A 30 year old problem

With all the tools and knowledge that we have available, it should be easier than ever to start and scale a company. That’s not what we’re seeing, though.

The US Bureau of Labor Statistics reports that business failure rates have remained static since the 1990s, and while more companies than ever are being formed, less than 10% ever return meaningful profits to investors. While great ideas are everywhere, especially in the midst of greater disruption and the rapid progress of technology, execution is still lacking.

The reason for this? We’re not building great companies around the world-changing ideas we have.

There still exists an assumption that the best technology, science or innovation wins, and we know that’s not the case. While knowledge is everywhere, wisdom and know-how are not. Founders and leaders with technical backgrounds undervalue the importance of building an outstanding team and a high-performance culture, and even those with good intentions struggle to make it a priority.

The need to generate revenue, raise money and put out product fires are far more urgent, and demand attention, until the day that a poor culture brings the whole business crashing down (Uber, WeWork, Theranos and, of course, Enron illustrate this dramatically).

Successful businesses and business leaders know, viscerally, the importance of culture. It helps you to attract and retain the right people, drives engagement and therefore discretionary effort, aligns your team’s efforts around a unifying mission, increases productivity, gives employees opportunities to develop (thereby increasing the capability of the company overall) and amplifies your ability to solve problems.

When culture goes wrong, it costs money and time. Every disengaged employee in a business costs £3,500 for every £10,000 they earn in increased absence and poor performance. Small companies fail because they lose key people and can’t replace their knowledge, and replacing a single employee can cost 50-250% of their annual salary depending on seniority, meaning that if a 100 person company has 20% turnover instead of 10% and the average cost per departure is £25,000, that’s £250,000 in avoidable costs annually.

Companies with disengaged employees are 20-40% less productive, less profitable and less likely to innovate. Change initiatives fall flat, and organisations fail to evolve as the environment shifts. With each sub-standard hire, the bar drops slightly, because in terms of performance and behaviour, you get what you tolerate. Companies with unhappy employees have been shown to have 30% lower customer satisfaction scores, and poor culture has been correlated with ethical violations, lawsuits, theft, fraud and regulatory risk.

In short, a high-performance culture dramatically increases a company’s chances of success, especially when they’re doing something difficult, and a poor culture drastically reduces the likelihood of delivering on the vision. 

Over the last five years or so, there’s been an explosion of “HR Tech” that supposedly provides tools to HR leaders and executives that enable them to enhance their culture. However, while many of the platforms and applications available are good at what they do, they solve only part of the problem.

Engagement surveys may be useful, but give you one element of the culture recipe. Performance management software can be great for setting and tracking objectives - again, one piece of the puzzle. And HRIS platforms are essential databases that turn people into records. Useful, but not additive.

Most of the excitement in HR Tech over recent years has been directed at the field of People Analytics, and in large enterprises there’s a lot of utility to the insight they provide, but in smaller companies the analysis is very surface-level.

Underneath all of these tools is a flawed assumption - that the company using them already has a defined, productive and effective culture, on top of which they can layer technology. None of them help leaders to understand where they are culturally, design the environment and team that’s right for their objectives and build the company they want to build.

While exceptional HR professionals exist, those who truly understand culture as a strategic imperative are few and far between, difficult to identify and hard to recruit. Consultants are expensive and more focused on compliance and policy than true culture development, while coaches are often a salve rather than a long-term solution.

Culture is also a moving target, especially in growing companies where constant change demands agility and evolution. Every company is different, which has made SaaS and other technology solutions difficult to apply broadly, but the rapidly increasing power of AI is enabling the personalisation, adaptability and scalability required by today’s businesses.

It’s this problem, pervasive for three decades, that we’re building Versapia to solve. We still have some spaces left on our beta - launching very soon - so if you haven’t signed up yet head to https://www.versapia.ai/beta-apply to apply to become one of The First 50 Versapiens. (If you’ve already applied, you’ll hear from us in the next week).

Whether you join us on this journey or not, if you’re building something innovative, think about the company you’re creating around it. What can you do to improve it today?

(P.S. If you know someone who needs to read this today, send it to them and encourage them to subscribe to the Versapiens blog. If you haven’t subscribed yet, come join us on our journey through the intersection between culture, technology and business.)