The Culture Crunch at Late Stage Tech Companies

Preparing for organizational culture shifts as tech companies mature

In an earlier post, we discussed what it was like to work at a startup from early funding through Series C. To recap, we looked at 71,000+ respondents in our employee feedback and analytics platform, Culture Amp, on how they feel about the company they work for. Generally, we found earlier stage tech companies better fit the popular conception of working in tech, with more maturing startups becoming more like traditional businesses over time. Read the full report here.

In this post, let’s talk what happens to companies after the “startup” phase: companies preparing to exit and companies after their exit.

Late Stage Companies

For companies in funding rounds past Series C, their product or service are typically very mature, as is their workforce. Companies at this stage are predominantly working to maximize their valuation for a major liquidity event, typically an acquisition or IPO.

Having proven market viability and capacity to scale, a late stage company has a very positive financial outlook. VCs are pouring money into late stage companies even as the total number of deals decrease. The implication is that these companies are much safer bets, having a proven product in a receptive market.

The individual sentiments are in line with this notion of maximizing and optimizing. Late stage companies get high marks in day to day improvements (+4.9) and effective direction of resources (+4.3). However, late stage companies score slightly lower on encouraging innovation (-3.2), and one of the lowest overall sentiments on people being able to make a positive difference (-8.0). Late stage companies are places where management is often seen as a primary ingredient for success. Maximizing valuation typically means focusing on KPIs like sales figures or monthly active users (MAU), rather than innovation or radically new ideas.

But to that end, late stage companies are also generally well-run companies, with very few scores deviating significantly from the norm. Overall, these companies generally have their act together.

A late stage company is probably best fit for people who aren’t necessarily “startup people.” A good fit might be someone like a traditional MBA who has experience driving KPIs, running forecasts, or optimizing business processes. This can also be a good place for startup burnouts, who can leverage their previous startup experience, but are ready to move onto a more defined and stable role. Leaders and HR teams in these companies need to focus on communicating a vision for the future that clearly articulates how those potentially neglected employees will benefit from staying (not just monetarily).

Exited Companies

Startups (or their acquirers) will often take great strides to provide the same environment after an exit. As these companies often credit culture as a large part of their success, it’s in their best interest to do so. Google is a famous example of a company that works constantly to maintain a great organizational culture post IPO. Another point of differentiation will be more access to capital, which may be used to improve work culture — but that’s not to say money guarantees improvement.

First, IPO companies.
The most defining characteristic of a post-IPO company is confidence in their product.

Going IPO means the company owes fiduciary duty to shareholders, limiting the amount of freedom leadership has, and the company must answer to public opinion for the business decisions it makes. IPO companies score lowest on making a positive difference (-11.6), encouraging innovation (-9.5), acting on promising new ideas (-7.6), effectively directing resources (-7.5), and company success over next three years (-7.4).

The appeal to new employees is that they get to work on a world-class, high-visibility product. At this stage, there isn’t much room for dramatically shifting or innovating the product or service, but that isn’t to say there is no room for improvement. Hiring people for whom innovation and creativity are a big driver, could be just lead to frustration for them. However, for an overall career trajectory, showing that you contributed at a world-class team is an amazing addition to any resume. People who like stability, and have some maturity are likely to be attracted and contribute well to a company that has IPOed. Leaders and HR teams at companies that have IOPed should find ways people can contribute more often to the company.

Acquired Companies
In our dataset, there are two standout factors of acquired companies: making a positive difference (+9.3), and encouraging innovation (+5.6). Yet, acquired companies have the lowest overall engagement sentiments.

The suggestion here seems to be that these companies have been acquired to fill a technology or talent gap. To see a net return on the acquisition, it works in the acquirer’s favor to encourage innovation and people enablement. However, it seems the acquirer often fails to address the needs of its people, scoring very low on career opportunity (-8.6) and motivation (-6.9) sentiments — undoubtedly linked to even lower sentiments on company success over the next several years. These are things ultimately morale problems that HR departments need to address.

The recently acquired company is well-suited for managed risk-takers who have ideas on how to improve and innovate throughout the company. However, they might need to be independently motivated and OK with not seeing quick and large career advancements. If they can get over that, working at an acquired company can be a lot like working at an earlier stage company, but with less personal risk and more available resources. For leaders communicating with teams is crucial — ensure that career conversations occur as soon as possible with all individuals in the acquired company.

The Long View

Overall, we see a general decrease in engagement over the lifecycle of a company. Still, we don’t see this as an inevitability.

The data shows people feel a stronger commitment to the place they work, higher levels of motivation, a higher likelihood to recommend and pride in their place of work (also known as employee engagement) have strong correlation to the following factors:

• Effective direction of resources
• Demonstration that quality and improvement are high priorities
• Self- and team- accountability
• Proper processes in place to get things done
• Skills development at work / Learning & development
• Collaboration with other departments

Being aware of and managing these factors as a company goes through maturity can help with the culture crunch at every level.

Lastly, in terms of compensation, we believe that it is a lagging indicator of engagement evidenced by sentiments being very high at early stages, but staying relatively constant (after a temporary drop) as different engagement factors wildly swing over time. In other words, this means people are happiest with their compensation when they are happiest with their involvement at work.

But not only does higher employee engagement (and a culture that supports it) improve people’s sentiment on compensation, but research shows that it can also greatly improve a company’s financial performance.

I think it’s safe to say that most companies understand that engagement and culture are crucial to a company’s success. But fluidity in overall objectives and processes can create rifts and discomfort within the company. With so many things going on, organization culture may often be overlooked, particularly as market pressures and financial duties mount up. The opportunity here, then, is understanding, tracking, and acting on the findings that can have a positive impact on organizational culture.

Thanks for reading! If you found this article helpful, leave a ❤ or let us know your thoughts in the comments. Sharing and commenting will help us continue grow a community of People Geeks — just like you.

Hyon S Chu is a data scientist at Culture Amp, applying data science, business and visualization to research organizational culture.

Culture Amp is the powerfully simple platform for employee feedback and analytics. We encourage organizational feedback loops that build and sustain culture. Read our full report on The Culture Crunch.

Index of Survey Responses

Shorthand forms are used in place of the full question for brevity and readability purposes. The full forms of survey items are presented here following the shorthand: full survey item format.

• Accountability: “We hold ourselves and our team members accountable for results”
• Autonomy: “We have enough autonomy to perform our jobs effectively”
• Availability of the right information: “The information I need to do my job effectively is readily available”
• Career opportunities: “I believe there are good career opportunities for me at Hooli”
• Collaboration with other departments: “Other departments collaborate well with us to get the job done”
• Company success over three years: “Hooli is in a position to really succeed over the next three years”
• Confidence in leaders: “I have confidence in the leaders at Hooli”
• Confidence in product: “The products and services Hooli provides are as good as, or better than, our main competitors”
• Day to day improvements: “Day-to-day decisions demonstrate that quality and improvement are top priorities”
• Effective systems and processes: “Most of the systems and processes here support us getting our work done effectively”
• Effectively directing resources: “Hooli effectively directs resources towards company goals”
• Encouraging Innovation: “We are encouraged to be innovative even though some of our initiatives may not succeed”
• Innovation: “At Hooli, we act on promising new or innovative ideas”
• Job performance evaluation: “My job performance is evaluated fairly”
• Learning and development: “I have access to the learning and development I need to do my job well”
• Leaders communicating motivating vision: “The leaders at Hooli have communicated a vision that motivates me”
• Long-term commitment: “I see myself working at Hooli in two years’ time”
• Making a positive difference: “Hooli really allows us to make a positive difference”
• Motivation: “Hooli motivates me to go beyond what I would in a similar role elsewhere”
• Relevant skills development: “I am given opportunities to develop skills relevant to my interests”
• Useful feedback: “My manager gives me useful feedback on how well I am performing”
• When people aren’t delivering: “When it is clear that someone is not delivering in their role we do something about it”
• Workload: “Workloads are fairly divided among people where I work”