VentureBeat

[Editor's note: This is an op-ed piece by Bernard Moon, vice president of holding company The Lunsford Group.]

Last week I was having lunch with a senior person involved with Facebook and asked him about the recent departure of some of their key people. His response: “Facebook just doesn’t have the right culture. They’re not a Google or Microsoft.”

This statement kicked off an interesting conversation. My lunch companion argued that a company’s culture and founding values are significant factors in a startup’s march towards long-term success. We also touched on the importance of leadership in a startup, and whether Facebook has the right team running it to become the next Google.

Later that week, my colleague, Dan Wooldridge, who provides leadership consulting to established enterprises when he’s not busy with the operations of our various entities, brought up the founding of Sony. Dan told the story of how in 1946, as Japan was rebuilding itself after World War II, Masaru Ibuka and Akio Morita started Sony with just a mission, before an actual product was made. Ibuka wrote:

The first and primary motive for setting up this company was to create a stable work environment where engineers who had a deep and profound appreciation for technology could realize their societal mission and work to their heart’s content.

They also stated that they wanted to:

• Establish an idea factory that stresses a spirit of freedom and open-mindedness, and where engineers with sincere motivation can exercise their technological skills to the highest level.
• Reconstruct Japan and elevate the nation’s culture through dynamic technological and manufacturing activities.

It is amazing that Ibuka and Morita had the fortitude and long-term perspective to accomplish these founding goals. Although it took decades, Sony did eventually elevate Japan’s national reputation in the world as a leader in technology and consumer products. This was a reflection of Ibuka and Morita’s strength in leadership, of their values, and of how they created a corporate culture where stated values led to tangible behavior and results.

These two discussions made me think about various companies I’ve encountered over the years, and how their core values, leadership, and related factors drove them to become the titans of their industry.

Cultivate your core values. What enduring core values do you want your startup to live by? How do you plan to execute on them? One of Google’s core values was having the smartest, most competent people working there. Google executed on this by requiring job applicants to submit their college transcripts and standardized test scores (i.e., SAT, GRE, GMAT), and having minimum standards for GPAs. Google even requires this for senior hires, when most companies stop asking for transcripts above the middle manager level.

I always thought this was impractical—since some talented and successful executives do not have the best GPAs—but Google sticks with this measurement as a method to execute on its core value. I admire that, even though I don’t completely agree with Google’s implementation. (Yes, Google makes some exceptions to this guideline, but generally stands by these requirements.)

Another value is being “Googley.” When Googlers interview a candidate, they have to ask themselves, “Is this person Googley? Are they nice? Is this someone I want to work with?” It’s rare for companies to ask such questions, but this is something the founders wanted to be a part of Google’s culture. Of course the company has experienced tremendous growth over the years—from approximately 3,000 in 2004 to over 19,000 in 2008—so it is more difficult to execute on this value (I’ve met a fair amount of Googlers who aren’t so Googley), but it’s still commendable to stick to this philosophy.

Being Googley might not have helped Oracle grow into one of the largest software companies, since its market probably needed the hyper-aggressive sales culture that the company is known for. Oracle valued the characteristics that make up its sales-oriented culture, so it hired people who were very competitive and hard-charging throughout the company.

Apple’s Steve Jobs created a company that values creativity and an intense pursuit of perfection. Apple has become a unique force in the consumer electronics market by rejecting the common value of listening to its customers and believing that Apple knows what people really want. So you have to create core values that reflect not just the founding team’s values, but also what is needed to succeed in your target market.

Venture capitalists make a difference. While some entrepreneurs don’t want to hear this (and a disclaimer — I’m not a VC), VCs can make a difference. When my wife joined Google in 2004, some of their operational processes, such as performance reviews, were presented to her as “John Doerr, one of Google’s investors, helped establish this process based on his previous experience….” I thought it was interesting that his lore and impact were still proffered five years after Google’s founding, and how this shows the effect a great VC can have on your company. Sequoia’s legendary Don Valentine is known for his tremendous influence on the founding of Atari, Apple, Cisco, and Oracle. There are also relative newbies like Bessemer Venture Partners’ Dave Cowen, whose 45 early-stage investments have produced 19 public companies and 18 acquisitions. So getting smart money is important.

Not everyone will be funded by Kleiner Perkins, Sequoia, Benchmark, DFJ, or other top firms, but as an entrepreneur you really need to do due diligence on potential investors. What is their track record? How hands-on are they? Is that the right level for you? Do prior entrepreneurs endorse them? Would they work with these VCs again on their next startup? Do you trust this person?

Don’t compromise on hiring. Truly making your core values tangible within your startup really begins with the founding team and early employees. Assuming that you and any other founders are effective leaders, the rest of your path to execution will be far easier when you work with outstanding people who completely believe in your core values and vision. In the “Letter from the Founders” written by Larry Page and Sergei Brin for Google’s IPO filing, they emphasize the core of Google’s values:

Our employees, who have named themselves Googlers, are everything. Google is organized around the ability to attract and leverage the talent of exceptional technologists and business people.

During the early days of Microsoft, when Bill Gates was asked who his greatest competitor was, he answered “Goldman Sachs.” He didn’t see Apple or IBM as his top competition—rather, it was Goldman Sachs which was competing with Microsoft for the top talent from colleges and graduate schools.

In many people’s minds, Google has recently taken over Microsoft’s mantle of technology’s top player, while maintaining its ability to attract top talent. For example, for as long as I can remember—until the last two years—the top destinations for MBA graduates have been either Goldman Sachs or McKinsey. But for the past two years, Google has been named the most desired company to work for by MBA students. Talent attracts talented people.

Naturally it’s easier to attract the best talent when you’re Google, Microsoft, or a hot company like Facebook. But they too started out as small companies, and no one knew if it would be good to work there. For early-stage companies, I cannot emphasize it enough: Don’t compromise on the skills, personality, and values you want in your hires. Do your reference checks thoroughly, ask probing questions, and don’t rush to judgment because you’re paddling upstream with a spoon in Startup River and your colleagues are begging for more help. In the early stages of your company’s growth, every hire—from top engineer to admin—really makes a difference.

Leadership holds it together. Founders need not just the talent, discipline, and fierce determination to succeed, but also the flexibility to create new paths for the company. Many successful companies have changed their business models mid-stream, so the founders must be determined and focused, yet open to the realities of the market. Those realities can include the fact that the product or service might be too early, that they need to be further developed, or, unfortunately, that the company needs to be shut down.

Sometimes the founding CEO isn’t the right person to take a company to the next level—and has to have the humility to recognize this. Google’s Page and Brin realized that they needed an Eric Schmidt to help grow their company, and I believe Google would not have been as successful without adding Schmidt to the mix. EBay’s Pierre Omidyar eventually needed Meg Whitman to take the CEO role for its next stage of growth. There are exceptions, such as Bill Gates, Larry Ellison, Jeff Bezos, and Steve Jobs—founders who continued or returned to lead their companies long past startup and IPO stages.

Yet most entrepreneurs won’t know whether they are able or want to lead their company through all of its growth until they’re there. Sometimes an unfortunate collision occurs with bitter emotions, an entrepreneur getting thrown out justly or unjustly, and a board hoping the next CEO will be the right leader. Other times an entrepreneur recognizes that he or she isn’t the right person for the next stage, and helps find the right person to maintain the company’s values while executing on a grander scale. And whether under old leaders or new, that is the most important outcome—having the core values endure through all stages of a company’s growth.

So, as you’re writing your business plan and slides, remember to have meetings about what you want your company’s core values to be and how you will execute on them. If you never had this critical discussion yet, take some time to do so. Who knows? If you’re bold, maybe the incredible will happen, and your company will become the next Google.

Bernard Moon is vice president of the Lunsford Group, a private holding company consisting of entities in technology, media, research & consulting, health care, investment boutique, and real estate. Bernard blogs at Silicon Moon.

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Tags: co:Facebook, co:google, co:microsoft, co:sony