Under the Hood
The Culture of Y-Combinator Companies
At Pomello, we get to peel back the marketing exteriors of companies and peer into the underlying data of what it’s like to actually work there. We measure company culture and make predictions about things like performance, turnover, and employee happiness. As part of YC’s Winter 2015 class, many of our batchmates helped us out in developing our product by creating company profiles. Aggregating data across our YC class and comparing it to data from our broader customer base highlighted a couple of themes that we found fascinating.
The Strength of Founder Team Cultures is Highly Variable (but higher than average)
One of the first things we focus on when measuring team culture is its strength. We look simply for how much agreement there is about core values within a team. The scores can range from 0–100 with above 70 being a generally accepted threshold for a cohesive culture (NB: 70 is in some ways an arbitrary choice, any measure of cohesion is more meaningful when tracked over time). Team’s with higher strength scores typically perform better, have higher job satisfaction, and lower turnover than teams with a lower score. A strength score that trends up over time is indicative of successful culture hiring, communication, and strategy. A strength score that is trending down typically is correlated with rapid hiring, poor communication, and strategic shifts.
We found that YC founding team cultures varied greatly in their cohesion, but on average YC companies have slightly higher than average cohesion than our larger population. The cohesion scores for YC companies range from the low teens to the high 80s. The average score for YC was 65% with a standard deviation of 18%. In contrast, the average cohesion score across all teams we’ve measured hovers around 60% with a standard deviation of 25%.
Going into this analysis part of me expected to find lower cohesion on YC teams because early stage teams operate in such a volatile environment. I thought this would drive higher levels of disagreement on what values were most important, and thus a lower average cohesion score. I was wrong, and it turns out that YC teams our batting above average in terms of culture strength. This generally bodes well for performance, since culture strength is a predictor of performance, engagement and turnover. It would also be meaningful to track each team’s strength score over time showing which teams are literally ‘gelling’ and which are fracturing.
Everyone Believes that Adaptability is Important
Obviously culture strength isn’t the only relevant discussion point. In fact, most people are thinking about culture content when they think about company culture. The content of a culture is built from core values that people prioritize in the workplace. Core values in turn are comprised of behaviors which individuals are likely to engage in as means of living culture.
One theme stood out in our analysis of culture content within our YC peer group compared to our broader dataset. Adaptability was the overwhelming favorite of the core values amongst YC companies. More than 50% of YC companies had this as their most important core value, and every single YC company we measured had it in their top 3 core values. In contrast only 17% of our broader dataset ranked it has the most important.
But what is adaptability anyway? Maybe by making this abstract term more concrete we can come up with some hypotheses for why it is so important to YC companies. Adaptability as we define it means experimentation, risk-taking, being innovative, and moving fast. It also means not avoiding conflict, not being wedded to pre-defined goals, and not being too careful or predictable.
I’d argue that any early-stage start-up would benefit from being adaptable as a core value, and maybe the magic of Y-Combinator’s selection process is that it is able to identify teams that prioritize this. Of course, to really know whether that’s the case we’d have to measure a random sample of companies that were not accepted by YC to see if their overall preference towards adaptability was lower.
Customer-Orientation, Integrity, and Precision are the Most Controversial
YC companies are not culturally monolithic, and there are major areas of ‘disagreement’ about what’s important. In contrast to the near-universal endorsement of adaptability as a core value, there are 3 values which showed a high degree of dispersion: customer-orientation, integrity, and precision. Amongst our YC sample, some teams showed a strong preference for these values while others placed them near the bottom of relative to the other values. To illustrate the conflicting preference (or lack of) for these three values we can compare them to the strong preference for adaptability within the YC peer group.
There are some interesting questions that arise in thinking through why this disagreement might be occurring. It may be that there is a cultural formula for start-up success that will emerge as each of the companies we measure grows or fails, and survival analysis would illuminate that trend over time. An alternative theory is that cultural differences are driven by differences in the specific industry/technology/market that companies are seeking to operate in. Recent research conducted by Pomello’s advisor, Professor Charles O’Reilly, shows that large technology companies with strong adaptability-centric cultures outperform their peers on multiple financial metrics.
In the context of this very small-scale study, it’s easy to envision scenarios that would make some companies favor specific core values. For example, customer-orientation is a value that at some baseline level every start-up cares about. But in our model the behaviors we associate with this are directly listening to customers and making market-driven decisions. I can think of a few companies with very cutting edge technology who might not be prioritizing these behaviors right now, whereas companies with consumer products must prioritize these behaviors early and often. In contrast, integrity is very important to companies that would experience a significant setback if product integrity/safety was called into question. For example, this risk might loom larger for pharmaceutical technology companies than for consumer gaming companies.
Two Things to Remember About Culture Whether You Are YC or Not
First, culture is a strategic choice on the part of a company’s leadership. Different core values will be more or less appropriate depending on the unique situation of each company. Every company will have a culture regardless of whether leaders are paying attention. But the companies who perform best actively manage their culture and the people who operate within it. Put another way, your employees are a long-term asset and managing your culture is the only way to maximize the value of that asset.
Second, culture is about who you are, and who you are not. Too many leadership teams believe that any value that sounds desirable can and should be a core value. This is impossible from a cognitive standpoint and is likely to result in a diluted fractured culture in practice. Core values are operating principles, and you can really only have 2–3 operating principles in practice. Let’s think through a company that says it has 10 core values. Our instinct is to prioritize within sets. So each individual in this culture is going to prioritize a couple of these values over the others according to their personal preference. There are 45 unique combinations of 2 selected from a set of 10 — that’s a lot of potential tension over priorities. Instead, it makes sense to pick the few principles that will drive the success of your company overall and relentlessly focus on those.
Bottom Line: Decide to cultivate your culture. Pick 2–3 core values that align with your strategic goals. Communicate these values, and reward and recognize employees who live them day-to-day.
