Image Credit: Vincent Tsui for HBR.
Executives and entrepreneurs from all over the world have traveled to Silicon Valley to learn the secrets of its success. But in our conversations with executives about what they’ve learned, we’ve seen a tendency to focus on superficial elements rather than on the root causes of companies’ success. Sure, speed and boldness are important, but what is it about the culture of these companies that cultivates them? We decided to do a little digging ourselves.
Over a week in Silicon Valley, we met with more than 50 people deliberately chosen to give us a broad cross-section of insights. We spent time with established digital players, midsize companies (including Box and Palantir), and startups, particularly those focused on FinTech and technology services. We met with leaders at private equity funds, venture capitalists, and incubators, including Andreessen Horowitz and Playground. And we made the rounds of the thought leaders in the Valley, from the dean of Stanford to the founder of Lunar to a member of Tesla’s board.
These conversations highlighted some attitudes and values that seemed to go a long way toward explaining Silicon Valley’s innovation identity. Here are the ones that struck us most:
Lace audacity with grit. The kind of innovation that creates new markets always goes against the grain. But boldness by itself is a dime-store commodity. What stood out for us in these companies is the day-to-day determination to see something through despite near-constant failure. We found people at all levels to be especially levelheaded about failure and comfortable with the inherent messiness of experimentation. The magic for them is not something’s initial lightbulb moment but the commitment to assessing, refining, and reintroducing the systems that will make the thing work.
Use strong leadership to enable true collaboration. In the Valley, the leaders who are shaking things up combine a palpable vision with tenacity and the ability to build an organization that attracts other top thinkers. They have a pugnacious, single-minded determination to make their vision happen.
Yet while that kind of leadership is crucial, it’s the ability to tap the collective minds of the organization that drives the business. “Collaboration” is a term that’s been in vogue recently, but the best Valley companies make it happen by investing in an environment that fosters collaboration. It’s more than open office plans and Ping-Pong tables — it’s a culture where teams self-organize; people from various functions come together to work on specific projects by habit, not by exception; and good ideas gain momentum organically by attracting talent from around the business. As projects advance and coalesce, new teams form to gather the skills and priorities needed. Managers act more as enablers and connectors, providing regular feedback and tracking progress.
Give employees (and their dogs) a long leash. The strongest founder-led organizations recognize what really motivates their people. Mission-driven employees naturally expect competitive compensation, but more important is the opportunity to shape the path of innovation, to play a meaningful role in growing the business, and to develop their own leadership chops. The more autonomy employees have to be resourceful and make decisions, the more likely they will be to stick around. Artificial constraints, such as formal organizational hierarchies and belabored consensus-building processes, create waste and dampen motivation. The most innovative companies set clear expectations around goals and investment risk but let employees define the best way to meet them. If that means being open to flexible work schedules and letting people bring their dogs or bikes to the office, so be it.
Build platforms, not products. In the old economy, the math was simple: The more products you sell, the more money you make. Silicon Valley doesn’t think in terms of “products,” instead embracing the unbounded economics of the platform, where connecting users and interactions is the new coin of the realm. Unlike a static product, a platform’s value is defined by the users who populate and use it; a platform can morph to adapt to their needs and continually unspool new services and innovations. Valley companies think in terms of ecosystems, networks, and sharable services — elements that are crucial to scaling very quickly. Any business needs to make money eventually, but the power of rapid scaling is a huge competitive advantage that those in the Valley understand keenly.
Think like engineers and customers. While “user-centered design” has become an increasingly popular term, Silicon Valley lives and breathes it in a way that senior executives elsewhere can’t imagine. In Valley companies all levels of the business, from the CEO to coders to cross-functional teams, are hardwired to look at problems from the perspective of the user in order to figure out what sets of processes would create the smoothest, richest experience. They obsess about the customer; everyone is expected to solve customer and user problems whenever and wherever they find them.
Know that money only gets you so far. Gone are the days when the venture capitalists on Sand Hill Road were merely an elite cash dispensary. Innovation can have a short shelf life, so entrepreneurs with great ideas but little business experience need coaching and infrastructure as much as cash. VCs have evolved from being financing arms and proxy boards to providing entrepreneurs with everything from lab space and equipment to a small army of programmers and coders.
Startups need money, too, of course. But in the same way that they focus on building platforms that scale by connecting people and businesses, the best startups look for VCs that can plug them into broader ecosystems to provide additional leverage and extend their vision. That “vision” part is crucial: Not all networks are created equal, and understanding how the nodes of a network align with the startup’s vision can be the difference between a good idea and a good idea that scales in the marketplace.
Get acquisitions right. Large companies looking for new talent and capabilities have long used acquisitions, but doing them well is tricky. Too many incumbents are flat-footed in their approach; more than just finding great talent, timing is what really counts. The time to move is not in the early stages, when startups are small and need freedom, nor in the late stages, when startups have established a reputation, but rather in the middle, when the startup has a proven concept and is ready to scale. What this means for companies looking to acquire is that they need to develop a detailed market analysis that demonstrates where value is already being created (i.e., the business is proven and not relying too much on fanciful projections) but also identifies the growth that’s possible when the technology or business is scaled.
Large companies can also be too controlling after acquiring a startup, layering on rules and practices that don’t jibe with the unstructured gestalt of the recently hatched business. That’s often because incumbents look at how best to use assets rather than focusing on culture. Established players need to know when to lead and when to let their young partners set the pace. This point bears emphasizing given how crucial culture change is for companies that are transforming their organizations. In many cases elements of the acquired business’ culture can become a model for the acquiring company.
As these lessons show, for all the technological advances in Silicon Valley, it is the region’s longstanding leadership in business model innovation that offers the deepest and most transformational insights.