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Just Managing: Are Today's Firms Built to Last?

How can anyone manage to create a company that lasts beyond the next great opportunity? By not focusing on the next great opportunity, that's how. Also, by taking to heart one radical idea: The most important creation of your company is not any singular product or service, but the company itself.

In today's rapidly shifting markets and technology, the most important question startups can ask is not what they can produce but what they believe. This emphasis on values stems from one of the key books about the Internet Economy, Built to Last by Jim Collins and Jerry Porras. One of the most successful business books of the past decade, it has sold more than 700,000 copies. It's been a fixture on the Business Week bestseller list for five years and continues to sell robustly.

One of the reasons for its success is that the book has become a critical compass for new-economy companies that aspire to last beyond the next market crest. Venture capital firms such as Benchmark Capital give the book to every client, says Collins. Venture Law Group's Craig Johnson and Amazon.com's swear by it.

One of the book's fundamental ideas is that managers should shift from "seeing the company as a vehicle for the products to seeing the products as a vehicle for the company." They can do so by using core values to guide their direction and align the behavior of employees. Out of such beliefs emanate every choice the company makes. For Sony, the values include respect for and encouragement of individual ability and creativity. For Merck, they include social responsibility and science-based innovation.

What does your company value?

Outcome.com, a startup in San Francisco that is developing applications for financial services companies, preaches empathy, privacy, innovation and learning. "[These core values are] the fundamental center of gravity at our company," says VP Steven Overman.

However simple, such ideas don't come easily. Overman was the fifth person to join the company, and he says the first thing he did was to spend a solid week with the other founders coming up with the "outcome covenant." Founder Herb Stephens, a Built to Last disciple, has been involved with several startups but saw in Outcome an opportunity to launch with a truly different approach.

"Hypergrowth requires core values, and the way that you ensure that they survive is that you talk about them all the time," Overman says. And the company does more than talk: It has made a conscious decision to base every decision on its beliefs. Every one of the 70 employees has gone through an orientation session focused on the company values. Every recruit who comes to the company goes through two separate interviews - one focused on skills and the other focused on values. They must answer questions that test their values, such as, "If you had a solution to a problem that you knew would be unpopular but effective, what would you do?" Candidates with poor marks on the values interview don't make the cut, regardless of their skills.

Recently, the company encountered a hitch with financing. Series B financing from one source that suddenly became doubtful forced executives to consider paring expenses for the short term. Overman and the others were torn over what to tell the troops. To reveal weakness would spark doubt and uncertainty. But to withhold the news might breach trust. The easy thing would have been to say nothing. But, says Overman, after painful discussion, they asked themselves what their core values dictated. They decided to share the truth. "And the results were mixed," says Overman. While some employees became stressed out, he says, "at the end of the day, it was the right thing to do because we built more trust."

I can't provide a market barometer of success for Outcome yet. The company has secured other funding and marked the alpha launch of its product last week. But its emphasis on getting the right things right from the outset contrasts markedly with the scores of companies frantically chasing the next great score.

Jim Collins is thrilled that a growing number of Internet Economy companies are wrestling with his ideas. But the book's allure among Internet entrepreneurs has not surprised him at all.

Collins is working on another book and has turned up some conclusions that may shock new founders. Of the more than 1,400 top companies in his survey, he found only 11 that showed the ability to become what he considers great. "While you can turn an established company from a good one to a great one," he says, "the reality is that it is a lot easier to do it from the ground up. Those entrepreneurs who are trying to get it right from the get-go are giving themselves much better odds not just at succeeding, but at having a truly great company."

The impact of Built to Last demonstrates that some of the people founding companies today aren't in it solely for the frenzied rush of VC money. Rather, a number of people see the rise of the Internet Economy as an opportunity to build something of enduring value.

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TOM'S WRITING

Just Managing – articles that Tom wrote for The Industry Standard and some Business Articles written for Inc., Fortune Small Business, Harvard Management Update, and other places.

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