What is a ‘good’ culture for a scale-up business?
For new or scale-up companies, creating the right company culture is difficult to achieve but vital for success. Rupert West, Managing Director of Puma Private Equity, discusses key considerations for businesses that want to foster the best culture but are unsure where to begin.
I am often asked about how much importance we place on corporate culture. It’s a common theme when I talk at industry events or to individuals looking to understand more about our approach to investing.
When we start talking to management teams about this topic I’m often asked what is a ‘good’ culture for a scale-up business – what is it that we’re looking for? The answer is, that it depends on what the business is trying to achieve. Assessing culture is not a simple question of checking whether staff are happy (although we are looking for satisfied staff); we are looking for coherence between what people say and what they do, and coherence between culture and the business plan.
As many have said in the past, values are what you say and culture is what you do; culture is driven by which behaviours you choose to reward and which you choose not to tolerate (which answers the question of whether you should tolerate a toxic “superstar” in the team, the answer being no, never). But, individuals vary, so – provided you pick people suited to the culture you’re building – there is space for a wide array of cultures that are all high functioning.
The punchline though is that to maximise your chance of success, your culture needs to be suited to what you’re trying to achieve – and that includes what solution you’re trying to sell and who you’re trying to sell it to. To radically oversimplify by way of an example: if your culture optimises for pace and is pushy and fast, you’re going to be very frustrated if you try to get into enterprise sales; if your culture is one that optimises for perfection and service, you’ll always struggle to make money if you’re running self-service SaaS.
In scale-up businesses, this point often comes to bite when businesses are pivoting their plan or developing a SaaS product out of their consulting expertise. We have invested in just such a company in the form of Ostmodern. Ostmodern was an absolutely market-leading streaming media consultancy business, packed full of brilliant staff and lighthouse clients. They’d used their sector expertise to develop a piece of middleware specifically designed for media owners who needed to stream video in highly flexible ways. They called it Skylark. Skylark had been developed as a product, some key customers had adopted, and now the sales engine needed to be grown.
But one of the pieces of work we did with the team was to help them build clear segmentation between the part of the organisation selling the product, and the part of the organisation supplying consultancy services. Different teams, different names…different cultures. Because fundamentally the two businesses were trying to sell a different form of a solution in a different way to different people. Skylark required high-frequency low touch sales with huge discipline around the target customer type. Ostmodern was a naturally longer lead time to sell, with a high-touch offer emphasising a bespoke solution. It is tough (investor speak for “too high risk to fund”) to assemble one group of people who are culturally optimised to run both these types of sales at the same time.
So, alignment of corporate culture and business strategy is the key. That’s what we as investors are looking for when we assess businesses.