Why Founder Culture Can Put Your Business at Risk (and How to Avoid It)

At a certain stage of business, a founder has to make the move from “me” to “we.” Failure to do that, often because of ego, insecurity or fear, may suck the air of out a business and put it at risk. 

So often in business, and in life, what got us here won’t get us there. The very forces that propelled us to success at one stage reverse their impact and become our biggest obstacles in the next.

That’s especially true when it comes to charismatic, convincing, driven Type A founders who like to be in complete command of the process. Typically, successful founders bring their businesses into being through sheer force of will. Their mistake is believing that same approach will always work — that what made them successful so far will be the gift that just keeps giving.

So how is it that everything can suddenly seem like it’s going to hell in a handbasket?

To figure that out, let’s look at what happens at various stages of business. Many consultants divide business growth into five stages:

Stage 1:  Development

Stage 2:  Startup

Stage 3:  Establishment

Stage 4:  Expansion

Stage 5:  Maturity/Exit

Assuming a new business survives Stages 1 and 2, the greatest threat to its survival is during the transition to Stage 3, the establishment phase.

In a successful transition, the hand-off is a seismic shift in culture: from me to we, and from adrenaline to systems. In volume and complexity, the activities of the enterprise at Stage 3 exceed the ability of one person, or even a small group, to manage.

What’s required at this point is a complete redesign, if the founder’s ego allows for it. And on that “if” the whole thing often crashes down.

The greatest evidence of an unhealthy founder culture is an infatuation with bad behaviour (often confusing it with meaningful individuality or creativity). Sometimes we see it surface as sexually inappropriate behaviours, or unbridled temper. The result is a toxic, sexualized and fear-saturated (and famously often misogynistic) culture.

But even in the startups that never make the news, founder egos damage enterprises. This manifests as micromanagement; the unconscious habit of hiring people just like themselves; or using charisma and fear to create echo chambers where everyone says “yes” even as the bus is going over the cliff. All of these are symptoms of a stale-dated founder culture.

The perp list of founders we can point to includes Uber’s Travis Kalanick, Nasty Gal’s Sophia Amoruso, Miki Agrawal of Thinx, or Snapchat’s Evan Spiegel. Or more locally, let’s not forget Lululemon’s Chip Wilson. (More information below.)

For every celebrity founder failure, there are thousands of unknowns who never broke the surface of the water — and who, through their bad behaviour and lack of self-knowledge, tanked their startups at the doorway to Stage 3. Most of these business still exist despite the behaviour of their founders, but you can bet some rethinking had to be done to save the companies.

Before Stage 3, failure can happen for many reasons. Maybe the business was a stupid idea, or it was under-capitalized, or it failed to pivot  on time. Most of these failures aren’t anyone’s fault — it’s just Darwinian evolution doing its job.

But after that point, after the Minimum Viable Product (MVP) is proved out, and after the investors and the customers have declared their love, the failure is only one person’s fault: the founder.

Threat Of Success

So let’s analyze one of the biggest problems that can arise at the threshold of Stage 3. It’s bitterly ironic, but that threat is success itself.

Why, you might ask, is success a problem? The reason is because of human psychological biases such as optimism bias, false causality or survivor bias. Together, they can be summarized in one statement: “I behaved this way. I am successful. I am successful because I behaved this way. Therefore, if I keep behaving this way, I will continue to be successful.”

At the start of Stage 3, the implications of this are that the more successful the founder, the less likely they are to believe they need to change anything. The celebrity founders listed above are bright people. Tens of thousands of lesser but also-very-bright founders have failed in their own spectacular ways for the same reason: they mistook a cult of personality for effective management. They just never made it into Gawker or Huffington Post.

Getting Real, Getting Cohesive

Here are some tips on how to successfully emerge from founder culture:

Get over yourself
It doesn’t matter how smart you are, or how successful you’ve been in taking your business this far, the complexity of managing a workforce, of competitive market forces, of dealing with Murphy’s Law, eludes even the brightest and the hardest-working founders. Only a team knitted together with trust can navigate all of these complexities. Here’s the new rule: You are no longer the hero of your story — your team is.

Build trust
It isn’t just the founder who can be taken out by the complexities of scaling a business. When trust is missing, a whole team will fail. We know trust is present when information flows freely. No silos, no self-protection. That kind of open-channel rapid communication can only happen when there is complete trust between all decision makers.

Build a community
Ensure the level of trust required for speed-of-light decision making by bringing the right people on board. Many founders do a poor job of this: we hire people like us; we hire because we are desperate. Work with professionals to build values-centered high-performing teams. You are building a community to carry your business into the future.

Serve the internal customer
The fabled founder CEO of Southwest Airlines, Herb Kelleher, understood that if we serve our employees, they will serve our customers, generating profits for our shareholders. It is about understanding the right sequence of service. With a workforce, the focus must shift to the internal customer: those in our organization who receive work from others in the organization. In a publication, for example, an editor is the writer’s internal customer. When those internal customer relationships flourish, there is a much greater likelihood of creating real value.

Balance improvisation with structure
Improvisation — the ability to make rapid decisions with less-than-complete information — matters. But to create something that doesn’t wilt in the midday sun, you need structure: written values, goals, performance metrics, procedures, Enterprise Resource Planning (ERP) systems and other operating software. High-value enterprises integrate fluidity and creativity with structure and consistency.

Become Unnecessary

In founder culture, the founder is the culture. It is a personality cult. And this is a recipe for failure. For your business to thrive, build a collective culture. The path to success is built in part on your own redundancy.  

Examples of Negative Founder Culture

Uber’s Travis Kalanick
Described as headstrong and combative, Kalanick was kicked out of his CEO job at Uber Technologies. During his tenure, Uber’s corporate culture involved much infighting and backstabbing.

Nasty Gal’s Sophia Amoruso
In 2016 , Nasty Gal filed for Chapter 11 bankruptcy. Although Amoruso had stepped away from the company she founded at 22 years old, her out-of-control spending, management style and lack of focus were cited as contributing factors.

Thinx’s Miki Agrawal
Agrawal, whose management style was described as aggressive and retaliatory while she was CEO of Thinx, also faces sexual harassment charges from a former female employee.

Snapchat’s Evan Spiegel
From micromanaging to obsessively focusing on his company’s original offering, Spiegel’s actions have been blamed for costing his company time and money, as well as slowing growth.

Lululemon’s Chip Wilson
The outspoken founder and former CEO of Lululemon generated a lot of bad press for the fitness brand when he blamed the sheerness of Lululemon’s yoga pants on women’s body types.

This article is from the June/July 2018 issue of Douglas.