Stop Ignoring People Issues

The Human Factor

A lot of serious innovators and technologists will think about the people side of the business — you know, building the right team and setting up the right culture — as things that serious technologists don’t need to worry about. It’s often talked about as, you know, “not rocket science.” The irony of that is that we’re incredibly good as a civilization at rocket science. But when it comes to the human factors, somehow the brightest and the smartest amongst us somehow get it wrong almost systematically.

And it’s captured by a study from Harvard and McKinsey that showed that 65% of startups failed because of people issues. And oftentimes when these issues reach a boiling point, it’s often very tempting for us to think there was maybe one slight mistake, you know, an anomalous action that we had done along really what would have been a successful path. But really, if you turn back the tape six months, twelve months, eighteen months earlier, you’ll often find a lot of these things were starting to happen.

Whether it’s getting sloppy with hiring the wrong person, not being clear about certain norms or the kind of toxic environment certain individuals were creating in the team, or perhaps certain ways that you as the leader, as a manager of the team, spoke or behaved in a way that kind of set the team off to a cascade of actions or a bunch of distractions. A lot of this happens in very subtle ways very early in the journey, and it only really blows up later on when it’s a little bit too late.

What many leaders get wrong is that some of the early decisions you make around people and culture actually can help predict future success or failure. There’s a fascinating study out of Stanford where they followed nearly 300 companies over an eight-year period. They found that there were about five different blueprints that companies tended to follow. For our own consideration here, I think two are really worth going more deeply into.

2 Models to Compare

The first was the STAR model. The STAR model is where a company was working on very ambitious, very novel goals. And they would hire high potential individuals, perhaps from top universities with advanced degrees. And they organized their culture in a way that was a high autonomy environment where they allowed these brilliant people, you know, to self-organize and get the job done. They found that the STAR model — while they were working on really novel challenges — they tended to struggle to stay out of bankruptcy or to even reach an IPO. But if they’re able to cross that chasm of the IPO, the rate of their growth in market cap was the highest among all the different archetypes.

And then there’s a second kind which they called the Commitment Model, which hired people that were a strong culture fit. They were individuals who got along with the existing team. They tended to have a lot of homogeneity around values and skillsets and perhaps even networks. They actually tended to have the lowest rate of failure. But when they do go public, somehow the growth in market cap was, you know, not nearly as impressive as a STAR Model. Now the study goes on to explain that with the STAR Model, you’re hiring some really bright people who are working on really difficult problems. When you do succeed, you tend to succeed really wildly. And when you’re able to keep the people and create the right environment to keep them thriving in your company, they will then build the next wave of growth time and time again.

2 Implications to Consider

So all of this is to illustrate that a lot of the early decisions you make will truly predict a lot of the future success that you will see down the line. So there are a few really important implications to this study. So one: a lot of your early decisions do matter, and you want to go slow at the beginning so you can then prepare the team for a bright future. The second one is you might think, or you might be tempted to think, “Well, great, so then let me just reshape the team to kind of conform to what the study says.”

One word of caution that the study shares is that when a company starts with one model and then they shift abruptly to another model, they actually see the greatest amount of failure in that shift. Early on, when you hire a certain type of person or you set up a certain kind of environment and then you shift that significantly, you alienate a lot of your early employees, that then leave. What you might instead do instead of, you know, shifting midstream, is think about how you might spin off a different unit and start fresh with a different team.

Some companies, the way they would do it, is they would rehire people into a whole new division. And that way they’re able to then, you know, set the right expectations up front and select for the right profiles that they need to succeed. The biggest mistake leaders can commit is allowing a lot of these decisions around your organizational design to get determined by each person that hires someone new in. Sit yourself down, sit your core team down and really think deliberately about, “How might we set up the team with the view of what our goals are in the future? And how do we do that really well today? And how do we stay consistent with that through every person that we hire, through every interaction we have as a team, through every culture-defining moment we have?”