Internal Logic: What Is Our Business For?
By: Niko Canner
Tags: Leadership, Startup, Entrepreneurship, Strategy, Management

A good commitment to a “how” — to being a certain way, as distinct from advancing a mission out in the world — should be explicit and stated in impersonal terms, versus personalized in terms of the desires of founders or leaders.

A relatively small number of organizations are built in service of an idea that’s about the company’s way of being or what it produces for its employees or community, rather than for its customers. Greyston Bakery, founded by Zen Buddhist Bernie Glassman to create jobs for people in the Bronx, hiring them no questions asked, is one compelling example. 35 years later, Greyston is advancing its philosophy of Open Hiring beyond its own operations, for instance through a pilot with Unilever that we had the honor of helping set into motion through our work on employment of opportunity youth. While producing brownies is important to Greyston, serving Ben & Jerry’s as a customer is really a vehicle for Greyston’s primary goal, which is the creation of opportunity in the surrounding community.

Another small group of organizations are approximately balanced in their intrinsic commitments to a what they achieve in the world and a how they exemplify on the inside. An example that stands out is Valve, the video game development and technology company and perhaps the world’s most successful exemplar of radically non-hierarchical management. The preface to Valve’s employee handbook — which I’d nominate as one of the most interesting business documents in the world — begins:

“In 1996, we set out to make great games, but we knew back then that we had to first create a place that was designed to foster that greatness. A place where incredibly talented individuals are empowered to put their best work into the hands of millions of people, with very little in their way.”

Plenty of companies might write something similar, but almost none would make the choices Valve has made based on the depth of their commitment to these ideas: for instance, allowing employees to work on any project they choose, refusing to take any external funding and adjusting compensation to fit value creation as judged by an individual’s peers.

The question of whether commitment to a how is viewed as having deep, intrinsic value may seem like a philosophical debate. Perhaps so. But certain companies embrace a distinctive way of operating — whom they hire, how they manage, how they treat customers, what objectives they prioritize, etc. — that becomes integral to how they succeed out in the world. They tie themselves to the mast by treating this way of being as something they can’t compromise. Southwest is truly commited to irreverence and fun, and they’ve done the hard work of reconciling that with their equally bedrock commitment to make air travel cheap. In contrast, United may genuinely aspire to “fly the friendly skies,” but the operational priorities that would make that a reality for customers haven’t been viewed as intrinsically important and unacceptable to compromise. Rather, the “friendly skies” are a second-order goal, generally placed behind the goal of optimizing capacity utilization and pricing.

These questions about commitments can be illuminated through the question of who has the most important claims on the organization, a question that comes to life when potential claims conflict. Valve doesn’t report its financials, but has been estimated to be the most profitable company in the US on a per-employee basis. There’s no mechanism, however, for the interests of shareholders — co-founder Gabe Newell being by far the largest owner — to outweigh other priorities for the company. What Valve’s team members do is driven by their personal views of what’s valuable for Valve to accomplish, not through any process of budgeting and allocating resources where they’d generate highest shareholder return. Financial logic doesn’t explain why Valve did X or didn’t do Y — that can only be understood through the lens of the people at Valve and why they believed X mattered and Y didn’t. By contrast, financial logic, connected to specific beliefs about what will deliver shareholder returns, explains almost all of the choices United has made in recent years. As explored above, a core question for founder-led organizations is whether the founders, in practice, have the most important claim on the enterprise, or whether the founders put the organization in service of something, to which the founders’ own opinions and even interests become subordinate.