In the early 2000s I managed the marketing department for a venture funded software development company, run by two on-site owners and a non-owner CEO. As you can imagine, the culture was hard working, fast paced, and energetic. Upon hire, all employees were given a ’starter kit’ of stock options, with the opportunity to earn additional options over time for various special achievements.
Within one week of my first day, both owners stopped by my office to explain in detail their long-term visions for the company. As part of the company’s employee orientation all new hires were required to attended an off site lunch with the CEO, and spend an hour one-on-one with each of the company’s five Vice Presidents during their first month of employment—again to discuss company vision. Monthly all-employee meetings were a unique combination of pep rally and stand up comedy show, where it was not uncommon to cheer small line items in the company Income Statement and mock a competitor’s recent advertising campaign in the same 10-minute time period. And at every major financial milestone, the company would host some sort of organization-wide event to celebrate. The goal of the company was simple, and everyone knew what it was: grow the revenues enough to go public.
As a result of this openness and shared vision, employees of the company were extremely dedicated and fiercely loyal. People in many departments were happily working 60 to 80 hours per week (I once spent 26 straight hours in the same chair). Employees with families were traveling for weeks at a time without complaint, and nearly everyone on the payroll had willingly forgone at least two annual salary increases in the name of keeping expenses to a minimum. This dedication and loyalty on behalf of the employees resulted in an exponential growth period, where over the course of about six years, and in the middle of the dot com bust, the company miraculously grew from a $10 million annual business to almost $50 million. Before the company had a chance to even think about filing its IPO paperwork with the SEC, however, a member of the Fortune 500 came along and scooped up the company for just under $100 million. And to the delight of employees, all stock options vested immediately.
To its credit, once the acquisition was final the Fortune 500 firm left the smaller company’s business model and management structure completely in tact. But instead of retaining the open culture, the larger company worked diligently to assimilate the 200+ new employees. Monthly pep rallies were replaced with mandatory company meetings, which were always kicked off with a viewing of a generic corporate video. Sharing of the financial statements during meetings was no longer allowed, and neither was laughing. On-site owners were replaced with slow moving middle managers wearing matching corporate sweaters, and all new hire training was delivered online. Not surprisingly, within one year of the acquisition many of the most dedicated and valuable employees left for other opportunities. And four years after purchasing the small company, the Fortune 500 firm sold off my former employer for what was rumored to be a $50 million loss.
I still keep in touch with a number of co-workers from that company, and the consensus is the problem was a culture issue. I happen to agree, but I believe there was a bit more to it. Although the additional rules, processes and red tape created some stress for many of us, the Fortune 500 firm overlooked the fact that for 10+ years, employees had been working toward a shared goal (to go public) and desperately wanted the company to achieve it. When that goal was no longer an option, no replacement vision was put in place, and it was only a matter of time before the whole thing fell apart at the seams.
Not creating a shared vision among employees is one of the most common mistakes small companies make . . . and based on the above, one that larger firms are capable of making as well. Take a hard look around your company: is everyone in the building working toward the same goal? And is that goal something other than “collecting a paycheck?” The most progressive and successful small businesses understand they can make significantly more money when employees WANT them to make more money. And building a shared vision is the best way to ensure both.
In future posts I will discuss various tools small companies use to build a shared vision—including stock options, employee ownership plans, structured profit sharing, discretionary bonuses, and several others.
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