In 2019, I thought culture was piñatas, Sauerkraut, football Sundays, and Christmas. Some ritual thing people do for whatever reason that didn’t interest me.
In 2020, I thought culture was what Deloitte and Protiviti would present to kids on campus, ping pong tables in the office and maybe one day even a high-5 from your boss.
In 2021, I thought about the differences between the other students on campus and I. I started thinking about my own values and beliefs, and how it was different from others. I had always had these beliefs, but for some reason as a kid you don’t really understand differences in people, and that you can be both different and have merit.
In 2022, I started drafting up my visions for culture for 2 startups I was building on campus. From this experimentation, I was able to see what worked and what didn’t.
In 2023, I was working my first big boy job. I had now felt the full force of culture and how it would impact every second of every day and how I made decisions and behaved amongst the group.
In 2024, I work both at Shaper Capital (parent company) and with separate portfolio companies, observing and realizing that every company culture is different and it’s not something that is easily changed. I came to the understanding that culture is the set of behaviors, principles, values, and understanding that act as a backdrop to every decision that has been and will be made at the company.
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Culture is Important
If I plot these annual points, I realize that where I once believed culture was a trivial aspect of a business, I now believe culture is the most important part of a company. It feels hard to even just call it a “part” of a company, because culture is the company and the company is the culture bottled into a solidified institution. I will likely be even more focused on culture the more I understand it.
Before you work in a company, or start one, you likely have an abstract idea of what a company is. When you think of Nike, you probably just have some idea of their brand and the products they provide to the world.
After you spend time with companies and look real close at them, you start to realize that, yes, companies are vehicles for providing value to the world, but some imperfect human being created that company and its process. Moreover, every new product, decision to enter a new market, design choice, quality issue, and happy hour are a product of the decisions and behavior of the company’s people and processes. Companies are organisms that live, breathe, adapt, mutate, and die just as their cells (employees) and organs (departments and teams).
My observations on culture from both the perspective of the company and the employee. Ideally, I will also start to define some sort of framework on my own beliefs for what a “good” culture looks like.
What is Culture?
We should properly define culture if we are going to ascribe so much importance to it. Culture, while a fuzzy concept, is defined by Joel Mokyr in A Culture of Growth as the below:
“Culture is a set of beliefs, values, and preferences, capable of affecting behavior, that are socially (not genetically) transmitted and that are shared by some subset of society.”
He also describes the following terms:
Beliefs: statements of factual nature to the state of the world
Values: statements about society and social relations (often thought about as ethics and ideology)
Preferences: statements about individual affairs such as consumption and personal affairs
Individual Culture
Individualism
If you introspect, you have a set of beliefs, values, and preferences that you may have had a predisposition for genetically, were transferred vertically from your parents, and learned from a variety of experiences/data points throughout your life, but mostly picked up through imitation and choice of a menu from the people you were surrounded by. Humans are sheep. Your unique combination of beliefs, values, and preferences are now deeply embedded in your personality. Some of these can be changed and influenced, others are much harder to. Depending on the age, plasticity of the individual’s brain, openness to new ideas, agreeableness, interest, etc.
My framework for this, as referenced in my last essay, is that (1) we develop an idea of what the world is and how it functions from an objective standpoint, (2) we create meaning from this into our beliefs, values, and preferences, and (3) ultimately act in accordance with those beliefs.
Your “Why”
Throughout your life, you have probably gravitated towards different ideas and different groups of thought. You may have found that some activities never made sense to you the same way they made sense to others. You may have found that in some environments you thrived and some environments you struggled. Some cultures are painful as you are forced to act in ways that go against the grain of your individual belief system and some feel as natural as breathing. You should always try to be in the latter culture.
My observation through high school, the University of Illinois, and even now is that a surprisingly small % of people are truly intrinsically motivated and beat to their own drum. Of this population, the smaller yet % of the population has a “why” that intersects with yours, you get along with, and has the necessary skills to actually accomplish what you want to accomplish.
Those people would be interested in a topic even if you didn’t force them to be. They have a “why”, a purpose, a sparkle in the eye. They know why they are speaking with you. They are excited by a blank sheet of paper and by the prospect of filling it with ideas. They have a north star and their natural state is progressing towards it.
These people don’t need micromanaging. They understand the broader direction of their life, why what you are working on is important in that light, how to accomplish it, and what that means for what they should be spending their time on at any moment. This person is aligned.
My personal view is if I have enough money to be comfortable, my own internal test is that I want to be doing what I would be doing as if money didn’t matter, because it doesn’t.
More specifically, this probably means growth and that usually comes from being all-in working on important problems with smart people I admire. Any other combination of variables means my function for growth/time is not optimized. This is also why I feel the value of colleges is not only the content of the courses. The majority of the value of colleges is being surrounded by the smartest people of diverse belief systems so that you pick up their traits and learn from them, subjecting yourself to purposeful mimeticism.
My function for growth is inwardly focused, rather than an accumulation of material things or money. I would make the bet that if you want to make a lot of money, your function should still be inwardly optimized. The best way to make a million dollars is to become the type of person who can make a million dollars.
Variation
That is just my view of individual culture. Different systems will work for different people and different problems. Some thrive in a different environment. I used to wonder why people work jobs that pay well but people don’t like to do them. They disconnect their intrinsic motivation from work. They understand the transaction they are making. They give up their time and receive money in return. Many big law / finance professionals leave their life at the door when they clock in. There are exceptional people of all shapes, sizes, and motivations. The problem doesn’t arise when you have different cultures, it’s when you have people working in the wrong workplace culture. Anything forced is suboptimal.
Exceptional People & Aptitude
Ultimately, it is not enough to just believe and work hard. While that is probably the most important part, there is a very real sense that aptitude matters. Can you actually build the damn thing? Do you have the experience and intelligence to arrive at the right solution?
It is also true that exceptionalism breeds exceptionalism. Iron sharpens iron. There is this phrase that’s used, cultural density, that I like. The idea that there are people who can provide 50x the value of an average person is used in The Datavant Way and that with that in mind it’s not a problem to pay them more. Exceptionalism spreads slowly and mediocrity spreads quickly. You notice that in startups as soon as you lose momentum it is hard to pick it back up.
When I founded Quant, this was something that intuitively made sense to me. The power law of talent, that the top 1-5 students in algorithmic trading / quantitative finance from each university could drive significantly higher returns than the top 30 from UIUC. Smart and ambitious people also like working with other smart and ambitious people, you just need to connect them and direct them towards an important goal.
It is possible that the last real alpha left is in finding exceptional people as human focus is the most valuable commodity on planet earth.
A question of what is more important, culture or talent, is hard to answer. What is more important, attitude or aptitude? Can you have a good culture with bad people? Can you have a bad culture with good people? My guess is that attitude is more important, my life is just a giant bet that grit and determination are more valuable than intelligence, but of course you need both.
Institutions
Cultural Vehicles
One person working alone aligns with their individual culture. As you begin grouping people together to function, you are creating a cultural institution. Within the category of institutions, I will focus specifically on companies.
Companies are necessary vehicles of change. You cannot often create sufficient change alone. You cannot be successful in a vacuum. You need other people rowing in the same direction as you. You can’t all be rowing in separate directions, as you will then never arrive anywhere meaningful. As Mokyr puts it,
“At some level, all evolutionary and cultural systems must have such a system in place, to lend some modicum of stability to existing beliefs and prevent complete chaos.”
From my observation, this is a direct parallel to how a company scales. Often, when starting a company, you are doing something that doesn't scale. Then, you need to put in place processes and rules to make a machine that scales. You lose the beauty and nuance of the initial product but it allows you to create a repeatable product and process. Think customized research for a client to creating art. You can’t really do these things at scale. Starting companies isn’t actually that hard, it’s building the culture and lean mechanical processes that’s hard.
Two people combine their cultural values, beliefs, and perspectives to work on something. There is inevitably conflict and misalignment in these as two sets of beliefs are never the same. Add a third, and you again will need to make rational choices and forge social contracts on how you will behave. People will make sacrifices. There is a healthy amount of conflict. If you add someone with too many different beliefs, they will be rejected by the system, be influenced, or be forced to integrate.
Setting Culture
It is really difficult to set a culture from the top down because it is really the combination of beliefs, values, preferences that the institution aligns and agrees upon. It does feel like there needs to be someone who sets and protects the company culture. I sometimes feel like that is the most important job of the CEO.
Reflexivity & Cults
There is a curious nature of these organizations as they become a living, breathing organism. They have a reflexive nature where the culture influences the institution and the institution in turn influences the culture. As institutions grow mature, they lose their flexibility and the culture becomes more entrenched, which is good for stability at the detriment of agility. It doesn’t matter what executive changes Coca-Cola puts in place. Their complex web of incentives, hierarchy, goals, and international stake is extremely difficult to untangle.
Humans have some imitative qualities that make it really hard to go against the grain. We also have instincts that make it difficult to challenge authority. I struggle with this and it makes me avoidant. It makes perfect sense, if you challenged authority for much of history and popped your head above the crowd, you would have had it chopped off.
I wrote about (cult)ure in 2022 in my essay “A Year of Startups.” I noticed two things:
People have a natural tendency to look to the leader / point of authority. You also notice this trickle-down effect in meetings. As a leader, you must carefully exercise when you speak and what you say as it will have a lot of collateral effects. I’ve noticed some leaders purposely refrain, which forces independent thought, and this seems super effective.
“I’ll start this section by saying the most surprising thing about starting these organizations was the fact that people kept looking to me for what to do. I’m an idiot, what do I know? You start seeing that what you say in meetings rubs off on people and hear them recite them in conversations with another person. It’s still really odd to me, but it does make sense. People join because they are often excited about what you are building. They don’t know the full story and look to the builder for guidance. Over time, this process becomes more natural and a corporate culture begins to develop.”
When you create a company, you want the culture to be insulated. I firmly believe that any company I start, we will spend all our time together IN PERSON. I don’t think anyone could sway my opinion on this. You need to maintain cohesion and there is a strong sense of community and trust you get from working together.
“Maintaining that cohesion and focus within a group is vital. Concentrating that focus in one space prevents leakage when members wander into the dilutive atmosphere that is daily life, which has too many distracting moving parts and a disorderly focus on the ‘daily thing.’”
Incentives
Often the nuts and bolts that keep things stable in institutions are its incentive systems. You need someone to lead the product and specifically assign them a few KPIs such as user engagement to accomplish. With this North Star/Endpoint, the employee works backwards to meet it. You may have structured compensation and feedback on this goal. Incentives are what ultimately determine a person’s actions, despite what they may say. It is human nature. If incentives are improperly set, they can create deviant behavior that is not beneficial for the system.
Consider the paperclip AI problem:
“Philosophers have speculated that an AI tasked with a task such as creating paperclips might cause an apocalypse by learning to divert ever-increasing resources to the task, and then learning how to resist our attempts to turn it off.” The fear here is that the simple incentive to create paperclips may set off a change of events that ultimately engulfs the entire universe.
Cultural Change
Marketplace of Ideas and Cultural Evolution
In the exploration of what caused the Industrial Revolution, Joel Mokyr discusses how culture changes. This is somewhat difficult to quantify, but two models are referenced for how cultural change occurs, the Evolutionary Model of ideas, the Marketplace of Ideas and the Choice-Based Cultural Model.
It is the least likely that cultural changes are just genetic, it is also unlikely that culture is only passed down from your parents vertically. It is more likely that throughout life we are presented with a marketplace of ideas, in other words a cultural menu, that we choose from. This enables faster transmission of ideas.
I’ve also written before about the systems and moral structures that exist are the systems that win and persist. The rules and history is written by the victors. For instance, while communism always seems to present itself as an attractive option on the cultural menu to the majority, it just doesn’t fare that well in the face of evolution.
Biases
The effect of “biases” determines how likely an individual is to adopt a belief, value, or preference. How convincing is it? How much do you want to believe it? People sometimes just believe what they want to believe.
If you think about society today, a significant amount of change occurs through the rapid information transmission that occurs through social media, the news, and influencers. In China, coercion bias may be more relevant.
Fortunately as well, we live in a time that adopts belief based on empirical evidence. Obviously not always but more than in the past.
Content-Based Bias: Which seems to be best supported by evidence?
Direct Bias: Society appoints points of authority who pick the ideas.
Consistency + Confirmation Bias: People choose values that are consistent or aligned with existing beliefs. If you believe the Earth is flat, you will have more difficulty accepting heliocentrism.
Model-Based Bias: People imitate role models.
Rhetorical Bias: Some charismatic people are simply better at persuading the crowd.
Frequency Dependent Bias: People believe what the majority of people around them believe.
Rationalization Bias: Culture is changed or maintained by the institutions. I.e. the church calling something a sin or a University taking a stance on a topic.
Coercion Bias: Cultural beliefs are affected by force.
Salient Event Bias: highly traumatic events lead the population to take a stance. I.e. global financial crisis and the public’s view on regulating Wall Street.
Cultural Entrepreneurs
Society also sometimes has instances where a single figure’s stance. The importance of cultural entrepreneurs is debated. Would the change have happened without their agency? Maybe, but there seems to be some role.
To me, this is Balaji in Network States. Peter Thiel for the idea that every great company happens once. They likely have done some form of repackaging but it still draws attention to the idea.
Note that there is statistically significant evidence that the majority of cultural change comes from the small minority in the elite.
Fragmentation & Competition
Some environments are more conducive to competition of ideas. Are the powers-that-be more fragmented and forced to compete with different ideas.
Changing Company Culture
I have seen 4 separate takes on changing culture after the fact.
Break and Reorder: It is possible to take a company, break it, and reorder it, while cultivating true internal believers to set sail in a new direction. I wouldn’t have thought so before. In retrospect, there is probably a set of boxes that need to be checked to make sure this arrangement would work, are you aligned?
Healthy Conflict: There is a healthy amount of conflict in company culture. In other words, it is a feature, not a bug, that people push and pull on issues. This tug-of-war causes people to truly assess multiple perspectives and through healthy discussion arrive at the best decision, rather than falling into a local maxima.
Separate Cultures: Creating separate cultures and organizations that operate relatively independently within a larger institution. You can also cross-pollinate by adding a few high-level people to both sides.
Thiel’s law: A startup messed up at its foundation cannot be fixed. There is a very real aspect that I have seen in some people where you can simply not change them or they fail to adapt. Not only this, but as a company reaches maturity, the incentives and processes are so deeply embedded that they may not be able to change.
Culture of Growth
Historical
There was a major shift that occurred between 1500-1700 that put the world on a course it would never return from via the Industrial Revolution. The book makes the argument that boils the change down into the growth of useful knowledge and a shift in Attitude accompanied by Aptitude of the populace.
Bacon presented the belief that useful knowledge can have an impact on growth. Then, Newton proved it through his work. Society became believers in technological progress. Ultimately, the church and luddism lost the fight. Society now believed technological progress to be booth possible and good.
I think we are seeing a projection of this trend in recent years with the e/acc movement that technological progress is not just good but moral and necessary. Elon Musk presents his grabs for power and fame with the face that they are good for humanity.
Company Growth Traits
You should assume that there are an infinite combination of beliefs and values that a company can present. Each combination is right for different industries and strategies. There is no perfect formula. Ideally a company strategy is designed to maximize profits. It will need to organize itself in a way that optimizes for attracting talent, builds a great product, learns a lot of useful information, and can tell a lot of people about its product.
What traits are these exactly?
There will be a lot here, but some of the traits that are listed in the book are:
Trust - Do you have trust that others are acting in your best interest?
Alignment - are you rowing in the same direction? (agree to disagree and commit)
Individualism over Collectivism & Property Rights - Are you rewarded for your work
Egalitarian - Are there equal opportunities for all?
Meritocratic - (is the best output rewarded)
Growth is possible and good - Attitude and belief (necessary optimism)
Industriousness - Do people work really hard
Enforceable contracts - Are the rules clear and enforced
Low rate of rent seeking - Low bureaucracy and politics
Useful knowledge - learning leads to useful knowledge which leads to growth and also should be considered an investment in human capital
Time preference and delayed gratification - do you have the capacity for patient investments into the future
Risk - do you encourage risk-taking behavior?
Irreverence - do you go against the authority
Irreverence is the most difficult one, but seems to be highlighted by Mokyr the A Culture of Growth as one of the most important aspects of innovation. You need to have some sort of distrust in the system. I’ll dig more into this in the next section.
I would be really interested in plotting the above points starting in 1400 to today. Growth in useful knowledge has gone through the roof. Trust has largely increased. Time preference seems to not have changed much due to consumerism. Irreverence is completely restrained. There is significant rent-seeking behavior. People really don’t work that hard on average. More people believe in the future but not that many. Society is relatively meritocratic but on misaligned incentives such as test scores that determine the future of our children. And we aren’t aligned on any common goals for the future. We are also highly individualist. Egalitarianism is relatively good but those from poor socioeconomic backgrounds are extremely disadvantaged.
At a time when the growth of useful knowledge is expanding exponentially, which leads to increased opportunities for growth, society has bred citizens who aren’t irreverent or hard working enough to pursue them.
A uniquely good culture of growth, the people who are extremely smart, industrious, trustworthy, irreverent, and believe in technological progress.
Perspective of the Employee
In addition to making money, many employees want to feel that their work matters. Employees are human beings. We question our purpose on Earth and whether it is worth our time.
The leader should always convey benevolence to their employees, even if the pragmatic decisions to build the business are the most important, and the message conveyed is sold or repackaged with a different bias or framing to accomplish what is in the best interest of the company.
“When the general regards his troops as young children, they will advance into the deepest valleys with him. When he regards his troops as his beloved children, they will be willing to die with him.” - Sun-tzu
Napoleon was alongside his troops on the battlefield.
In addition to feeling that an employee matters, they should be given the opportunity to grow. Societies that don’t grow erupt into internal strife. As I mentioned, when I am not able to grow, I become frustrated. The employee will ultimately ask the question “why am I here?” They should have a clear answer for this. The manager should regularly check in with the employee to make sure the arrangement is working.
The employee should share a common information base, when feasible. Common direction and data makes it easier for the employee to make micro-decisions every day and also feel that they are a part of the overall organization.
Compensation
Not all compensation is money. How do you encourage and compensate someone who doesn’t care about money? You will need to pay them in other ways.
Irreverence
“If the culture is heavily infused with respect and worship of ancient wisdom so that any intellectual innovation is considered deviant and blasphemous, technological creativity will be similarly constrained. irreverence is a key to progress”
If I introspect, my strongest character traits (both weaknesses and strengths) are deep irreverence / distrust in current systems coupled with curiosity. The problem is this has never been an asset throughout my life. Any system in which I have partaken has rejected irreverent behavior and I have been extremely disadvantaged. Teachers hated me. I don’t do well with the process. I can’t follow instructions. I don’t care about convention. I don’t work well under others. The only work that I have excelled at is my own.
While this ability to think differently isn’t rewarded by most institutions, it is rewarded by growth and new opportunity in the frontier, where there are no conventions, there is just open white space.
But how do you employ these people? You give them rope, align their incentives, and keep them in check, and get rid of me if I don’t work out, fair. That’s the risk of meritocratic, non-beaurocratic institutions. You can grow, but you can also sputter out. I am reminded of one of my favorite Nietzsche quotes:
“when young men are ready to be sent out into the "desert," they are instead put into safe bureaucracies. They are "estranged from themselves" - the heat of their youth left cold. "Daily toil" becomes your opium and your edge is permanently blunted”.
This is what academic and research institutions lost. You can’t be a mad scientist anymore or you won’t get funded. Creativity is drained from the youth as soon as they set foot in elementary school.
OKRs & Growth
These seem like an effective way to create clarity around “what success looks like” and then for the talented employee to connect the ambiguous dots and back into their end goal using whatever methods that make most sense to them.
This allows the individual to grow at their own pace. Compared to traditional companies where you grow at the pace of the linear career path. Even better, in the best company, you grow at your fastest path and when you reach plateaus, your organization helps you break through them.
The company can also push the employee as a part of the social contract. Humans are inherently lazy, but we can enter ourselves into difficult things. Men are not afraid of pain, they can endure any suffering for an end they are interested in.
Perspective of the Company
For the company, it is also in the long-term interest of growth to develop employees internally. But at the end of the day, it is the employer's interest to pay the employee the smallest fee possible to do work.
The employer oftentimes knows how they want the work done as well. There is no creativity encouraged because, frankly, it’s not that helpful.
However, if you understand one thing. That thing is that human focus is Earth’s most valuable commodity. And that focus is best spent on what the person is interested in and has the freedom to pursue, you understand that the major arbitrage opportunity exists in extremely smart intrinsically motivated people who fare well with white space.
In a good situation, the employer’s and employee’s interests are well balanced into a social contract that is a Win-Win.
Some companies are central planning machines (Apple) because they know what must be done and want to do it repeatedly, some are more of a learning machine. There is a balance of libertarianism and authoritarianism you need to strike when creating a company culture to accomplish a certain goal.
Politics
Be wary of rent-seekers and politicians.
Culture as an Investment
Culture is the passive investment vehicle of a leader. Imagine you instill a strong culture and go on vacation for a week. The employees would act as if you were there. Ideally, you could one day depart the company and there would be no problems. This is what happens when you take a step back and build culture from the outset.
Conclusion
Company culture is super important.