Moderator: Entrepreneur Gary Hoover moderated the discussion. Gary successfully started Bookstop and sold it to Barnes & Noble, then launched Hoover’s, the business information site, and sold it to Dunn & Bradstreet
Bertrand Sosa, President, MPOWER Ventures, a niche investment firm focused on emerging payment technologies and services.
Glenn Gregory, VP and local office leader at HNTB, an architectural, planning, and engineering firm.
Leon Chen, the owner of Tiff’s Treats, a nine-store chain that delivers warm, freshly baked cookies in Austin, Dallas, and Houston.
Jason Black, CEO of Boundless Network, a logoed merchandise company.
Alissa Bayer, owner and founder of Milk + Honey Spa, with four locations.
Terry Mitchell, President of Momark Development, a real estate developer primarily in the residential/mixed use sector.
David Tandy, CEO of Gracy Title, which handles one of every four real estate transactions in the Austin area.
Doug Guller, CEO, ATX Brands, a restaurant and live music venue group with 17 locations.
The traditional view of business is that it exists to make money. But the great companies are about something more than that, according to Harvard University business professor Rosabeth Moss Kanter. In an article for the Harvard Business Review, she says those companies go beyond financial logic and embrace a social or institutional logic, that balances public interest with financial returns. The great companies use institutional logic in six different ways, Kanter says – and at the core is the company’s common purpose, or values.
Boundless Network’s Jason Black echoed that idea. “What makes a great company is strong clarity around their core values, and strong clarity around their vision – then doing a good job of articulating that and sharing that inside the organization.”
Momark Development’s Mitchell said sometimes the values and vision don’t change, but leadership does – and gradually those values fade from view. “We had a whole new product line in one organization I worked in because an administrative assistant asked, ‘Why don’t we do this?’” he said. “We realized there was an entire market segment not being served. Down the path several years later, product lines were being squelched because it didn’t fit the vision of particular people.
“You have to listen to your team and to your customers,” he added. “Level five leaders, servant leaders, are listening and understand what that means and they lead by example.”
MPOWER’s Sosa agreed. “That’s the single-most important thing,” he said. “It’s the leadership at the top and what the people stand for.”
Leadership, said HNTB’s Gregory, is essential to values and vision. “Coming from an employee-owned company that has been around for 98 years,” he said, “one of the most critical things at HNTB is sustainability and having your employees want to be part of a successful company. To achieve that, you must have a succession plan in place – for all levels, from the CEO down to me and my direct reports – so you don’t have a failure when leadership changes.”
A leadership team can be equated to a sports team, said Sosa. “Team is the one thing that’s essential,” he suggested. “Sports teams fail, even though you have the best talent in the world, if they don’t play as a team, you don’t win. You may have stellar executive management, but if they are not playing as a team you’re not going to have that magic until about four or five years into it.”
But values and vision aren’t enough by themselves, pointed out HNTB’s Gregory. “You have to always articulate it through your employees as well,” he said.
ATX Brands’ Doug Guller said his company does that by having clear plans and goals. “We break it down to three months, 18 months and three years out,” he said. “We constantly refine our plan with quarterly off-sites with our team. We go over what we did right, what did we do wrong, and where are we vulnerable?”
Ultimately, a company must be accountable for employees’ alignment with core values. Tiff’s Treats Chen said that might mean knowing when to let a star performer go. Or, he said, a product line might be selling well, but isn’t going in the direction that compliments a company’s brand strategy. “Sometimes you have to hold yourself accountable and make the tough decision to remove the employee or move them into another position in the company, or drop that product. It’s especially difficult when things aren’t going terrible,” he said.
A company’s common purpose manifests itself through the company’s culture. Most participants identified their favorite companies as those with strong corporate cultures, such as Apple, Whole Foods, Southwest Airlines, and Starbucks.
Tandy cited Southwest’s attention to its employees. “They make their people feel wanted and make them feel like they are part of something that’s much more than just flying airplanes.”
Alissa Bayer of Milk & Honey Spa admired Whole Foods “because of its increasing dedication to the environment, its vendors and farmers, and its employees.”
Why, asked moderator Hoover, doesn’t every company do this?
“I think we’re in the middle of a shift from the old school paradigm,” Bayer said, “where the purpose of every business is solely to grow shareholder value, where businesses don’t care about increasing the value for its employees, or the value of its community and environment. There are a lot of business leader innovators, those ahead of the curve, who are trying to increase value for employees and community, as well.” The problem, she said, is that some leaders are afraid to make the change because they worry that their employees will demand more and more – and it will be hard to justify increased overhead. “Ultimately, I believe we are finding when companies place more, or as much value, on their employees as they do profits, the proverbial pie gets bigger and better for everyone.”
Chen of Tiff’s Treats said Zappo’s is a company that fits that mold. “It’s just a well run company that cares about more than profits,” he said.
Another of Kanter’s six facets of institutional logic is a long-term focus. That might require a short-term sacrifice to achieve the corporate purpose, but is necessary to stay true to the institution’s values. Mitchell cited Berkshire Hathaway as a good example of a company that takes this approach. “My previous company followed more of the Berkshire model in making long term decisions and letting the short term results take care of themselves,” he said.
Hoover quoted Sol Price, who founded the Price Club that became Costco, as saying, “The secret to retail success is the intelligent loss of revenue.”
“In other words,” Hoover asked, “who do you not serve? What customers do you walk away from? What products do you not carry?”
Target is an example, Hoover explained. The company stopped selling cigarettes, because that wasn’t consistent with a store that catered to young mothers. “They walked away from a lot of money,” said Hoover. “That kind of courage is not very common.”
Kanter writes when a company has a strong set of core values, transmitting them to its employees can promote emotional engagement with the company.
Black said his employees must have two things: “They have to have alignment with our core values and our vision. If they have those two things, all the stuff in the middle takes care of itself.”
Communicating those values is an ongoing process, said Tandy. “It takes a great deal of repetition and being in front of your employees with the message that you passionately believe in. If you don’t carry that message continuously, it gets diluted and easily lost in the clutter of day-to-day business.”
Black picked Mary Kay as a company that fosters emotional engagement with its employees. “They’ve found a way to make selling make-up fun,” he said. “More importantly, they have impacted a number of females in their finances. They’ve created – not a cult – but a cult-like ecosystem that has survived her and it continues to help a lot of single moms make money in a way that they wouldn’t otherwise make money.”
“I believe there are four phases for employees,” Black said. “They don’t like their job, they tolerate their job, they like their job, or they love their job. If you take an inventory of your ROI on employees, and you can put them into the ‘I love my job’ category, everything will take care of itself.”
Other times, that emotional engagement isn’t there. Hoover noted that some people can’t work for Southwest or Whole Foods, because they can’t adapt to the culture. He said Brett Hurt of Bazaarvoice believes it’s important to let go of people quickly if they aren’t believers.
Kanter says a purpose broader than just making money fosters other benefits as well, such as innovation.
Bayer and Mitchell mentioned Apple as an obvious example of innovation. “When I first saw an iPhone, I couldn’t believe it was a phone,” Mitchell said. “After I played with it for 10 minutes, I went out and bought one – I was carrying a computer in my hand.”
Hoover suggested that Apple lacked a key characteristic – humility – and wondered when that would come back to bite them.
Guller said transparency is one way to guard against a loss of humility. “Anyone in our company can look at our P&L or our balance sheet,” he said. “Even from a management standpoint they know where the money is going, they know what I make, they know what’s going to the bottom line in order to build out future stores, and that has established a level of trust with our team.”
But employees are a lot more mobile than they used to be, Tandy pointed out. They don’t spend entire careers with one firm. “Now, the companies are catching up and realizing they have to be the magnets to attract really good talent and you can’t do it with just money,” he said. “That’s how we approach our company and ask, ‘What is it going to take to keep talent?’”
At the same time, he added, turnover can be a good thing. “It makes each stronger and more focused on what each considers most important,” he said. “Employees have skills that are marketable and work hard to gain new skills. Companies take inventory of what talent they need to grow and thrive.”
Moderator Hoover wrapped up the roundtable by comparing the Kanter article to the work of Peter Drucker from years ago. “Companies are social institutions and part of a larger society and it has a connection with its customers, its communities and employees that goes beyond the financial statements,” he summarized. “It ain’t new, but it’s hard to learn.”
Episode 3 of our podcast, #AskaCEO, is out now! What, exactly, is leadership? And how do you master it? @TheAmericanCEO has three factors for getting there. podcasts.apple.com/us/podcast… pic.twitter.com/gNbN0UD6gi
San Antonio #CEOs and leaders: Join us tomorrow at @Geekdom for lunch with 4 local civic- and safety-minded entrepreneurs! (feat. CEO/founders of @cityflag_, @RubrixAID, @Mach1Services & RMS Innovations) Start time: 11am eventbrite.com/e/the-frontlin…