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ON NOVEMBER 6, 2013, the death knell rang for Blockbuster Video. The floundering organization announced that it would close its 300 remaining US stores by January 2014 and terminate its DVD-by-mail rental service.

Even in an age of disruption, this was a remarkable downfall. In 2004, less than a decade earlier, Blockbuster had thoroughly dominated the video-rental business and was one of the most visible and well-known retail brands in the country with 10,000 stores, more than 60,000 employees, and a market value of $5 billion.

So, what happened? How could a thriving company at the top of its game go extinct so quickly?

That question is at the heart of this book, and it’s one that every leader needs to ask about his or her own organization. How do we keep our businesses vital, innovative, and ahead of competitors when yesterday’s success means next to nothing in whatever world we’ll face tomorrow?

The answer is culture.

How do we keep our businesses vital, innovative, and ahead of competitors when yesterday’s success means next to nothing in whatever world we’ll face tomorrow?

The answer is culture.

THE ICEBERG THEORY

I chose the story of Blockbuster to open this book because it provides a stark example of the fate of a company when its market and competitive landscape suddenly change, and the organization is unable to successfully respond. At the same time, Blockbuster will also show us how easy it is to point to those changes and say that strategy or operations or leadership or technology is the reason for the collapse, allowing us to overlook the larger and more fundamental question of culture that lurks, like the invisible portion of an iceberg, below the surface.

The easiest way to explain the fall of Blockbuster is to point to Netflix and Redbox. That’s what happened on the surface. The business press chalked up Blockbuster’s demise to a “failure to innovate,” and Blockbuster became a case study in the way market leaders grow complacent and overlook the disruptions of pesky upstart competitors.

The story stuck because it makes sense and fits our growing understanding of how challenging the global economy has become. Blockbuster—like McDonald’s, Sony, or Best Buy—represented the traditional approach to long-term growth and success: achieve a dominant market position and leverage the advantages of scale and brand to lock in customers, accrue revenue, and perpetuate success. Once upon a time, that strategy, if decently executed, seemed unassailable. But no one is surprised anymore when the story ends with Goliath encountering some David wielding a new slingshot. The deeper question is why companies like Blockbuster that appear so formidable and solid by traditional measures become unexpectedly vulnerable to disruptive competition.

When we dig into the details of the innovation explanation, it’s easy to understand why it’s so compelling. Blockbuster was attacked on two fronts at once. One assault came on the ground when Redbox arrived in 2002 with a new retail strategy that was deceptively old-fashioned. Instead of stand-alone stores, Redbox put DVD vending machines in other retail outlets. To Blockbuster, a few hundred DVDs in a kiosk probably didn’t seem like much of a threat given the giant inventory of movies at a single Blockbuster retail store. Yet, with lower overhead, Redbox was able to slash DVD rental costs to one dollar and compete with Blockbuster on price and convenience. Within five years, Redbox had more US locations than Blockbuster.

The second and ultimately more significant assault came from the air. Netflix started as a subscription-based DVD mail-delivery service. What Netflix lacked in convenience, it made up for with a large catalogue of movies, an easy way to organize and order rentals online, and a lack of late fees. Famously, the idea for the business arose after co-founder and CEO Reed Hastings was forced to pay forty dollars in late fees to Blockbuster for a copy of Apollo 13. Hastings knew that the dissatisfaction he felt over that penalty was something just about every Blockbuster customer could relate to, so he came up with a revenue model that didn’t rely on making customers angry.

Capitalizing on pent-up customer frustration is a classic path to disruptive innovation, and Netflix made that impulse part of its core. In 2007, the same year Redbox surpassed Blockbuster in retail outlets, Netflix took pre-emptive steps to disrupt its own delivery model and introduced a streaming service. This, many believe, was the final nail in Blockbuster’s coffin. Blockbuster was not too big to fail; it was too big to respond.

Or so the story goes.

At a strategic level, the explanation that disruptive innovation from new competitors killed Blockbuster is a good lesson to absorb. Dominant companies rise and fall all the time, and Davids often slay Goliaths. To stay on top, companies need to aggressively reinvent themselves in line with changing customer needs. In the famous words of Andy Grove, “Only the paranoid survive.”

The problem, however, is that in Blockbuster’s case that narrative is wrong. It wasn’t innovation, change, or a pesky competitor that did Blockbuster in. That was just the tip of the iceberg. Below the surface of the water, Blockbuster collided with the culture that it had relied upon to become so dominant in the first place.

THE REST OF THE ICEBERG

Blockbuster came to rule the retail movie-rental market by improving customer experience and offering the kind of ubiquity, convenience, and access to movies that independent video stores couldn’t deliver. Its revenue model was strong, the brand was powerful, performance was excellent, and by the time John Antioco became CEO in 1997, just as the dot-com boom was beginning, the company was in an enviable position. Even so, Antioco knew that Blockbuster couldn’t stand pat. He wanted to change the company at its core by making it more responsive to customer needs and more agile with new technology, while continuing to innovate its business model. Blockbuster only had about 25 percent market share then and plenty of room to grow. Indeed, it would grow to about 40 percent before Antioco was done.

Antioco was an accomplished turnaround expert who’d been raised in the world of retail. He’d helped 7-Eleven achieve prominence and had been instrumental in returning Circle K and Taco Bell to profitability. When he was tapped to head Blockbuster, he was excited because it gave him the opportunity to give “customers what they want while still making money for the company.”¹ Much of the success Antioco did achieve with Blockbuster came from this customer focus.

Indeed, one of the things customers wanted was newly released movies. At the time, however, movie studios charged rental companies sixty-five dollars per VHS tape, and that upfront investment was too large to stock enough titles to give customers easy access, especially when demand would drop off within a few weeks. So Antioco went to movie studios and persuaded them to flip that business model—take less up front for more on the back end—and Blockbuster began a policy of guaranteeing the availability of new releases, which helped sales and market share grow. Chalk up one big win for innovation.

Video-on-demand was a worry but not yet technically feasible to achieve at scale. Instead, it was the arrival of DVDs that proved to be the Trojan horse that allowed Redbox and Netflix to challenge the video-rental giant. Unlike VHS tapes, DVDs could be easily stocked in kiosks or delivered in inexpensive mailers. Nevertheless, though Blockbuster was a little slow to switch to DVDs, once it did respond, the company continued to thrive because of its market dominance. Daunted by his overwhelming foe, Netflix CEO Hastings proposed a partnership with Blockbuster in 2000 in which Netflix would leverage its internet-delivery prowess to manage Blockbuster’s online brand while Blockbuster would promote Netflix in its stores. Blockbuster refused in part because it had its own web strategy in mind.

Antioco didn’t see new technology as a threat to Blockbuster so much as an opportunity. He decided to build a fairly radical model for the time—called Blockbuster Total Access—in which customers could choose to do business in one of the company’s retail stores or online through Blockbuster.com. By the mid-2000s, Total Access dominated the video-rental market. Around the same time, Blockbuster also decided to eliminate late fees even though they accounted for 16 percent of total revenues. Antioco knew that penalizing customers was no way to thrive long-term.

Soon, Blockbuster was on the march again, stealing nearly a million customers from Netflix each year. By 2007, things were so bleak for Netflix that Hastings sought and obtained permission from his board to begin merger talks with Blockbuster.²

On the brink of total victory, however, everything changed for Blockbuster. The board put a full stop to the direction Blockbuster was engaged in and forced out Antioco because they disliked many of the changes he had made, such as cutting out 16 percent of revenue by rescinding late fees. In Antioco’s place, they hired James Keyes. Keyes had been the CEO of 7-Eleven from 2000 to 2005, presiding over a remarkable thirty-six consecutive quarters of same-store sales growth, which by 2004, had resulted in global revenues of $41 billion. To the board, Keyes seemed like the perfect candidate to lead the company into the future because he more closely resembled the Blockbuster of the past.³ He had the experience of scaling and stabilizing a highly successful retailer that seemed to be on every street corner throughout the United States. That was the Blockbuster the board knew and understood.

Keyes’ vision was to make Blockbuster the 7-Eleven of video stores. He believed that stable growth in retail locations and expanded products within those locations would make Blockbuster successful.

After being named CEO, he quickly restructured his team, ridding the company of Antioco’s lieutenants as though they were a virus and promptly naming a new CFO, CIO, general counsel, and vice president of merchandising, distribution, and logistics.⁴ Then he redirected Blockbuster’s online business strategy to an in-store, retail-oriented model because he couldn’t see the potential value of a DVD-by-mail service, nor the relevance and opportunities that Blockbuster.com may have presented. “The Internet is worthless, and we’re getting out of it,” he declared.⁵ “I’ve been frankly confused by this fascination that everybody has with Netflix . . . Netflix doesn’t really have or do anything that we can’t or don’t already do ourselves.”⁶

Antioco had compressed some of the hierarchy at Blockbuster as part of his approach to modernizing the company and given retail clerks a lot of freedom to solve customer problems and see to their needs. Keyes put that hierarchy back in, reestablishing many layers of management between the top team and the customer. As a result, decisions were increasingly made without any direct experience of customer needs or their frustrations with the Blockbuster experience.⁷ Thus, employees at the prized retail stores—who had briefly enjoyed how good it felt to satisfy customers—became intensely frustrated by policies that got in their way. For example, to take breaks, under Keyes’ reign, retail employees had to clock in and out under extraordinarily strict guidelines, regardless of how busy the store may have been at the time. They also were mandated to restock damaged DVDs despite customer complaints and, to cut costs, were deliberately understaffed on peak weekend nights, so they did not even have time to restock or tidy shelves. They knew, better than anyone insulated at the top, that Blockbuster customers were eager for better alternatives, yet they were not allowed to do anything about it.⁸

Keyes was blind to these problems and probably believed his own words when he said, “Blockbuster is a turnaround explosion just waiting for a spark. If we exceed the expectations of our customers, we will in turn exceed the expectations of our shareholders.”

Of course, this statement reads like a bad joke today now that Blockbuster is gone and Netflix is worth more than ten times what Blockbuster was at its peak.

OLD WAY VS. NEW WAY

Why did Keyes stop Blockbuster from attempting a new way? I believe it was because he saw the traditional Blockbuster culture—a brick-and-mortar business model built to leverage scale and brand—as a permanent strength, and structured the organization and its strategy accordingly. But it was this same locked-in culture that didn’t allow the company to react and innovate when it needed to adapt. Keyes and his team refused to look at or internalize the current truths they faced in the marketplace, and they wouldn’t take the time to understand emerging technologies or shifting consumer behaviors that threatened to completely disrupt the home-entertainment industry. Keyes’ personal leadership style, best characterized as a “don’t question me and let’s execute” mentality, made it easy for everyone to put on blinders and plow ahead. And, whenever employees got glimpses of market truth, the company wasn’t positioned or structured to respond. In the end, changing its business model to survive in a new reality was going to cost money, resources, and creative energy that Blockbuster was unwilling and unable to spend.

As we all know, this narrative is not an isolated one. Many big companies that were incredibly successful in the twentieth century are failing and floundering in the twenty-first. Pundits and journalists usually point to a lack of execution and innovation. Yet it’s the organizational culture that large companies built in the process of becoming successful and powerful in the twentieth century that is now defeating them in this new era. Many such companies continue to fixate on doing more or better at what has made them successful in the past—offering a particular product or service at scale—while not yet recognizing that today the how of a company—what it stands for, what matters to it, how it tends to the changing needs of its people and customers—is infinitely more important.

Many companies fixate on doing more or better at what has made them successful in the past—offering a particular product or service at scale—while not yet recognizing that today the how of a company—what it stands for, what matters to it, how it tends to the changing needs of its people and customers—is infinitely more important.

Much of the inertia of traditional companies can be traced back to their cultural roots. Who were they when they first started? What were their goals? What was the mindset of these formidable pioneers? What worked in the twentieth century?

Winning in the twentieth century required getting big and then managing for stability. Companies were focused on the what—their strategy or their product. And they had plenty of time and resources to do the what well. The world moved much more slowly than it does today, so in general it was possible to pick a strategy, execute it well, and become successful as a result. Accordingly, twentieth-century companies built their organizations to meet quality, quantity, and cost drivers, and they produced products to meet clear demand, while distributing in a mass market, and standardizing all processes and outputs to maximize efficiency.

Enterprises operating this way today are clinging to the same mindset that James Keyes held on to—a belief that scale, mass, and efficiency will provide an eternal advantage. In contrast, Netflix has actually developed a theory to describe why success in business eventually leads to failure.⁹ Netflix believes that growth increases organizational complexity and the potential for chaos, and that companies naturally respond by specializing on a narrower range of success factors and putting more processes in place to dampen the chaos. However, this restricts what makes working for a particular organization interesting, creative, and engaging and drives talent and diversity of thinking out. The long-term outcome of failure isn’t seen at first because as this is all happening, the business continues to perform well or even better, and short-term outcomes are improved. But when the market shifts—as it is bound to do—the company is left without the talented people, emotional commitment, or creative range to respond. A focus on what has smothered the reliance on how.

Mark Parker, the CEO of Nike, sees cultural inertia as a very deadly, self-perpetuating, and existential threat. He says, “One of my fears is being this big, slow, constipated, bureaucratic company that’s happy with its success. Companies fall apart when their model is so successful that it stifles thinking that challenges it. It’s like what the Joker said—‘This town needs an enema.’ When needed, you’ve got to apply that enema, so to speak.”¹⁰

While that may be a more vivid depiction than many care to imagine, it’s critical that we understand how culture can cause a company to resist, adapt, or lead in this new environment.

It’s easy to think that companies like Apple and Google are “winning” now because they’re smarter at product, packaging, and positioning. In reality, it’s their how that propels their unique what. It’s their culture—the principles behind how they do what they do, and think what they think, as an organization—that makes them successful.

Dig more deeply into these organizations and you’ll see that for them culture is a verb, not a noun. It isn’t about ping-pong tables and Happy Hour Fridays. It’s about leveraging culture as the key driver to success. Culture is how they operate and consciously create an environment and organization that enables them to innovate according to market needs, execute the strategy they think is best, and deliver on their purpose.

Cracking the code on that how and reinforcing it in everything the organization does is the most important thing any leader can do today to help his or her organization survive and thrive.

THE CULTURE DIFFERENCE IN A COMPLEX WORLD

If culture is so critical to the performance of the most successful organizations today, why isn’t that more self-evident to people working in business?

I believe it’s because culture is highly intangible and abstract compared with other business concerns. Hard-nosed business leaders—and all of us with pressing challenges and urgent priorities who are under stress to “make the numbers”—can easily overlook culture because it is difficult to observe, measure, and manage, and frankly touchy-feely in nature.

Even the concept of culture is abstract. I think of it as the set of tacit understandings and beliefs that drive behaviors, ways of thinking, and ways of talking and interacting that the people within a particular group perceive are right or normal. These, in turn, shape the practices of the group, the outputs of its work, and its reputation or brand. In other words, I see culture most tangibly in how people act, including how they make decisions, how they treat colleagues and customers, how they define and reward success, talk about problems, view the world, plan for the future, develop products, etc.

We’re exiting a world in which culture was largely left untended to grow organically. The culture of a society—whether it’s a small tribe or a church group or a modern nation-state—often forms in this way. Slowly, over time, due in part to the insular nature of the group and its identification as being separate from the rest of the world, distinctions form, get reinforced, and become marks of uniqueness. That uniqueness is the culture’s particular how—how it thinks, how it acts, how it defines what’s right.

When you think of culture as developing through a slow, organic process, it’s easy to grasp how that particular approach mapped well with the rise of the twentieth-century organization. Traditionally, organizations were founded for a what—to mass-produce an automobile or a computer, to deliver oil or electricity, to provide a specific restaurant or hotel experience anywhere the customer happened to go, and they were built to do basically the same thing over and over as efficiently as possible in order to meet an ever-expanding market need while fending off others who tried to do much the same thing. The culture—the how—may have been instilled by a particularly intentional founder or leader, but it grew out of the processes and approaches that defined success within that model.

The more success accrued, the more that culture was reinforced. Indeed, we have seen throughout history that organizations with the “strongest” cultures are the ones that have been, in Jim Collins’ words, “Built to Last.” Collins’ research was based on the long-term success of definitive market leaders that had bested rivals with similar processes. Culture, to Collins, was the critical difference between those comparison companies. And this rings true to our understanding of twentieth-century organizations. Over decades, reinforced by success, the culture of lasting companies becomes locked-in and distinct. It was said, in the Mad Men era, that you could always tell someone who worked at an IBM or a GM by how he dressed, how he talked and acted, even how he thought.

We’ve entered a world in which companies come and go, break up and reform, and change direction at a much more dynamic rate. This started to happen in the early 1990s, when the big companies of the twentieth century, such as IBM or GE, began to divest themselves of major business lines and lay off tens of thousands of employees in response to market and financial pressures. And it accelerated as capital markets became attracted to the new technology startups of the dot-com era, when companies were formed and grew dramatically in valuation almost overnight.

The US military coined a term in the 1990s to describe the increasingly unsettled political, social, and economic environment: VUCA, which stands for volatile, uncertain, complex, and ambiguous. Today, it feels as though the pressures of VUCA have become even more daunting and real.

What are the root causes of this change? The suspects comprise a familiar lineup—technology, consumer expectations, globalization, capital markets, and employee expectations (you know those Millennials). However, it’s helpful to understand the influence of each in the context of the effect on corporate culture.

Technology and Consumer Expectations

Let’s start with technology. When information technology first began to change our world, it seemed as though its impact would be felt mostly in what companies could do and how people worked. Today, it’s clear that technology has had an even more radical impact on consumer expectations and habits. People now expect technology to deliver them whatever they want, whenever they want it, as cheaply as possible with no more effort than a swipe of a finger on a smartphone. This has led to incredible malleability in how and what we consume. Consumers are now willing to shift product loyalties or delivery mechanisms at the drop of a hat. Indeed, more than 60 percent of consumers who interact with brands today do so through multiple channels.¹¹ Social media has normalized real-time responses, and consumers expect that immediacy in all aspects of their lives. They want consistency and quality regardless of time, place, device, or medium. Companies, meanwhile, are in a race to figure out how to reconfigure themselves to meet those insatiable needs and extremely high expectations.

Globalization

Globalization is another force that has affected how and what we expect from businesses. Once upon a time, products and services had a strong regional basis. Now, they can be delivered and consumed anywhere, any time, 24/7. Competitors are no longer next door; they’re all over the world and able to leverage lower overhead and a just-in-time global delivery system to beat you at whatever game you choose to play. This further reduces the value of the what and puts a premium on the how.

Capital Markets

Capital markets have the same global freedom. Once, relationships with investors and bankers were long-term, intimate, and clubby. Today, trillions of dollars zip from one side of the global economy to another in response to exciting new investment opportunities, thus abandoning less-promising ones without mercy. The appeal of “what” is more fleeting than ever; only “how” can sustain the interest of fickle capital.

Employee Expectations

Employee expectations have also changed dramatically. While people can’t move about quite as easily as goods, services, or capital yet, they are no longer as tied to geographic regions for employment. Working remotely or virtually is now unremarkable. Teams all over the world can collaborate in real time. And Millennials, in particular, are drawn to places of work that engage and stimulate them, and they enjoy the freedom to be choosy. As a group, they are adaptive and innovative by nature and prefer their employer to be so, as well. They aren’t attracted to traditional hierarchical structures, and they want to work for businesses that support innovation and thrive on change. In fact, according to Deloitte’s third annual Millennial Survey, 78 percent of Millennials are influenced by how innovative a company is when deciding whether they want to work there, and most say their current employer does not encourage them to think creatively.¹²

Millennials also care about company purpose and culture like no other generation before them. Forbes reports that 60 percent of Millennials leave their companies in less than three years, with the primary reason tied to the lack of a good cultural fit.¹³ And they consume products with the values of the companies making those products in mind. All of this points, once again, to the importance of “how” over what. Can twentieth-century culture evolve to meet the demands and pressures of the twenty-first century VUCA reality?

The difference between old-era culture and new-era culture is striking. A winning culture in the twentieth century was methodical, efficient, and hierarchical. It was built with industrial needs in mind to cohere around simple processes that could be scaled. It benefited from squeezing out variation as a way of reducing noise and controlling chaos. It won by focusing relentlessly on the what, and doing that same what over and over again. It changed when it had to, but only after long deliberation, exhaustive analysis, and as little course correction as possible.

Indeed, that description is one of the reasons why culture—so vaunted in the 1990s by the likes of Jim Collins and Tom Peters, among others—is under attack today as a force actually holding companies back. UC Berkeley’s Jennifer Chatman, a thought leader in research on organizational culture, acknowledges this when she writes, “Conventionally, researchers have argued that strong cultures that align employee behavior with organizational objectives should boost performance. More recently, research has shown that a strong culture can actually stifle creativity and innovation in dynamic environments because people are adhering too closely to routines creating behavioral uniformity, inertia, and an inward focus.”¹⁴

In other words, in a VUCA world, some believe that a strong culture can limit or hamstring an organization rather than bolster and protect it. And certainly this holds true when we think of a Blockbuster or similar behemoth. But Chatman’s research actually shows that a strong culture, in and of itself, is not disadvantageous today if—and it’s a big IF—that culture prizes adaptability and innovation over stability and process while also relying on strong alignment with values to direct people, rather than enforced adherence to rigid policies and rules. In fact, such companies—the ones with strong, cohesive, adaptive, innovative cultures—are performing better financially today and growing faster over time in spite of the turbulence of a VUCA world.

In essence, Chatman is saying that a strong culture reinforces a vigorous company’s direction because that company can successfully adapt or change depending on strategic needs or market forces. If the culture is too weak, people will not know what to do or how to act in tumultuous circumstances, and the organization will lose its way. But companies can go too far. If the culture is too calcified and inflexible, the company will be unable to adapt and innovate effectively.

I think of culture as the guide and the glue of an organization. When culture provides the kind of clarity and intentionality that support its “why” or purpose and the characteristics of its “how,” it helps people see and understand where they need to go. At the same time, when cultural values and characteristics are fully integrated into the fabric of how the organization operates, culture serves as the glue that binds everyone together around norms, expectations, mindsets, and behaviors. In the best organizations, this sense of cohesion and direction is aligned with programs, practices, and processes that reinforce a sense of rightness and shared passion in directing energies toward common goals.

When culture provides the kind of clarity and intentionality that support its “why” or purpose and the characteristics of its “how,” it helps people see and understand where they need to go.

Chatman describes companies that are highly adaptable, innovative, and values-driven as characterized by “risk-taking, willingness to experiment, initiative-taking, along with the ability to be fast-moving and quick to take advantage of opportunities.”

NIMBLE, FOCUSED, AND FEISTY

When I consider Chatman’s research through the lens of my own and add my experience working directly with organizations that thrive or struggle, I see the types of companies she’s talking about as ones that have a very particular type of culture: one that is “nimble, focused, and feisty.” These are the companies that win in the twenty-first century.

Let’s look at each of these traits in turn.

Nimble

Companies that are nimble have structures and processes to guide them, but they encourage and foster adaptability, innovation, and risk-taking rather than impede it. This flexibility allows them to respond quickly to new developments, market shifts, opportunities, learnings, or customer demands.

Focused

Companies that are focused are not free-for-alls without limits. Instead, they work hard to build consensus and alignment around the culture as a way of binding employees together in the pursuit of common goals and mutual passions. That shared mission is reinforced by how the members of the culture communicate, work together, make decisions, and plan, among other activities. The unified sense of purpose that results helps people focus like a laser on the customer and understand how their individual contributions make a difference.

Feisty

And companies that are feisty have leaders and team members who are oriented toward making a major difference in the world and are eager to act bold and play big. They hire, promote, and reward accordingly, and they reject people who are not exceptional, creative, or driven enough to meet those expectations or who do not fit the culture and play well with others.

Throughout the chapters of part one of the book, I will share how these companies bring these characteristics to life through each of these three lenses.

SHARING PASSION

Brian Chesky, the CEO and co-founder of Airbnb, published a famous memo in 2013 that he sent to all the employees of his firm as a reminder to keep culture front and center. The memo was titled “Don’t Fuck Up the Culture” and it was based on advice given to the senior team by noted venture capitalist Peter Thiel. Thiel had just given Airbnb $150 million in additional funding, and Chesky asked him for his single most important piece of advice for their continued success. Chesky was surprised that Thiel would emphasize culture, but Thiel knew that culture had been critical in Airbnb’s success so far and would continue to be in the future so long as that culture did not become stale, bureaucratic, and stifling. Airbnb, after all, had a nifty idea and a good approach, but it owned no tangible assets, just like Uber, Facebook, and Alibaba, some of the biggest companies in the world today. What Airbnb did have that would be more difficult to replicate or compete against was its culture or its how.

Chesky did a nice job summing up why that was important. “Culture,” he wrote, “is simply a shared way of doing something with passion.” Airbnb has very deliberately established a particular culture—one that supports creativity, individual decision-making, problem-solving, customer closeness, collaboration across fluid teams, and fun.¹⁵ The danger, according to Thiel, is that as Airbnb continues to grow and reaches a certain size, the need to develop processes that “control the chaos” and help achieve short-term outcomes that meet growth expectations (as Netflix also noted) will begin to overwhelm what matters to the people in the business. Chesky knew that if Airbnb’s culture stayed strong, there would be less need for corporate processes, more trust and engagement, and more of the autonomy and freedom needed to surface and pursue entrepreneurial ideas. He acknowledged that Airbnb would probably not always be in the same business, but would need to grow and change with new opportunities and market demands. A strong culture—not a brilliant strategy, more market share, or a better website—would make that possible. And he believed that such a culture could be “defended” and reinforced through how Airbnb hired and how its employees went about their work and related to one another.

In contrast, Myspace is an example of a company that did not defend its culture well. Once upon a time, Myspace was a dominant social-networking platform. In 2005, it was acquired by News Corp for $580 million. While it is understandable that the Myspace founders, Chris DeWolfe and Tom Anderson, took Rupert Murdoch’s money, and they clearly cared enough about the company to stay on, this new development did little to keep the Myspace culture strong. DeWolfe talks about how the added bureaucracy of a big company was particularly a shock to Myspace. “There are more meetings during the day with a big company,” DeWolfe said. “There are three different levels of finance that you need to go through . . . you end up taking your eye off the ball.”¹⁶ And new priorities came into play that overwhelmed the user experience, engineering quality, innovation, and sense of fun that had typified the Myspace culture. There was extreme pressure to monetize the site and drive revenue at the cost of the user experience, the quality of the engineering, the level of innovation, and the fun for all involved.¹⁷ Though the money started rolling in and the number of users continued to rise, News Corp persisted in driving changes that not only impeded future growth but also frustrated or turned off customers, employees, and partners who had very different cultural expectations for Myspace.

Myspace reached its peak of popularity three years later in December 2008, when it attracted 75.9 million unique visitors per month. But by April 2009, Myspace had started losing about a million US users each month and its ad revenue was dropping as a result. DeWolfe and Anderson were kicked to the curb. Within two years, News Corp began looking for a buyer to take Myspace off its hands. By May 2011, the user number had dropped to half its peak at about 34.8 million. In June 2011, it was purchased for $35 million, more than half a billion less than when it first sold in 2005.

The companies that are thriving in this new era, the ones we think of as category makers or market leaders, have founders or leaders who are very deliberate, purposeful, and even tactical about developing an organizational culture they believe will be a Difference Maker in their success. They recognize that culture was a winning formula for companies in the past and is today too. But instead of waiting for culture to form slowly over many years, these companies have learned how to accelerate that development by architecting it deliberately, and they see safeguarding it with a vengeance as one of their primary responsibilities.

Think back on the Netflix vs. Blockbuster story at the beginning of this chapter. By 2001, Netflix was on the ropes competitively with Blockbuster, but it was also starting to grow dramatically. It needed to add a tremendous number of employees to keep up with that growth, and it knew that it needed the right people to do so. So Netflix focused on reaching highly talented people who fit the culture.

Reed Hastings and Patty McCord, Netflix’s talent manager, sat down and wrote out all the things that mattered to Netflix from a culture, process, and people perspective, and put it in a 124-slide PowerPoint deck called “Netflix Culture: Freedom & Responsibilities.” Sheryl Sandberg, Facebook’s COO, and the author of Lean In, said, “It may well be the most important document ever to come out of the Valley.”¹⁸

In it, Hastings and McCord laid out a definition of the Netflix culture, why it mattered, and why it actually needed to be a lived set of values, not just a bunch of meaningless words. It defined the characteristics that led to success at Netflix, and what the environment of Netflix needed to be to foster and leverage those characteristics. And it talked about the vital importance of culture and alignment over rules and procedures. As slide forty-two put it, “Our model is to increase employee freedom as we grow, rather than limit it, to continue to attract and nourish innovative people, so we have better chance of sustained success.”¹⁹ The deck ended with, “We keep improving our culture as we grow.”

That’s a radically different approach to culture, people, and processes than most companies born and bred in the twentieth century. Such a deck wouldn’t get past an HR manager let alone legal at a twentieth-century company. But it’s the “most important document ever to come out of the Valley” to those who understand the value of nimble, focused, and feisty. And it’s a choice that’s being consciously and deliberately made by the most vital companies and most successful CEOs working today.

OLD WAY VS. NEW WAY VS. RIGHT WAY

This discussion of culture is not just a way of glorifying new-economy companies and kicking twentieth century market leaders while they’re down. In fact, very few companies—old or new—are sufficiently nimble, focused, and feisty across the board. All companies have work to do. All companies must continue to work at their culture in an engaged, determined, and conscientious way—forever. The world is too dynamic—too VUCA—to take a break on culture.

Moreover, any company—even one with a twentieth-century culture—can become nimble, focused, and feisty. It is possible to both architect such a culture and to shape and mold it. This book has been written to help all types of companies—from the startup still being planned in a basement apartment, to the Fortune 500 at the top of its game.

To illustrate how culture change can revitalize a stagnant organization, I want to look at the evolution of a company we all know well—Apple. While many hold Apple up as a model company because of its incredible success and market value, it’s worth looking at the journey Apple took to get where it is today.

Apple’s Journey

When Apple was launched in 1976, it was the Facebook, Airbnb, or Netflix of its day. The founders were passionate and they took the world by storm.

Then Apple started to get big, and it faced intense new demands to “grow up.” In a twentieth-century world, this meant adopting discipline and processes. Steve Jobs valued the culture of innovation and passion that made Apple special; and he wanted to put most of his attention on the part of the company that embodied such culture—its product development and design. But he wanted someone else—a grown-up—to take over the operations side and give Apple the discipline it needed to satisfy investors. So he asked John Sculley, who had been president of Pepsi-Cola, to be CEO. Like Keyes at Blockbuster, Sculley was a classic twentieth-century culture leader, and Jobs and he clashed badly, until Jobs was ousted in the spring of 1985.

Apple was lost in the years that followed. Its culture was rudderless. It tried to adhere to the discipline of industrial production but had no spark, passion, or innovation. Steve Jobs returned as interim CEO. The turnaround began. Apple resumed its iconic status and took that a million miles farther, reinventing modern life as we know it and becoming the most profitable and valuable company in the world by the time of Jobs’ death.

How that turnaround was engineered, however, had everything to do with culture.

It’s fascinating to watch the early speeches Jobs made to employees upon his return. He talked about getting back to the basics of great products, great marketing, and great distribution. The distribution piece showed that he had “grown up” when it came to running a big company. But he also retained his incredible passion and creativity for products that mattered to customers and mattered to Apple.

Employees embraced that passion immediately. They didn’t mind when projects they’d been toiling on were canceled because they were given new products to work on that made sense—that connected with Apple’s culture. And Jobs understood how marketing was an expression of that culture. As he put it, “Nike doesn’t talk about the product [in its marketing]. They honor great athletes and athletics. Customers want to know who Apple is, what do we stand for, and where do we fit in this world. Apple is not about making boxes, though we do that well, but at its core value, we believe that people with passion can change the world for the better.”

He launched the “think different” campaign to rekindle Apple’s spark and announce its values to the world, describing it as a message that “touches the soul of this company.”

How many twentieth-century companies talk about their soul when they talk about their culture? How many nimble, focused, and feisty companies would even blink at such a notion?

It’s hard to believe, but Apple is an old company now. And with its founder gone, and its success unprecedented, it would be incredibly easy for Apple to rest on its laurels and see its culture of innovation, adaptation, design, and its drive for category-maker leadership go stale. But Tim Cook, as CEO, has done an extraordinary job keeping Apple Apple. He talks eloquently about Jobs’ attention to culture and how that keeps him focused on the same concerns.

“Steve’s greatest contribution and gift is the company and its culture,” Cook said. “He cared deeply about that.” Elaborating, Cook described how Jobs did so. “It was his selection of people that helped propel the culture. You hear these stories of him walking down a hallway and going crazy over something he sees, and yeah, those things happened. But extending that story to imagine that he did everything at Apple is selling him way short. What he did more than anything was build a culture and pick a great team, that would then pick another great team, that would then pick another team, and so on.”

Instead of letting that culture go stale, Apple continues to nurture it, and it does so intimately but also at scale. That approach went into the design of the new Apple campus. According to Cook, “Steve wanted people to love Apple, not just work for Apple, but really love Apple, and really understand at a deep level what Apple was about, about the values of the company. He didn’t write them on the walls and make posters out of them anymore, but he wanted people to understand them. He wanted people to work for a greater cause.”

And to keep that culture alive for generations of employees to come, Jobs initiated the development of Apple University. According to Cook, “[Jobs] wanted to use it to grow the next generation of leaders at Apple, and to make sure the lessons of the past weren’t forgotten.”

On the curriculum: how to communicate, examining past decisions to find flaws and better answers, and culture.

If Apple, one of the largest companies in the world, can become nimble, focused, and feisty, so can any business at any stage.

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