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Is Corporate Culture the Secret Sauce to Boost Your Growth?

By Generational Equity

04/06/2019

If you’re one of those company executives that think corporate culture is a touchy-feely Millennial thing, think again. Culture is so elemental to how your business runs that it directly impacts revenue and the bottom-line.

Another common misconception: That superficial things like casual Fridays or free snacks drive culture. In fact, studies show that corporate culture ultimately shapes every organizational decision, and even business infrastructure.

How much does your corporate culture impact the business? The National Center for the Middle Market recently conducted a survey to answer that question.

7 Types of Business Culture

First, the survey asked middle market executives what type of culture fit their company. Virtually all middle-market businesses identify with one of seven distinct types of corporate culture, according to the NCMM. These seven types are:

  • Customer-centric: As the name suggest, these businesses emphasize a customer-first approach. It’s the most popular culture type at 22 percent and is most often found in healthcare, manufacturing and established, larger companies.
  • Innovative and creative: These companies encourage employees to create new products, services and channels. Seen most often in young, fast-growing businesses from any industry.
  • Great place to work: Prevalent in technology and business services, these businesses tend to be younger, smaller and they believe employees are key to their competitive edge.
  • Continuous improvement: Common in services, manufacturing and construction, these companies strive to get better at what they do best and commit deeply to excellence.
  • Technically oriented: These businesses focus on producing the most advanced, technically superior products and services. Often found in manufacturing, these companies tend to be the fastest growing in the middle market.
  • Highly efficient: Most often family- or private equity-owned, these companies dedicate themselves to becoming leaner by trimming waste and improving processes.
  • Risk-averse: By avoiding risk rather than controlling or managing it, these businesses protect existing assets and profits.

How Corporate Culture Impacts Performance

Executives would be wise to foster the right type of culture because it’s a strong predictor of revenue growth, as well as employee and customer retention, says the NCMM. In fact, a weak or dysfunctional culture creates a tangible negative trajectory for a company’s ability to grow and remain profitable.

The study found:

  • Companies with ingrained cultures grew year-over-year revenue 3 percent faster than the average, or 10.8 percent versus 7.2 percent.
  • Businesses with two particular types of culture (innovative and creative or technically oriented) grew more than twice as fast as risk-averse companies.
  • 9 out of 10 companies with a great-place-to-work culture believe their culture helps attract and retain employees.
  • 79 percent of companies with an innovative and creative culture believe it helps them attract new clients.
  • Companies with a continuous improvement culture retain customers better.
  • An unclear or muddy culture resulted in a past-year revenue dip of 2.7 percent.

Put in the Time to Build Your Corporate Culture

Despite the rich rewards that flow from a positive culture, busy company leaders often focus exclusively on operations and finances and leave HR to handle culture. The fact is, your company culture requires more than your attendance at the annual company picnic. Managing culture well takes nearly 25 percent of middle market leaders’ time when they prioritize it, found NCMM.

The upside to investing such large quantities of time on culture? Company performance. NCMM found that “Companies with deeply ingrained cultures grow much faster than the average middle market company: They report 10.8% past-year revenue growth compared to 7.2% for the middle market as a whole.”

Solid growth attracts potential buyers, which means culture should play a vital part in your exit planning. Learn more about what makes your company more interesting to potential buyers:

The relationship between a company’s culture and its ability to attract potential buyers cannot be overemphasized. Buyers not only look at your bottom-line, but they will also examine how you got there. 

Often, a company’s culture is a key part of the value found in its intangible assets. If your employees are motivated to overachieve, if you have created a culture that rewards successes and innovation, buyers will view your business far more favorably when you’re planning to sell your business. 

Conversely, even if you are making money, if your culture is weak and your employees feel unappreciated and unmotivated, buyers will learn this via the due diligence process and discount your business valuation.

We have learned over the years that a middle market company’s culture is often dependent and driven by the personality of the founder/owner. This can be both a positive and a negative.   Buyers will want to know what will happen to the company’s culture (and ultimately its sales and profits) when the founder/owner leaves.

If your company’s culture is completely dependent on your personality, it will benefit your exit planning to create a culture that is based on a written mission statement and philosophy that is independent of you and will sustain the ongoing business after you leave.

So, look at the 7 culture types identified above and determine which one fits your company. Build a culture that is sustainable and is defined based on the core values of the company, not on your personality.

By Jessica Johns Pool