talent to leave and ultimately make the organization look like nothing the charismatic founder-leader ever intended.

Establishing a Rationality Culture is hard, but continuing to lead through Charisma is often not possible when organizations face stress under change. Founders need to understand the options and pitfalls in building and preserving their company cultures -- and plan ahead before it’s too late.

Do you see any of these patterns in your organization? If you’re a founder or CEO, are you facing 1, 2, or 3?

Let me know what you find intriguing and what you want to hear about in my posts about organizational culture.