Greg Gretsch is a partner at early-stage VC firm Sigma West.

Once a year at Sigma we bring together our portfolio CEOs to discuss current trends in technology, business models, Silicon Valley, and the markets and to share war-stories. After each event we hear from the participants how valuable it was for them to learn from their peers.

The life of a startup is about maximizing the number of good decisions and minimizing the number of bad ones. If you can learn what worked and what didn’t from someone else who has recently traveled the same road as you, you can save critical time and increase your venture’s chance of success.

At our most recent conclave one of the main topics covered was the strategies companies use to successfully grow while maintaining a culture of innovation. What emerged from the discussion was a clear understanding of two key characteristics of successful “innovation cultures.” The job of innovation belongs to everyone in the company and it requires taking risks.

First, innovation is everyone’s job! To paraphrase Ratatouille food critic Anton Ego, not everyone can be a great innovator, but great innovations can come from anywhere. One classic mistake larger companies fall victim to is creating “innovation teams.” This is a great way to demoralize everyone not on the team.

Another big mistake, often made by technology companies, is that innovation is an engineering problem. When I think about the successes in Silicon Valley, many of the most enduring were business model innovations – think AdWords from Google or SaaS as a way to deliver and sell enterprise software. Yes, there were technologies involved in those successes, but I would argue that the disruption they caused and their durability has as much to do with the business model innovation as with any particular technology innovation.

Second, innovation involves risk. It reminds me of the disclaimer at the end of almost every commercial for a financial or investment service: “Investment involves risk including the risk of loss…” The same is most certainly true of innovation. Don’t innovate and you are sure to die, but as you innovate you will make mistakes. As Brad Garlinghouse, CEO of YouSendIt so eloquently put it, “Innovation is the result of a culture that encourages risk and is tolerant of failure.”

The companies that are the most successful at maintaining cultures of innovation understand that sometimes – nay, many times – innovations fail. Those companies accept the risk of that failure and have a culture that allows for failures and encourages risk taking.

Jon Carder, CEO of MOGL, shared an interesting approach that MOGL uses to foster a culture of innovation.  (Disclosure: YouSendIt and MOGL are Sigma portfolio companies.) Not surprisingly, MOGL’s approach strongly embraces the two stated characteristics of successful cultures of innovation.

MOGL has three top goals that are well beaten into everyone at the company on a regular basis: more users, more restaurants, and more kiosks. Once a month the company holds a “Growth Hacker” meeting that is open to any employee that wants to participate. At the meeting anyone who has an idea for an initiative to drive one of the key goals gets to present his or her idea. They must present in PowerPoint: hypothesis, execution plan, and dollars needed. Everyone in the meeting votes via smartphone and the winner gets the dollars they need. They report back results at the next monthly meeting.

At one meeting a product recommendation based on feedback a sales rep had received from a restaurant was pitched, won, and then tested. That product, known as “2 cents”, allows a MOGL member to send private feedback to a restaurant owner after the member makes a purchase at the restaurant. It’s now the most liked feature of the entire MOGL product suite for restaurants.

The number of ideas/products from these meetings that fail is around 80 percent, but many times those failures eventually lead to a breakthrough. The key is to continue to “pivot” the idea until it sticks and keep the innovative ideas coming.

What I see in YouSendIt and MOGL is that innovation comes from everyone and in every area of the business.  For that to happen the culture must encourage taking risks.

Greg joined Sigma in 2000 after 20 years in the tech industry, where he was the founder of three successful companies: Connectify, GiftONE, and Vicarious. Early in his career, Greg was in product marketing at Apple.

Top photo credit: Michael Cardus/Flickr

For a billionaire, Scott Cook sure does talk a lot about failure, especially if he’s learned a valuable lesson from a screw-up.

Cook is the founder of Intuit, a corporation with almost 10,000 employees that sells financial management products to individuals and small businesses. To illustrate the company’s reach, CEO Brad Smith is fond of saying that 20 percent of the country’s GDP flows through Quickbooks, Intuit’s small business accounting software. The company pulls in about $4 billion in revenues annually.

Cook is also one of the most outspoken fans of “lean startup,” an ethos that espouses rapid prototyping, a small budget, and an acceptance of failure.

Employees with a new idea can earn up to $1 million in prize money.

How has this made Intuit any different from any other large and bureaucracy-laden company? About four years ago, Cook watched a video clip of Lean Startup author Eric Ries and shared it with Smith.  The pair reached out to invite Ries to the headquarters in Mountain View, Calif.

The lean startups trend targets startups, not the Fortune 500, but Ries took the call. “When Scott Cook calls you, you do what he says,” he later told Forbes. Shortly after, Intuit brought him in so could present ideas to its workforce on the most pressing problems facing small businesses — and think up potential solutions.

A product demo from a recent “innovation” day at the Intuit offices.

At Intuit’s recent demo day, employees presented some of these new product ideas to the media. Many of them were merely at the prototype stage and included a local business recommendations service intended to provide more detail than Yelp.

Intuit has subsequently formalized a 10 percent “innovation time” policy, which borrows from the example of its neighbor, Google, giving all employees 10 percent of their time to work on new projects. Due to these efforts, Intuit is a rare example of a tech company with a seal of approval from another lean startup guru, Steve Blank. “Scott has nailed it,” he said in a recent interview.

Cook examines how he brought startup thinking to a 30-year-old business.

VentureBeat: What was your reaction when you first saw Ries’ presentation?

Scott Cook: I saw him present and thought, “This guy is explaining what we’re doing better than us.” We wound up being a chapter in his book. After we brought him on, it was an uneven process. Some teams were great; others needed a lot more work. Now we do these public coaching sessions. He’ll come in, and and we’ll broadcast it to the entire company. One of the teams will pitch for five minutes and will receive another 10 minutes of coaching. We have learned so much — you can see people’s jaws drop.

VentureBeat: Intuit is a such a long-standing company, but you refer to it as a “startup.” …

Cook: We work with small businesses. You have to try an entrepreneurial ethos before you understand them. So we had to change the culture of the company to be more experimental — we want them to get entrepreneurial ideas in front of customers for real use.

VentureBeat: How do you attract entrepreneurially-minded employees — and keep them around? 

Cook: We make it easy for anyone to get free resources. Anyone can launch an idea for five minutes. Anyone can comment on, add and enhance the idea. Need a designer? We provide an entrepreneurial matching system without the bosses getting involved. And in terms of unstructured time, we have a permission for that.

VentureBeat: Let’s talk about learning from failure. …

Cook: We have always been open and honest about it. We use more recent examples of failures and learning from them. The Intuit health debit card, for instance, came out of a total failure. We launched a product in test expecting 100 users to sign up. They got four. So the team went back to understand what had happened and ended up learning enough for a whole new business.

In India, we did a test where two-thirds of signups were fraud. We learned by accident by being cheated by vendors about another segment that was bigger than the one we initially went after. The product is called “Fasal” and helps improve the income of farmers.

VentureBeat: How embedded is entrepreneurship in Intuit’s culture? Could an intern approach you with an idea? 

Cook: People pitch me all the time. But hopefully, you’ll just go ahead and do it. We are trying to eliminate the need for pitches. I’d rather sit there and applaud. Customers buy products, not Powerpoint presentations.

Top image courtesy of Intuit // Intuit office images via Christina Farr, VentureBeat

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Yahoo sent a memo to employees yesterday, letting them know that they were expected to show up at the office every day. Shocking!

After All Things D reported the new policy yesterday and then followed up with the full memo, literally hundreds of people commented and tweeted to express their disgust with Yahoo’s management.

The new policy will most directly affect several hundred people who had negotiated work-at-home agreements (out of a total workforce of about 12,000) and who may not be able to work in a Yahoo office without relocating. It will also limit the ability of Silicon Valley-based employees to take the occasional work-at-home day. So we can expect other Valley companies will capitalize on this memo by trying to poach disgruntled Yahoo employees.

Is chief executive Marissa Mayer crazy? Is her chief of human resources, Jackie Reses, who sent the memo, just another corporate slave driver? Are the masses going to rise up out of their cubicle farms and revolt?

The answer to all of these questions is surely no.

To be sure, flexible work hours are a treasured perk of working in Silicon Valley. Many startups — and a few larger, more established companies — take a very liberal view towards employees taking time off, working from home whenever they choose, and generally doing whatever they want as long as the work gets done.

And granted, Yahoo’s work-at-the-office policy doesn’t do anything to make the company look more hip or cool. As one commenter quipped, “Yahoo continues its impressive drive down the fast lane of the information superhighway. In your father’s Oldsmobile. With the left blinker on. At 45 kph.”

But Reses’ memo makes an important point:

Some of the best decisions and insights come from hallway and cafeteria discussions, meeting new people, and impromptu team meetings. Speed and quality are often sacrificed when we work from home. We need to be one Yahoo!, and that starts with physically being together.

Some companies have figured out how to replicate that rapid, person-to-person information exchange using virtual tools, like Basecamp, Campfire, or even Skype and various IM tools. But it doesn’t work for every company. That’s because the bandwidth of these virtual tools is lower than face to face contact.

It takes a real effort, and widespread support from the company culture, to make up for the shortcomings that virtual communications impose. Some companies can pull it off. Others can’t. But that doesn’t necessarily correlate with a company’s ability to do business progressively, inventively, and quickly.

How does your company handle working remotely versus working in the office? What works best? Share your experiences in the comments below.

Yahoo employees will be seeing a lot more of the corporate sign, above. Source: Acme/Flickr

There has been a recent dialog around a theme I’ll call “hacking the corporation” – creating novel approaches to building young companies, particularly when they are in their formative start-up stage and pre-product market fit.  One of them, reinventing board meetings (or, “Why Board Meetings Suck”), has gotten some attention from leading thinkers like Steve Blank and Brad Feld.

I’d like to submit another item to add to the “hacking the corporation” punch list: Eliminating titles.

At business school, I learned all about titles and hierarchies and the importance of organizational structure.  When I joined my first start-up after graduation, e-commerce leader Open Market, I found the operating philosophy of the founder jarring – he declared no one would have titles in the first few years.  If you needed a title for external reasons, our founder told us, we should feel free to make one up.  But we would avoid using labels internally.  In other words, there would be no “vice president” or “director” or other such hierarchical denominations.

Why?  Because a start-up is so fluid, roles changes, responsibilities evolve, and reporting structures move around fluidly. Titles represent friction, pure and simple, and the one thing you want to reduce in a start-up is friction.  By avoiding titles, you avoid early employees getting fixated on their role, who they report to, and what their scope of responsibility is – all things that rapidly change in a company’s first year or two.

For example, one of my first bosses in the company later became a peer, and then later still reported to me.  Our headcount went from 0 to 200 in two years.  Our revenue grew from 0 to $60m in 3 years.  We went public only two years after the company was founded.  We were moving way too fast to get slowed down by titles and rigid hierarchies.  Over the course of my five-year tenure, I ran a range of departments – product management, marketing, business development, professional services – all amidst a very fluid environment.  Around the time that we went public, we matured in such a way that we began to settle into a more stable organizational structure and, yes, had formal titles.  But during those formative first few years, avoiding titles provided a more nimble organization.

So when I co-founded Upromise, I instituted a similar policy:  no titles.  We had an open office structure and functional teams, but a fluid organizational environment and rapid growth.  One of our young team members changed jobs four times in her first year.  Only after the first year, as we settled into a more stable organizational structure and I recruited senior executives who were more obviously going to serve as my direct reports on the executive team did I begin to give out titles (CTO, CMO, CFO, etc.).  With the title policy, there was some early tension and discomfort (one young MBA kept referring to himself as a VP externally, although he was clearly playing an individual contributor role and was soon layered).  Often, when you are running your start-up experiments, you are not even sure of the right profile for employees or organization structure for optimal execution.  But you can establish role and process clarity without having to depend on titles.

I haven’t been able to institute this systematically in our portfolio, but whenever young start-ups are formed, it’s one of the first things I counsel the founder.  Don’t let your founding team and early hires get too attached to titles and hierarchy.  In fact, in that formative first year, see if you can avoid them altogether.

We’re kind of crazy about culture at my company.  We know that happy employees make happy customers make happy shareholders.  Plus, it’s just a lot more fun to go to work when you enjoy the environment, your co-workers and the company’s mission.  We make it a point to study great cultures—Disney, Zappos and NetFlix are on our list- and we’re huge followers of Jim Collins’ work regarding culture building.  We even have a staff position dedicated to running the company’s culture.

Over the years, I’ve come to realize that creating a great culture almost always boils down to the management-employee relationship.  The natural wedges that typically drive apart management and employees must be attacked constantly.  The complete list of those wedges is massive, but I’ve found they all generally fall into one of five big categories.  If you’re serious about creating a great corporate culture, here are the five areas in which you need to assess your company:

Hiding the numbers – Does everyone in your company know where the company stands financially?  Along with the usual financial suspects – revenues, expenses, profit, cashflow – ensure that employees know the key drivers of performance metrics. And make sure they know how the company’s doing with them?  The more you share, the more people can make a difference.

Hoarding the decision-making – It’s easy to keep decision-making authority restricted to one person or a small group. But by empowering front-line employees – regardless of their title – to solve problems, you allow them to grow. People generally live up to the decision-making power they’re granted.

Withholding praise -  In Marcus Buckingham’s book, “First Break all the Rules,” he suggests people need specific positive feedback on their job performance AT LEAST every seven days.  Are you doing this with your direct reports?  If not, their fire may be dying.  Catch them doing something good.  Some managers believe people shouldn’t be praised because they are paid to perform.  Other managers know people perform better when they are praised.  The former managers rarely create anything great, leaving a wake of resentful employees in their path.

Bottling up the strategy -  Is your strategy plan clearly articulated, written out and shared with the company or stuck in the recesses of your mind?  An un-articulated strategy is almost certain to fail… especially if you’ve got more than an employee or two.

Talking down to employees – Too many in the labor pool are made to feel like second class citizens. Intelligence and good ideas are hardly confined to owners and managers. At the heart of great cultures, you’ll find leaders who love working with others, leaders who want to “partner” with employees to create a great company.  Too many people say they want to create a great culture, but don’t want to overcome the one, fundamental barrier to culture building: Ego.  If you’re not willing to see your employees as equals, stop saying you want to build a great culture, because it won’t happen.

No executive wants to acknowledge their company is a bad place to work. It’s a failure on both personal and professional levels and it’s something that too many places downplay as they attempt to lure the best and the brightest.

Instead of facing the harsh reality, the company presents itself as an upbeat and positive place to work in its employment branding materials – and it often succeeds in creating that illusion. But illusions are temporary – and it won’t be long before workers discover the challenges and other touchy aspects.

So what’s the solution? The first is the most obvious: Work on fixing the internal problems.  If your company has a toxic environment, you won’t retain superstars long enough for them to make a meaningful contribution.  If you know there are problems, your best bet is to be honest with the people you are hiring.  Let them know that you recognize the issues and present your plans for improvement.

On a larger front, share an authentic picture of what it’s like to work within your company.  Instead of filling your career page with industry-recycled ways in which you fulfill someone’s career, consider pointing out true positive aspects of your culture, in addition to the areas that may frustrate a potential employee.

This approach will, at the very least, ensure that people are signing up for what they expected.  The more candid and open you are, the more likely it is that your new hires are making an educated decision – and that they will fit into the culture and accept work-life at your company.

When it comes to employment branding, I have yet to see an end-all approach that works for every company.  Your approach requires personality – and perhaps some perceived risk.

If stepping outside the norm interests you, start with your people.  Ask lots of questions.  What do they like about working for your company?  What do they dislike?  What makes them want to stay?  What are their favorite moments?  Why did they join in the first place?  Which events are you participating in?  Start collecting stories.

Once you’re ready, consider starting a recruiting-specific blog for your group.  Add pictures, videos, write-ups – the approaches are endless.  Invite employees to serve as bloggers and explore their experiences within your company.

Then share.  Not just with the talent pool that you are trying to attract, but with your current team.  Help remind them why people work for your company and encourage them to share with their networks. (Both Microsoft and Intel do a terrific job with this.)

No workplace is perfect, so it’s pointless to create the illusion that yours is. Everyone has had the experience of working in an environment that didn’t suit them – and it’s a miserable one.

Quit worrying about creating a flawless employment brand and start putting efforts into sharing your unique company culture.  While it might not be right for everyone, it could attract the right ones.