How Companies Have Sex

The new game is combining organizational DNA in unique and inventive ways.

Picture the headquarters of Sun Microsystems: a campus basking in the California sun, a few blocks off Highway 101, at the shallow end of San Francisco Bay. Nestled in a corner office, deeply buried in the complex of discreet low-rise buildings, Eric Schmidt, Sun's chief technology officer, is leaning back in a plush executive chair. Eric is thinking about sex. A smile is on his lips, and a deep, satisfied light radiates from his eyes. He has grasped a liberating truth: sex — not microchips and software — is the key to the future of business.

Eric Schmidt's job at Sun is to spawn and nurture new businesses. For Eric, organizational sex is a rich, vibrant topic. His days are often spent in flirtations — and sometimes full-fledged assignations — with new companies and their founders. What he tries to do is create a union of the fertile ideas of rebels and visionaries and the organizational DNA of Sun.

What is organizational DNA? It's the stuff, mostly intangible, that determines the basic character of a business. It's bred from the founders, saturates the early employees, and often shapes behavior long after the pioneers have passed on. Organizational DNA influences the innovations to which people commit themselves: Will they work together to create better French food or fresh software? It determines what sorts of leadership and values are likely to emerge: Will the company be autocratic and bureaucratic, or ad hoc and libertarian? An organization's DNA helps determine its "pluck coefficient" — that is, how well people deal with threats and crises, and how they seek to grow. Little understood, organizational DNA is of vast importance. Which is why Eric Schmidt is so intent on delving into its workings.

Schmidt has approached the DNA question by becoming an expert on how companies have sex. In biological evolution, the capacity for sexual reproduction developed as a response to harsh and fast-changing environments. The companies Schmidt works with face similarly brutal business environments. Sex is all about mixing up the DNA from two parents to spawn something new. By mingling genetic characteristics from two distinct mates, sexual reproduction allows more radical genetic experiments. It's about creating new organisms that have the potential to grow in directions unknowable to either progenitor; it's about enabling new and potentially more adaptive characteristics to be invented more quickly.

There was a time when most organizations had sex with only themselves: think of it as asexual organizational reproduction. Not surprisingly, the children varied little from their parents. Early in this century, for instance, General Motors learned how to make car companies that were superficially distinct yet fundamentally similar — focusing Chevy on middle-class families, Cadillac on established high rollers, and Buick on the upwardly mobile. This strategy worked well, as long as the auto market remained stable. But when new species moved into the market from Europe and Asia, the environment plunged into rapid and continuous transformation — leaving poor old GM genetically disadvantaged. In response, GM tried a little sex — coupling with Toyota at the NUMMI plant in California and with the United Auto Workers at the Saturn facility in Tennessee.

In the new economy of fast companies, a diversity of sexual experiments tends to beat self-fertilization and local intermarriages. Just as your parents' Oldsmobile is unlikely to be appealing today, a knockoff business model is unlikely to succeed. The name of the game is combining organizational DNA in unique and inventive ways, creating new organisms that (at least some of the time) will find ways to adapt to the new environment. That's why Schmidt is overseeing continual crossbreeding at Sun, hoping to produce a few promising enterprises.

Schmidt's prize-breeding success to date is JavaSoft, developer and licenser of Java, a new software language especially suited to the Internet environment. Most people have heard of Java; few know about its mixed genetic heritage. In 1990, Sun allowed five engineers with experience in computer workstations — Sun's traditional product — to begin learning about Sharp's Wizard and other personal digital assistants. The engineers began the genetic experimentation, looking for ways to crossbreed the two talents. Nothing commercial came of it. After two years, the group turned to interactive television as fertile territory and brought in new members with experience in media and communications — a shot of new DNA.

Many months and many experiments later, there was still no market success. But by 1995, the Internet provided a new market environment. The technology crossbred into Java proved a perfect ecological fit with the technology convergence on the Web. Java and JavaSoft, transplanted into the new soil, proved wildly successful.

All is not sweetness and light in the realm of organizational sex, however. For every JavaSoft there are perhaps 10 times as many products and business models that fail. And even Java was born out of a heritage of multiple failures, a reminder that any aspiring Luther Burbank of new enterprises needs to be tolerant of disappointment.

But there is an even deeper tension — one that harkens back to the power games and seamy struggles that can accompany sex between people. Sex is about pleasure — about wonder, discovery, vulnerability, and hope. But all too often sex is also about pain — about rejection, betrayal, and sometimes, abuse and exploitation. It can happen in organizational sex as well.

The acts of corporate sex that spawn new companies often result from the coming together of two different sorts of players: those with money and those with sweat. The financial types include venture capitalists and corporate venture officers. Those with the sweat equity are, of course, the entrepreneurs who want to build a company.

The tensions come from what each side is geared up to contribute. The venture capitalist makes money from investing in many different enterprises — in a "deal stream." Think of this as a man with many lovers who hopes that as many as possible will bear healthy, happy children who will mature into full-grown adults.

The entrepreneur, on the other hand, has to care for the child born of the union of money and ideas. The entrepreneur doesn't like to be seen as one of an endless stream of lovers — and certainly doesn't like the idea of being left to raise the newborn alone.

If some currently controversial scientific ideas are correct, this conflict has a parallel in the biology of sex. Some researchers now argue that in many species, each male competes to have his DNA be the mostly widely dispersed, a phenomenon scientists call "sperm wars." In some species, males seek to win the sperm wars by impregnating many females — a kind of biological deal stream.

Females, the argument goes, also seek to maximize the reproduction rates of their DNA. But they must use different tactics, since their success depends on nurturing their offspring to maturity. For the female, the ideal mate will also help care for the newborn, contributing more than just his seed.

There is an obvious tension between the male urge to sow seed widely and without responsibilities and the female desire for a mate who'll settle down and help with the kids. The same tension pertains to the sexual politics of business. As organizational sex grows up, entrepreneurs are attaching more value to investors who contribute more than just money. It's quite common today for the hottest startups to turn down money that doesn't come with other resources — ranging from linkages to complementary organizations, to insightful board members, to initial contracts for products and services.

In response, leading members of the venture-financing community are experimenting with new ways to add value. At venture capital firm Kleiner Perkins Caufield & Byers, for example, John Doerr has become known as an activist investor who will stitch together collaborative networks among companies and their executives. Doerr and Schmidt recently joined with others to raise a $100 million venture fund to invest in and create a community of companies that will use Java to spawn products and services for the Internet. Similarly, Ron Fisher of Softbank Holdings is leading the investment of more than $500 million to establish an intricate web of mutually supportive Internet media companies. Softbank, which owns the Comdex computer industry conferences, will host a conference this fall for companies it owns or in which it has an investment. The goal is to facilitate cross-fertilization.

Perhaps the biggest lesson in corporate sex is to recognize the dangers of asexual reproduction and excessive inbreeding. No matter how successful a company's current product or business model, clones and cousins are unlikely to result in new triumphs of the same magnitude. Lotus Development Corp. enjoyed wild initial success with its Lotus 1-2-3 spreadsheet — followed by years of failure to spawn a second hit. Finally, it jumped in bed with Ray Ozzie and a small team of outsiders, and out came Lotus Notes.

The second lesson is that organizational sex is not without its risks. One-night stands can lead to long-term regrets. In promiscuous pairings, bad things can get spread. There are organizational equivalents to sexually transmitted diseases, dangerous liaisons, even fatal attractions. At the same time, there is such a thing as organizational safe sex and committed relationships — combinations that pay attention to the long-term reasons for a particular pairing and manage closely the union of ideas, processes, and talent.

We're witnessing today a blossoming of interest in organizational genetics, revealing itself in a fascination with business models, mutations, and combinations. Particularly in the hot zone of convergence — computers, communications, and media - strategists are asking sexual questions: What sorts of DNA are more likely to succeed in the marketplace? If I crossbreed one company with another, what sort of offspring will develop?

The game today is managing organizational genetics and fostering safe and satisfying sex. That's why Eric Schmidt is thinking about how to become an effective organizational parent — so he can raise his offspring to be thriving members of the new ecology of business.

James F. Moore (jim@geopartners.com), author of "The Death of Competition" (HarperBusiness, 1996 , is chairman of GeoPartners Research, Inc., a strategy-consulting and investment-advisory firm based in Cambridge, Massachusetts.

Add New Comment

2 Comments