No one likes opening bills. Especially not when they remind you of the credit card payment you either forgot or couldn't afford to make the month before. Now you're hit with an insulting interest rate on top of your balance, plus penalty charges. The interest rate amounts to highway robbery, you think, and what's worse is that everything compounds. You wish you’d never opened up the account in the first place.
For growing companies and startups in particular, cultural health works a lot like credit. Every time we make a good hire, reject bad behavior, or prioritize integrity, we’re making deposits into our cultural bank account. And when we make a bad hire or condone poor conduct, we incur debt that will have to be paid down at some point.
Just as with financial discipline, poor cultural discipline can ruin your company. I’ve watched the companies of fellow founders descend into cultural anarchy in the name of growth. But in the well-worn words of the inimitable Peter Drucker, "culture eats strategy for breakfast." Rapid growth can temporarily mask cultural issues, but the debt you incur always comes due.
What constitutes cultural debt?
It's the jerk you’re tolerating because he makes his numbers. It’s the shortcut you take for yourself while holding everyone else to a higher standard. It’s the manager who withholds tough feedback to avoid uncomfortable conflict. In short, your company’s cultural debt is the sum of all bad hires left in place and all bad behaviors left unchecked.
A few years ago here at Inkling, we hired a talented product designer—let’s call her Jane—who worked hard and got her projects done. But Jane was a vortex of negative energy, and she lacked one character trait we explicitly value: personal responsibility. Rather than adopting the attitude that she can change what she didn’t like about herself and her environment, she indulged in self-victimization. If her project was late, the product manager hadn't been clear enough. If someone didn't like her proposed approach, it was because the engineers weren't good enough to execute it.
Victims love company, and she was bringing her team down. We eventually fired Jane, but we had let that debt accrue too much interest in the meantime, so we lost other talented designers as a result.
That bad hire, in other words, amounted to unserviced cultural debt. By doing nothing about the situation, my management team sent the message that we valued results over good behavior. That attitude created a toxic environment on Jane's team. The point is that we didn’t have to make additional errors for our cultural debt to grow: the first mistake—hiring Jane—was the original error. Our inaction, when faced with her behavior, compounded it.
Cultural debt is local, but it can spread; think Greece in the Eurozone. Left unaddressed, one team's toxic subculture infects others. Your tolerance of that team’s behavior breeds resentment among managers. If a person can impose debt on their team, then a team can impose debt on an entire company.
What happens when this debt gets too large to service? At that point, your company culture can go bankrupt, causing your business to suffer. Enron slipped into cultural bankruptcy before succumbing to the financial kind. So did Lehman Brothers.
But it doesn’t have to be nearly that spectacular: There are quite a few high-growth companies in Silicon Valley that are known for being miserable places to work. Thankfully, there are also many that have achieved serious growth with a laudable culture in tact.
At Inkling, we think we’ve managed our cultural debt rather well. In addition to our own internal measurements, we watch our Glassdoor ratings as a tangible public measure of how we’re doing. It’s almost like a public credit score. How interviewees and former employees feel about working for your company says a lot about what it’s actually like on the inside.
To manage our cultural debt, we follow a few rules.
First, we manage the composition of our teams by hiring slowly and firing quickly. As the boss, you can help by encouraging hiring managers to reject risky candidates despite the urgency to hire and to fire bad hires as early as possible, despite the anxiety that can create. Sometimes people simply need permission to make the right call, and they’ll make it. Give them that permission.
Second, we reinforce our behavioral values with the principles of Conscious Business, a book by Fred Kofman. It outlines the essential character traits (humility, integrity, and personal responsibility) and the essential skills (communication, negotiation, and coordination) that make teams great. Every new employee joins a six-week reading club when they're hired, and we use the book’s language every day.
And third, not unlike Suze Orman’s maxim, "people first, then money, then things," we prioritize people, then culture, then strategy. Strong values aren’t worth much on their own, but results achieved without them are equally dissatisfying.
Monitor your cultural bank account. Every time you delay dealing with cultural debt, you’re letting more interest accrue. Your broken work culture is just like an unpaid, high-interest credit card. But if you can build good will and confidence from within your teams, they'll be all the capital you need to pay it off.