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Writer's pictureChristopher Krohn

Who drives the culture of a startup?

The obvious answer is the entrepreneur. The founder. Of course they drive the newly hatched firm's culture -- it's their company, right?


But imagine a founder who would like to achieve cashflow breakeven relatively soon. Cash is still king, and peace of mind is worth something, and so is proving that your business can make it at least to variable profitability after CapEx requirements.


This entrepreneur may wish to instill a value of frugality in their startup team -- being scrappy and finding creative ways to get things done on limited resources as together we all claw our way toward profitability. And while said founder is clearly not risk-averse, having staked their time and money on the new business in the first place, they would likely prefer to avoid unnecessary risks.


Now add an investor into the mix. Say, a venture capital firm whose model is to go for big payoffs, and isn't particularly interested in a medium-sized winner that's profitable yet a slower-growth company. They want scale, and want it fast, because that drives their exit model valuation. So running cashflow negative for the time by being aggressive with customer acquisition costs? Fine. Risky investments on new channels or business development initiatives with the hope of an even bigger payoff? Yes, we need some of that, let's go, go, go!


The PE investors may be just fine with the fact that this all significantly increases the risk of a total business failure. After all, to them it isn't really a problem -- their model assumes there will be multiple failures for each big "unicorn" win in their portfolio. But for the entrepreneur, going bankrupt and losing their company (and their investment) may be a highly undesirable outcome.


So the tension builds, and the company's leadership team gets mixed messages from the Board of Directors, and the firm's culture becomes ... full of contradictions. Even conflict. A market penetration focus vs. a mindset for cash and profitability drive different operational objectives day-to-day, and over time different cultures.


So do new venture investor dynamics drive startup culture, or do the goals of founders? There's some really insightful discussion here on this very question between New York Times reporter Mike Isaac and Chicago Booth's Steve Kaplan and Starr Marcello:


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