building a winning corporate culture

For startups, intangibles like company culture often take a back seat to immediate survival issues like raising capital and acquiring customers. It shouldn’t. In the beginning, when it’s just a small team against the world, culture largely takes care of itself. But once you start growing, the culture grows too, organically. You can ignore it and be overwhelmed by whatever values take root, or take an active hand in nurturing a culture that supports success. At this Netpreneur Coffee & DoughNets event held February 27, 2002, a panel of entrepreneurs at various stages of growth offered advice and techniques for leaders of young and growing companies in how to build a winning corporate culture.

speakers:
Caren Dewitt, co-founder of webMethods and Chairman of webMethods Foundation
Andrew Hill, President and CEO of DevElements
Matthew Pittinsky, Chairman and co-founder of Blackboard

moderator:
Jeremy Brosowsky, founder and CEO of Washington Business Forward

wrap-up:
Mario Morino, Chairman of the Morino Institute

Copyright 2002 Morino Institute. All rights reserved. Edited for length and clarity.

Disclaimer: Statements made at Netpreneur events and recorded here reflect solely the views of the speakers and have not been reviewed or researched for accuracy or truthfulness. These statements in no way reflect the opinions or beliefs of the Morino Institute, Netpreneur.org or any of their affiliates, agents, officers or directors. The transcript is provided “as is” and your use is at your own risk.

mary macpherson: welcome

Good morning. I'm Mary McPherson, Executive Director of Morino Institute’s Netpreneur. Thank you for coming this morning to talk about leadership and building a winning corporate culture.

          At last month's Coffee & DoughNets we heard a panel of entrepreneurial executives and venture capitalists discuss how to build a board of directors and advisors. When I was looking at the transcript, the notion of leadership as part of that work came through loud and clear. In fact, as I looked at the many topics we’ve covered over the years (all available in the event archives at the Netpreneur.org website), it was obvious that today's topic -- leadership and building a winning corporate culture -- runs through everything entrepreneurs encounter. When starting and building a business, how you handle those intricately woven values will dictate how you conduct yourselves with customers, funders, suppliers, and everyone in your world.

          This morning we are delighted to bring you a panel of entrepreneurs whose companies are in very different stages of development. We've asked them to share their stories and offer practical advice, so it's our hope that you'll glean something from this discussion that you can put to use today.

          Let me first take a moment to acknowledge our volunteers. We could not do these events without them. This morning we are helped by Vince D'Onofrio from ProxySource, George DeBakey of Plethora Technology, and Wanda Klayman of Acquient. Thanks very much to them.

          Let me now introduce our moderator, Jeremy Brosowsky. He will introduce the panel and facilitate the discussion, including your questions.

jeremy brosowsky: introductions

Good morning. As Mary said, my name is Jeremy Brosowsky and I'm the CEO and founder of Business Forward magazine. It is my honor this morning to introduce a panel to you that I think can be quite instructive, certainly very helpful. We begin with Andrew Hill, the founder, President, and CEO of  DevElements. DevElements was started in June 1999. At that time, it was just Andrew. Today, it is a growing company of 30 people and a multi-million dollar revenue stream.

          To his left is Matt Pittinsky. Matt is the founder and Chairman of  Blackboard, one of -- if not the --flagship eLearning companies, certainly in the Washington area, and, many would argue, nationally. Matt's company has grown from an idea in his head and the head of his founding partner, Mike Chasen, into a company with nearly 450 people and offices around the United States.

          To his left is Caren DeWitt, the co-founder of webMethods, a company with which any entrepreneur in this space is familiar, whether they’re here in Greater Washington, around the country, or around the world. webMethods is one of the big success stories that we've seen in this region to date. Founded six years ago, they are now a publicly-traded company with over a thousand people. It is no longer Caren and Phil in their basement.

          I sat everybody in this order intentionally, because what we have is an extraordinarily interesting subset of the entrepreneurial community here in Washington, a continuum running small, to medium, to large. Why don't we start with the youngest company? Andrew, tell us your story.

andrew hill: hanging out with really excellent people

In order for you to understand DevElements' culture, it's important to understand how DevElements started.

          After years of being an employee and a consultant to various companies, I found myself consistently frustrated with the environment. Customer service and employee satisfaction seemed to be more like buzz words than part of the core value of the companies. My frustration, coupled with my entrepreneurial spirit, created DevElements, and what I'm going to talk about is how customer service and employee satisfaction helped us create DevElements. The vision of DevElements was to create high quality solutions at affordable prices while focusing on customer service and employee satisfaction.

          To start off, I think it's important to know that very early on I was lucky enough to have three partners who shared the same vision, believed in me, and took a huge risk in coming on board. I would not be here if it weren't for those three people, plus the other 26 people in the company. It is very much a team environment and a team effort, and it has been from the get-go.

          It's important to know this because the people we surrounded ourselves with were people we wanted to hang out with. They were not only excellent at what they were doing technically, but they were the people we were most likely to be seen hanging out with on the weekends. I think that was an early contributor to our culture.

          As we grew to 10, 12 employees, we started running out of really close friends that were really good technically, so we had to branch out and look at other people. Before we made any steps in that direction, we set up an interview process. To this day, if you're a candidate coming into DevElements, you'll interview with four different people, and they'll look at a lot more than just your technical background. They'll look at whether or not your personality is a fit in the company because, in a small business, the wrong personality can be poison.

          I think that our focus on surrounding ourselves with friends and really excellent people developed a culture for us. It wasn't something that I went out and tried to do; it just kind of happened, and it was everybody together who created it. To this day, I think that one of the reasons why DevElements has been very successful is that, since we are friends, we concentrate on hearing what people have to say. Our employees have a voice. It's important for us to understand their needs, or we won't be able to retain these great people that we've been able to mature with.

          A heavy concentration at DevElements has been placed on making sure that: 1) everybody understands the vision -- and the vision is customer service and concentrating on delivering the best solutions-- and, 2) having the company focus on the employees. That lets the employees just worry about dealing with the customers and making sure that they're delivering the best solutions.

          In the two and-a-half years that we've been around, we've lost just two employees. I think our employee retention has helped us with our client retention. Growing very quickly as we did, though not as quickly as some here, we felt that it was important to get our clients involved and help them to understand what was going on. Most of them came to us and said, “We want you to grow. We need more help.” We went back and said, “That's great, we want to help, but we're not going to do it at the risk of losing our culture.” We set the ground rules very early, and the clients embraced that. They thought it was pretty cool. They looked at that and said, “These guys are about the quality. They're not about just coming in and making money for the sake of making money.”

          Let me give you an example. A client might come to us and say, “We have a competitive bid, and we want to build an eCommerce site.” The quote came in at a quarter of a million dollars. In many instances we've been able to leverage the technology at a cheaper cost to deliver the same solution. In some instances, it's started at $250,000, and we said, “We can do it for $15,000. It's your choice. You can pay us  $250,000. We'll do it, no problem, but we think this is the better way to go.” It's got to be something that you don't do just once, it's something that you repeat. It's got to be ingrained in your business. It's got to be part of your soul as a company. I believe that DevElements has done that, and I think that is why we've been able to retain clients as well as retain our employees. The employees and the customers, it's a family. It's not 25% of the people who come to happy hour, it's 100%. The people make everything happen.

Mr. Brosowsky: Is there one word that you would use to describe your corporate culture?

Mr. Hill: Family.

Mr. Brosowsky: Cool. Matt?

matthew pittinsky: patterns of interaction

Hi, my name is Matt Pittinsky, and, as mentioned, I am the Chairman of Blackboard. I always wanted to make it big in Hollywood, and since I'm afraid this is probably going to be the closest I get, I will try to make it interesting and entertaining all at once. I really am appreciative to be here.

          My partner, Michael Chasen, and I went to American University together. He has a computer science background. My background is a little more on the education side. I was a student teacher here in the District of Columbia, junior high school social studies, and that is where I expected myself to be right about now.

          When we started the company, we had never heard of the phrase “venture capital.” We did not know what an “angel investor” was. In all honesty, we wouldn't have known that America Online was within driving distance. This was in June of 1997. Probably the wealthiest person we had ever met was our dentist, and, as you might imagine, it is kind of hard to give a good pitch when your mouth is clamped open.

          All of this was completely foreign to us, and it will tie a little bit into our principles in the corporate culture. What we found was the most wonderful social network in the entire world sitting right in this region, willing to grab us by the back of our necks and throw us into it. For example, the lawyer who introduces us to the accountant, the accountant who introduces us to the venture capitalist, who introduces us to the angel investor. There was a lot of that, in fact, because 99.9% of them said no in our funding search. This social network that Netpreneur personifies is where I learned. That’s why I encourage you to ask a lot of questions. The truth is, we editorialized and we asked questions just to get our name out there.

          If you ask me: What is the biggest change in all of Blackboard's history? It wouldn't be a revenue milestone and it wouldn't be a capital-raising milestone. It would be the milestone when we moved from one floor to two floors. Now we have four floors and several offices and all that good stuff, but that time when we moved from one floor to two is still the biggest change I think I've ever experienced at Blackboard. Before that, when we grew, we took over the suites to the right and left of us, sort of like paying a game of Risk. Eventually, that didn't work and we had to head in a different direction. When that happens, you start running into people in different ways. All of a sudden, since the executives happen to be here, it’s an “executive floor,” and this one becomes a “development floor.” There are different lounges on each of these floors. The way that people interact with each other changed, as did the serendipity that ends up becoming a huge piece of how information flows. It became the drop in the pond, and the ripples that came out led to formalizing our organizational structure and our communication flows. We now have monthly meetings which we call First Fridays, although they actually never happen on the first Friday of the month. We have quarterly meetings. We do a lot in terms of information flow and the organizational structure because we moved from one floor to multiple floors. This is definitely an art, not a science, and something we're learning a lot about.

          In preparation for this event, we were asked for a word that characterizes our corporate culture. I don't know if I can get it down to one. To me it's two words, “client relationship.” The reason why is that client relationship is what we do. We're an e-Education company. We provide the software that schools, colleges, and universities use to harness the power of the Internet to improve student outcomes. Whether that means involving parents in the teaching and learning process, or delivering courses to students who can't attend physically, or just creating a third dimension on campus, it's about improving education. Education is an $800 billion industry in the United States, and it's a $2 trillion global industry. If you imagine just 10% of education changing because of the Internet, that is going to be an $80 billion opportunity. It's going to be the virtual biology lab instead of textbooks, a distance learning course instead of coming onto campus, and all sorts of ways in which the education is going to change. If you are dealing with that kind of a big bang, by definition, you are the smallest you are ever going to be, and the industry is the smallest it's going to be.

          To be honest, 10 years from now we are probably going to look back at the Blackboard of today and say “Holy cow, how did we create this company on that product?” I don't want to put our products down, they're great products, but will it turn out that this was the big idea that actually made Blackboard hugely successful? It's reminiscent of Microsoft. Microsoft started developing programming languages. Never would they have imagined that they would ultimately be the company they are now because of operating systems and applications and now Web services. We're always cognizant of that. What makes us interesting is not the product that we sell today, but the client relationships and the trusted brand that we are creating with schools, colleges, and universities. As this market changes, they help identify the products and services that will grow Blackboard into a billion dollar business. We will be the one they collaborate with, the one they'll try things out with because it doesn't always go well the first time around. They'll give their ideas, they'll share, they'll partner. We'll be the first one they come to. We want to accomplish that in our corporate culture, in how we answer the phone, how we sell, how we describe ourselves to our neighbors. We wear a Blackboard shirt at a gas station and someone comes up and says “Wow, my kid is using your product.” If we're able to describe ourselves in a way that shows investment in our client's success, we build that relationship, and it's going to be at the core of everything we do.

          How does that manifest itself tangibly? In small ways, like our orientation, which is a very long orientation. Everybody gets a book called The University: An Owner's Manual by Henry Rosovsky, the dean of the faculty of arts and sciences at Harvard. It's a wonderful book about the flavors of higher education. Does the average developer care about that? Yes or no. Does the average salesperson care about it? It probably helps with their messaging. It’s just the symbolism of doing it. You would be surprised how many people in Blackboard actually read that book --at least who tell me they do, since I am the one that hands it out at orientation -- and how it infiltrates how they think about things.

          So, for us, it's two words, “client relationship.” It’s not about being a product-centered company, or a technology-centered company, or an IPO-centered company. Which is good, because we haven't gone public. Building that kind of corporate culture has helped in the ups and downs of the last couple of years. It’s been about building a company that is invested in our client's success.

          My last piece is some rules of the road, and I just have five very brief ones. The first is about the power of the pitch. It's obviously the key to raising financing and a lot of different things, but you have to have the power of the pitch to be able to describe what it is that the business is about and how it's going to transform the world. I think that webMethods is a great example of that, and I’m not just saying that because we're on the same panel. I've heard their executives speak in lots of places, and, being a technology layperson, “B2B integration” is interesting, but it’s probably hard to make it the sexiest thing in the world. At least compared to education. Everybody can initially get involved in education having been at school or university. But every time I hear the webMethods talk, it is sexy, it is exciting. You understand how webMethods technology really can change the world, even if it is very specific in its applications and only some people truly understand what it does and why it matters. It’s important to have the power of the pitch, not only externally, but also internally.

          Second is: Know your industry. In our case, it is the university. Many entrepreneurs say, “I want to be an entrepreneur. I'll start a company and learn the industry second.” You have to have passion for the industry.

          Third is being able to stay true to your business model. When we were raising venture capital, there was one day when we went to a VC in Northern Virginia, and he said, “Okay, you're a software company. Do you guys think you'll make a lot of money in services?” We had worked at KPMG Consulting. We said, “Yeah, we think that is one of the great things about the business model. We sell them software, then we can follow it up with professional services and grow the client relationship.” It just seemed to make sense. He came back at us and said, “I think that's a terrible idea. It's hard to hire the people, there are lower margins, there’s project liability, it slows down the growth of your software in terms of market proliferation. Stay out of the software services business.”

          That same day we went to Maryland and met with another venture capitalist who said, “You guys are in the software business. Do you think you'll be in the services business?” Not being complete idiots, we said, “Oh, no, we don't want to get involved in the services industry. It slows down the scalability of the software; you know, it lowers the margins. We worked at KPMG. We know how much of a dog that business is.” He said, “Well, I think you're crazy. Services are an incredible way to grow a client relationship.”

          That’s really true. Particularly in the ups and downs of the last couple of years, you could get really excited and head in lots of different tangents. You can follow lots of different people’s advice that will just confuse the corporate culture. It will confuse the staff. You want to be focused, and you want to have an integrity around that focus.

          Fourth, never underestimate how much people are willing to help. You can’t imagine what someone inside your company did before they came. The kinds of experiences they have, the people that they know, it's just amazing, and it's probably not on their resumes. I spent a year growing Blackboard before I realized that our Chief Technology Officer was the son-in-law of a very significant venture capitalist in the region. It didn't actually work out, but I never even thought to ask, because financing was my activity at the company. There are so many different stories like that of people willing to help. It also goes externally. Netpreneur is an incredible example of it. There are so many ways in which people have helped us.

          Fifth, let information flow. We have monthly meetings, quarterly meetings, I send out emails to the entire company four or five times every couple of months. Just let the information flow.

Mr. Brosowsky: Thank you. Caren?

caren dewitt: the most important thing you have

Thank you. When he said that we represented small, medium, and large businesses, Jeremy couldn't have known that I'm incubating the next early stage startup on behalf of the webMethods team. That roll-out is due in June.

Mr. Brosowsky: That is not what I meant at all.

Ms. DeWitt: We actually conceived the idea for the webMethods product back in late 1995. My husband and co-founder, Philip Merritt, is the CEO. He has a background in software engineering and management, and I have a background in marketing and management. It seemed like we had found another great way to express our partnership, and we did.

          We were living in Australia at the time. My husband is from Australia, and we had moved there because one of our dear family members was terminally ill. It's interesting that when your priorities are right for you, things have a way of working out. We spent a year and a half there, and, towards the end of our trip, we conceived this idea for the company. We knew that if we were going to launch a software company, we needed to do it in the US where the dominant market exists.

          We started making phone calls to friends and family to get some money and investors into the company. We spent many, many long hours walking along the beach near where we lived in Melbourne, and I recall that we spent as much time talking about what the company would be like as we did about things like who we would target for early investors and early customers, what the product would be like, and how we would solve customer problems. For us, it's always been a very holistic picture about what the company would be. That was good because what I've learned over the past six years is that the culture is really the most important thing that you have. You need to have a clear understanding from the outset of who you want to be and what your company is going to be like, because it affects everything from the very beginning, including all of the people that are involved in your company and the companies that you choose to accept venture capital from.

          It's funny to hear me say that because we were rejected by “the best and the brightest” venture capital companies from around the globe, particularly in Silicon Valley, Boston, New York, and even here in Greater Washington, DC. I'm glad that we were rejected by some of them because they did not share our culture. If we had, I don't know that our company would have survived intact the way it has now. Some of these folks just didn't share the same values that we did for a corporate culture. In our discussions with companies that we have thought about acquiring, we have come across boards that are diametrically opposed to their management teams, for example, so it's very important that you consider all of the people that you get involved with. The network really does work in the way Matthew said -- your accountant will introduce you to the lawyer you will use and so on and so forth.

          We were incredibly fortunate that one of the companies that decided to make the first major investment in webMethods was FBR Technology Venture Partners. It was the first venture fund that they started, led by a wonderful man named Gene Riechers, who is above reproach. I highly recommend that whoever you get involved with as your advisors, board members, accountants, legal team, and others, that they be above reproach. By that I mean that they have high, high levels of integrity, that they are not arrogant, and that they care as much about your people and your vision as you do. We were very fortunate in that. Even prior to meeting Gene, we met a very fine man named Jack Lewis, a partner at the law firm of Shaw Pittman, another incredibly fine man who has done so much for this region. We actually met Gene through him. You'll never read about Jack in the newspapers, but he has done incredible things for this region in terms of technology.

          As the company grows, naturally you want your management team and those early folks on board to share your values. It should have a lot to do with integrity. I want to emphasize that because there is a lot going on right now that is affecting our business -- your business and my business, especially publicly-traded companies -- because of a lack of integrity. We all read about it every day. We read about Global Crossing, we read about Enron, we read about Arthur Andersen. I apologize for those of you who work for Andersen. It's unfortunate that a small few can derail a lot of great activity.

          Those of you who want to start a company or join a startup, you will lay the foundation of the corporate culture at the outset. As the leaders, you will have a lot of influence over it as the company scales and grows and becomes something different. In the early stages of webMethods, I had a Post-It note in my cube -- by the way, we all had cubes. We still do, although we're nearly a thousand people in 11 countries. Most of our offices, including the headquarters in Fairfax, have cubes. That way we can retain the openness and collaboration. Interestingly, we don't have cubes in Silicon Valley. We acquired a wonderful company out there called Active Software, and they had offices. The culture is a little bit different. We are working on how to transfer some of what we've learned in Fairfax out into Silicon Valley, recognizing that it's a totally different geographic region with different nuances than Northern Virginia.

          Anyway, getting back to the Post-It in my cube, it was Margaret Mead's quote, “Never doubt that a small group of people can change the world. Indeed, it is the only thing that ever has.” I can't tell you how much that motivated my team and me, because there are so many obstacles when you are starting a company, such as 30 to 40 venture capitalists rejecting you or getting your bank account down to $33 -- which is indeed what happened to us in addition to maxing out all of our credit cards. We really had a passion for and a belief in what we were doing.

          As the company has grown, we now have an employee handbook, which is what a grown-up company will do. In our employee handbook, the core values of our company surround the Golden Rule. We selected that because it's very simple, it's easy to understand, it cuts across all cultures and belief systems -- we have a thousand people who come from all cultures and belief systems -- and it actually works. If you follow that rule, if you try to treat your customers the way you want to be treated, as well as your colleagues, your partners, and even your competitors, it's going to be a win/win situation.

          Another things we have found that works, as Matthew was saying, is communication. From a very early stage, we did monthly meetings with the whole team where everyone from each division would report on what was going on. We also continued to reiterate the core values and the core criteria, for example, that people are very, very important.

          Our hiring practices were critical, and we definitely wanted to recruit and retain the best and the brightest. We had three guidelines for hiring, and people would develop their own posters and post them all around their cubes with our hiring criteria because we were ramping up so quickly. It had three simple ideas. One was that we wanted to hire people with what we call “neurons in excess.” We only wanted incredibly smart people, not just nice, reasonably smart ones. Second, we wanted them to be incredibly passionate about working for webMethods and about what they did. We felt that if we had to sell too much to get them on board, they probably weren't the right folks for us. If they spent too much time talking about their stock option package, if that was the dominating thing in the recruitment interview, they probably weren't for us because this was not about making a fast buck; it was about creating a company with long-term value. Even at the highs and lows, we always said to our employees, “Don't look at the stock price.” Believe me, when we were up at $300 a share, which was absolutely unbelievable and something we didn't invite, we would say, “Don't focus on the stock price.” That was good, because, when it started to go down, we were very consistent in that message.

          The third element of our hiring criteria is that people had to have high levels of integrity. If there was even the slightest red flag, if there was a reference check and things didn't add up, they couldn't work at webMethods. That stood us in very good stead. We've had a very low turn-over rate, and we've had a very high retention rate and high satisfaction level among our employees.

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