Making the difficult decision to move away from a traditional corporate structure and transforming a company’s culture to that of a Silicon Valley startup is a huge undertaking.
An undertaking that Reed Taussig, an entrepreneur, business leader and VC with over 35 years of experience faced firsthand. He’s spent that time leading, advising and investing in tech corporations and startups.
He was brought in to revolutionise the way Outseer operates – reinventing the core values and processes of the company, moving from a more traditional corporate environment to that of a lean startup.
I sat down with Reed to learn about his journey as CEO of Outseer and get some advice on the most effective ways to adopt startup culture into your own business.
The Difference Between Startup & Corporate Culture
Rui: Reed, thank you so much for being here. Let’s dive straight into it.
Based on your experience, what would you say are the key differences between a corporate and startup culture?
Reed: The difference between Silicon Valley startups and large corporations, and it doesn’t really matter whether it’s a tech corporation like Dell or Bank of America, is that in Silicon Valley, in order to make more in the industry, you often have to put progress in front of the process.
It doesn’t matter how you get it done; you just need to get it done. That allows you to deliver products with very small teams and then allows you to capture the attention of the marketplace.
In large corporations such as Dell, where you’re talking about 100,000 people, the process comes first, or else everything turns into chaos.
Let me start by giving you some background on how Outseer came to be.
RSA was run as a software company that had four sets of products: Secure ID, NetWitness, Archer Compliance Product, and what was at the time called RSA FRI (Fraud Risk Intelligence), and none of those products had any synergy with each other.
STG wanted to really do two things: one was to break the companies apart to maintain a focus on what they really did and to encourage an entrepreneurial perspective. They recognized that what they had purchased was a company that had a very much insular corporate perspective.
I spent 10 years at a competitor of RSA. STG called me up and said, “Would you be interested in joining us to separate this company, and turn it into a new company?”
I said, “I started off in the large corporate environment a million years ago and got out of that, and ever since I’ve been in a venture-funded VC environment, a startup environment, and not a corporate environment.
If you’re planning on running this company as a standard private equity company, I’m the wrong guy. Don’t even bother talking to me, because I don’t do that. I build companies, I don’t take them down.”
They told me they wanted a shift, so I started working with them to break apart the products into separate companies.
Around then, they had a global meeting of everybody at RSA. What they did is they allowed people to ask questions of the executive staff, but to do so anonymously, so you wouldn’t have to provide your name.
But I sent out a note to everybody in the company and said, “I’m really looking forward to your questions, but I will not accept any question unless you can demonstrate to me with a driver’s licence that your real name really is anonymous.”
And this was the first shot over the bow to these employees that something was going to be really, really different.
I believe a big issue is that if you don’t have the conviction in your question and you won’t associate your name with it, I don’t feel like I have to answer it. It’s not even worth answering. As a matter of fact, it’s an insult to the corporation to do that.
So when I send out this note, I have absolutely zero response.
I asked one of my exec staff people why this had happened. Why was nobody answering the question? They told me at RSA it would be impossible. It would just be completely looked down on and you’d be ignored or even ostracised if you came out and asked the CEO a question directly. It just didn’t happen.
At the next meeting and I said, “I have an open-door policy, and I look forward to your questions.” Things started opening up as a result of that.
I told them we were going to become ‘customers first’. When the customer asks us something, we’re going to find a way to get it done, and we’re going to do it profitably.
And it was very interesting. Half the company really embraced it. They thought it was great.
I told them I was going to enforce a degree of accountability and the only thing I care about is that, if you make a mistake, you recognise it and fix it.
We went through that process of communication, and pretty quickly, almost half the company quit.
Applying Startup Culture to Big Corp
Rui: Talk about a story on breaking the status quo here.
From that first moment when you could ask questions to the CEO, you were already starting to empower people and make them accountable for the questions that they were asking. That translated then into everything you did moving forward.
But then after that decision was made, dealing with the people in the company and having half of the people quit had to have a big impact on the operation.
I’m curious to know how your executive team reacted to this. They were used to something really, really different, right?
Reed: Jim Ducharme, who was general manager when I joined and is Chief Operating Officer now (he runs products and engineering as well), has replaced 100% of my executive staff in the last 11 months. There is nobody left on the executive staff that was here when I joined the company.
The reason for it was that RSA was run as a holding company. A lot of these people had been with the company for 15 or 20 years and they were just fundamentally uncomfortable in an environment where decisions were not made by committees.
One of the first things I wanted to do was to change the name of RSA FRI (Fraud Risk Intelligence). I brought out a new VP of marketing and we came up with the name Outseer. It’s been tremendously successful for us to be able to divorce ourselves from the RSA name.
The end result of that was that many members of my executive staff looked at it from the viewpoint of saying, “I’ve worked for RSA for 15 years. I have lots of friends here. I believe in what we do. I like the structure, and you’ve changed all of it, and I don’t like it. I’m leaving.”
I mean, when I did an employee survey and one of the biggest complaints I had was them saying, “Now we have to multitask as employees. We never had to multitask before. We had a job, we knew our job and we did our job. RSA has been famous for its life-work balance kind of thing, and now we have to multitask.”
It’s been probably from an executive and management viewpoint the most difficult transition I’ve ever made – without a doubt. But I think we’re largely there at this point.
I get compliments from employees that I meet with all of the time who say, “It was really painful getting here, Reed, but you’re having this fresh look at management and having decisions made in minutes or hours rather than months and years. And it’s great.”
The people that have stayed have really stepped up to it, and I think are pretty excited about the whole thing.
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Rui: How did you manage to do that in 11 months without completely breaking the operation?
Reed: It’s doing better. We have much better net promoter scores, we are more profitable and we are acquiring new accounts. There was no impact to productivity whatsoever, which was kind of astounding,
Rui: How? 50% of the people left.
How many new people do you have?
How many people did you have then, and how many people are in the company now?
Reed: When I joined the company, we had about 550 and we’re down to around 400 right now. We have rehired people and brought them up to speed on this whole new thing.
Recruiting right now is across the industry, exceedingly difficult. But what’s happened here is that a lot of people recognize that what we’re doing is kind of exciting.
We have been successful in terms of being able to recruit new, good people into the industry.
Rui: Let’s talk about hiring and firing.
There’s a huge difference in the processes in both environments. In both worlds, however, there’s a lot of talk about the hire-slow, fire-fast approach.
What’s your experience with that?
Especially in this specific case. These people resigned because they started to see that things most likely wouldn’t work out for them, so how was it that you conducted this process?
How did you manage not to get it completely killing the environment and not poisoning the culture, the teams and all those things that can happen when people aren’t happy?
Reed: I’ve been very direct in saying that we are in the process of redefining the corporate culture. There’s a big misnomer there that CEOs stand up and define the corporate culture and what you say doesn’t matter, but it really does matter and that sticks with people.
I could stand up and say, “we’re going to have a Silicon Valley-like culture where people have decision-making responsibilities and are being held accountable”, but if I don’t act that way, it becomes meaningless.
The first thing that we did was let them know we are looking to define a standard of performance that really was not part of the RSA culture. For example, half the people in the customer service group didn’t know the product and were not technical, and we changed that.
We made it clear that if you’re going to be in customer service, you have to be able to demonstrate the product, you have to have a technical degree, and you have to be able to add value to our customers in that regard.
Ultimately, if companies don’t provide their customers with what they need in a professional way, the company is going to fail. You’ve seen it over and over again with large corporations. You have to adapt to what is necessary for the marketplace.
Rui: So, let’s talk a bit about the difference between profiles you look for to fill a role in a corporate structure versus a Silicon Valley startup structure.
Reed: That’s a really good question.
What you’re looking for when you’re hiring at a corporate level are people that are going to conform to the plan and that like to work for large corporations.
The issue really comes down to this: if I’m a salesperson, a customer support person, an engineer or an accountant working for a company of 3000 people or 4000 people, the individual contribution that I make to the company is really not visible to anybody. It’s a collective effort.
In a startup culture, a Silicon Valley culture, what we’re looking for are people that say “My success will be recognized if the company is successful” and know the contribution they make to the company is in fact visible.
We have 22 sales representatives around the world and every single one of those people makes an impact on the top and bottom lines.
Our engineering teams deliver products on time that have quality associated with them, and you can measure that on the top and the bottom line.
You can also measure the net promoter scores from the customer service people, and we have noticed that they’ve gone up a lot as we’ve changed the approach, the attitude and the qualifications of those people.
What we’re looking for when we hire are people that really are interested in the success of what we’re doing, they’re excited by it, and will contribute to it rather than saying:
“I’m looking at a company that has a more generous 401 K, or offers four weeks of vacation and you’re offering only three weeks of vacation”
These are real tells in terms of the kind of people that you’re looking for.
For example, people working under Dell have extremely tight payment bands; unless you’re a manager six, you can’t make this amount of money.
Large corporations that do that end up paying people based on how many people report to them or are within their organisation. It just creates this corporate block that is really not required.
Innovation in Big Corporations
Rui: Let’s talk a bit about innovation and how that concept is perceived and applied in both startups and big corporations. In your experience, what are the main differences in both environments?
Reed: Innovation within a startup environment is very clear.
Engineering, in particular software engineering, is part art and part science. Portugal is a good example of it. You’ve got a lot of software developers and custom software development companies that are so good at building software compared to other markets. But it can’t really be done in a hierarchical way. It’s pure collaboration.
In larger corporations, there are a lot of competing priorities that get in the way. As you start selling your products, every time you sell to a customer, what you’ve done is you’ve dropped an anchor off the back of the boat, because they have requirements.
They say, “this product is really great, we need this feature.” And the next customer goes, “this product is really great, we need the next feature or another feature.” But it’s rare that the customers all agree.
The difficulty comes as your organisations become larger and larger; there is a huge resistance to doing almost anything new. And you can see it.
Companies like Oracle don’t build new software; they buy it just because the process is so difficult. It’s difficult to get a new piece of code out within an organisation like that and they lose their ability to innovate in a fashion that is timely enough with the market.
When I joined Outseer, the engineering team was largely a pool of people that were assigned to different products. We broke that apart and said, “I’m fine having an overall pool, but I want the majority of these people dedicated to a particular product.”
And the reason for it is that, particularly with enterprise software, we’re selling a solution, not a product, per se. It’s not like we walk in and sell a single sign-on token. We’re walking into a bank and saying, “What are the policies? What are the processes that you want to use? What’s the risk level for 3DS?”
It’s a solution-based sale, and I think that engineering teams that are close to the customer, understand the business case and the problems that customers have. So that’s what we’ve tried to do.
Rui: And how do you nurture innovation within the team? You were mentioning how the team was assembled and how they were now dedicated to each product, so how do you make sure that they keep innovating in thinking about new ways of solving problems?
Reed: I think that you reinforce success.
If you’re an engineering team, what you want to see is customers using your product. It’s when it becomes shelfware, or they don’t buy it at all, that it becomes extremely frustrating for a software engineer. No one’s to build something nobody wants.
What we’re trying to do here is trying to celebrate success in that regard and bring out new capabilities and new features into the product.
The other thing that we’re doing, which is interesting because it has never been done here, is to embrace partnerships.
I think one of the things that software companies really do embrace is the whole concept of “new”. It’s what is cool about being in software. This has never been done before and we have an opportunity to redefine a workspace and industry. That’s what gets people motivated.
When you think about what certain companies have done over the years and how they’ve completely redefined the way we work.
Look at Zoom, for example. Webex was in that business much earlier and then Zoom walked in and did it much better.
What they did was very insightful on their part. Webex was selling primarily to corporations and Zoom came in and said, “All we care about is the sales force. If the sales guys are using zoom, then when they do a demo or a webinar, they will have to use zoom.” It was a great way and on a viral basis to adopt the user. It was really brilliant on their part.
I think that’s the issue with software companies. Success begets success, and people want to be associated with things that are new.
If you want to talk about software engineering being sent to purgatory, it’s when their manager says: “You’re on the maintenance side, you’re going to fix bugs.” That’s the worst place you ever want to be.
Communication Differences Between Startups & Corporations
Rui: 100%. We actually see that. Being a product agency helping entrepreneurs, we have different projects pretty much every day, and one of the things that fuels the motivation and the drive of software developers is exciting new things that disrupt industries.
Who doesn’t want to be part of Uber and disrupt transportation? Or Airbnb with the hotel market? it’s just something interesting to be a part of.
Reed, let’s talk a bit about communication to close this section on people.
As you were saying, when you went to the company, even questioning the CEO was happening in an anonymous way, right?
Communication in a startup is traditionally completely open. It’s normal for the most junior person in the team to have direct contact with the CEO. This is completely different from a corporate structure where you only communicate with the ones on the ladder directly above or below you.
What has your experience been changing the communication around here?
Reed: It has been a challenge to be direct about it. The new people that we’ve brought into the company who are largely coming out of venture-funded environments are very open to that. We have an open-door policy across the company with my entire executive staff.
Another issue with Outseer where we present an unusually difficult problem is that we’re a global company. Everybody is facing this with COVID, but for us, it’s not just that you can’t go to the office because in most cases there is no office.
A portion of my exec staff is here, but my CFO is in Philadelphia, my chief operating officer is in Maine, and my head of sales is in New York. We have a huge contention of people in London, Australia, and South America.
You just can’t walk into somebody’s office and go, “Hey, Reed, I have an idea. Can I talk to you about it?” It’s tough.
It’s been very, very challenging and we try to have monthly town hall meetings and we do talk to people on an individual basis. I want to know what they’re thinking. I think we’re doing a pretty good job of it. I think everybody understands the mission at this point, but it isn’t easy.
How to Transition from Corporate Culture to Startup Culture
Rui: I wanted to open the floor so you can give some general advice on the best way to transition from a corporate culture to a startup culture. I’ll ask this in two ways.
One is as the business leader that is looking to do the same thing you are doing right now: restructuring an existing company. The other is a business leader looking to leap into entrepreneurship and build a company from scratch.
Building a startup culture is already hard, right? But transitioning from a corporate culture to a startup culture is even harder. So, what would your main advice there be to anyone thinking about doing the same?
Reed: That’s a good question. I think there are two very distinct scenarios.
Carve-outs are becoming more and more common within corporations. You end up in a situation where you have a $5B business and it’s got a $40M software business or tech business and they say it doesn’t help our profitability, that it’s a distraction.
In terms of taking a corporate person who is used to dealing with a large staff, who has a chief of staff and moving them into a standalone environment, it really comes down to focus. You have to ask yourself, what are the two or three things that we have to do, that we have to get right in order to be successful?
The first that’s coming out into trying to make a determination is the employees that just climbed into this new lifeboat are really the employees that can make it work. It’s unfortunate and it’s certainly true.
And then I think that the other question you have which is interesting and you see a lot are company executives that say: “I’m going to go do a startup.” And again, it comes down to an issue of focus.
I think a general criticism of Silicon Valley right now is that a lot of the entrepreneurs are really focused on how much money they can raise and on what valuation. That is their definition of success.
You see it. The valuations are unbelievable but they come at a big cost. My view is good decisions are made in an environment of scarcity and not an environment of play.
I also think that corporate executives coming out of a large corporation who grew up in a state of hierarchy, when they try to do a startup and reinstitute that kind of management practices, are probably going to fail.
You have to look at it from a viewpoint of, there are no firsts among equals in a startup. You have to do whatever it takes to make that thing go forward.
I’ve seen a lot of instances where people have come out of a corporate background and the first thing that they do is hire a secretary and a chief of staff, and then they move into expensive offices before they have a product and before they have a customer.
You really have to think about what it is that’s going to keep us going and, by the way, your expensive offices won’t.
Rui: When most people think about startups they think about Zuckerberg and alike; kids in college, in their dorm rooms, making startups that then end up being worth billions. And that’s not the case.
Now we know that people in the best place to actually be successful founders are industry experts. After spending 15 years in a given industry, they detected an issue and set out to solve it. They have the network and the pockets to actually build something until they can actually find some traction and go to the market.
Reed: I have three kids. 35, 32 and 28 and they’re all starting their careers. I think it’s a very good idea for kids coming out of college to go to work for a large corporation, to understand how management and hierarchy actually can benefit you.
If you’re going to get into a startup, that’s fine. I agree with that.
But you see a lot of these startups in Silicon Valley where nobody has any real work experience and it just becomes mayhem. You end up with executive staff meetings with 30 people because nobody wants to hurt somebody else’s feelings. Then you end up in situations where the CEO insists on making every decision, making it so that everything has to go through them.
Rui: I want to follow up on that, on micromanaging.
It’s really hard for somebody who hasn’t done anything else to understand that they cannot be responsible for everything.
What would your advice be for an entrepreneur who already comes from the corporate world and had some experience? And for a young first-time founder?
What would be your advice so that they can avoid the pitfall of micromanaging?
Reed: Let’s start with the college graduate who has no work experience.
Those people largely fall into two camps: either group growth where you have these big committees, your friends that are trying to make decisions and nobody can agree. On the other hand, you have somebody where every decision needs to go over their desk, and they have to have their fingerprints.
Neither of those solutions works.
The other problem with it is that you often end up with a board of directors that are VC people who are well educated but don’t have any work experience. They’ve never really hired or fired, they’ve never gone to a pissed-off customer, never tried to collect an overdue invoice.
I think for young entrepreneurs having somebody on their board who has a lot of operational experience, somebody who has been a successful CEO that can help coach them in terms of how to build a management team is necessary. If that’s not available to you, you should go find a CEO coach that can really help them do that.
The problem is that if you’re one of these people who micromanage, you end up with a bunch of employees who will want to upward delegate everything to you. It’s plausible deniability on their part. Yeah, it’s screwed up, but you’re the one who made the decisions.
On the other hand, it’s almost even worse. You could say if you have somebody that insists that every decision goes over their desk, that perhaps you have a benevolent dictator that from time to time is going to be right.
You’d have to wonder whether Elon Musk is that guy, for example. I think Zuckerberg could be accused of that as well, but I don’t think that generally speaking that formula works well.
What is even worse is the whole concept of group growth where nobody can make a decision.
I think successful companies, regardless of size, have an inside person and an outside person at the top that pays attention to it. For me when running a company, I’m really not interested in establishing salary bands with the HR guys. I’m not interested in what the chart of accounts looks like, but there are people that are good at that.
I think you need an inside person who understands building an infrastructure that will support growth. And you need an outside person who is available to customers and the public to basically support the mission.
I think CEOs only really have 3 jobs, and that is to:
- Help define a corporate strategy, which is a combination and accumulation of other people’s good ideas as well. But that strategy has to be sellable and brought in by your customers, employees and investors.
- Hire an exec staff that can execute that corporate strategy.
- The third is, never run out of money.
If you do those three things, you’re probably going to be very successful.
Rui: I can relate to so many things that you mentioned here. I actually wanted to highlight looking for a coach or having a voice of reason with a lot of experience.
That for me has been invaluable. For most successful people I know it has been invaluable.
I want to now talk about some advice for entrepreneurs on the pillars of building a startup.
What advice would you give a first-time entrepreneur on building a product?
Reed: Deliver key features that really solve your users’ problems. If you don’t deliver it to the market, it doesn’t matter.
And you see a lot of products, a lot of engineering teams actually fall into this trap of wanting to over-engineer the product thinking if they add more features.
If you’re starting with a product and all you’re thinking about is scale (that you won’t actually face for another 3 to 7 years) you’re going to end up putting out a ton of money and a ton of time into something that you’re going to figure out you did wrong anyway.
The objective really is to get a product in the market and to get that customer feedback.
- What is it with this product?
- Does it work?
- Does it solve my problem?
- Will I refer it to somebody else?
- What’s my roadmap?
- Where do I go next?
You shouldn’t worry about creating the world’s best product, but to get it into the market as quickly as possible with a product that’s sellable. Whatever you think you know is wrong. I guarantee it.
Rui: I couldn’t agree more. We follow that methodology by heart every day at Altar. We are all startup people. And most of us learned that the hard way.
What is one key lesson on go-to-market for early adopters?
Reed: The customer you’re selling to knows a whole lot more about you and your company and your product than you know about that person on that first touch.
I think that almost all startups that I run into fail to recognize that we are really moving into an environment, if we’re not already there, where your chief marketing officer, your CMO, is really your chief revenue officer.
Sales guys are really poor at creating their own demand. They get very focused on whatever the deal is that’s sitting in front of them is the most important thing in the world.
So, they come back saying they need a feature, and it’s kind of like asking a bunch of coyotes to go out and get you breakfast.
The thing with marketing is that you can target value propositions at particular audiences and then accurately measure the response and the demand. Does this in fact resonate?
The whole issue really is, ultimately, how do I create inbound demand and not outbound?
I think the most important way to get your product into the market is strong content and a good website – don’t skimp on either of them. It is the most important communication vehicle you have. There’s nothing that even compares or comes close.
In a company like Outseer, where we have these solution-based issues that we’re dealing with, content-based marketing, something that actually helps your customer do their job or demonstrates to your customer or prospect that you actually know what you’re talking about, is super important.
I think you really need to understand that customer before you sell anything to them. You need to really understand what is going to resonate and how you set up the rest of your go-to-market structure in order to accommodate that.
Rui: That’s so spot on. And I feel like there’s a whole new conversation we could go into because marketing is my main focus at Altar. And we´re now 100% inbound so I can absolutely confirm all you said.
But that’s for another interview! Let’s move on to HR.
What are some key lessons for entrepreneurs in hiring?
Reed: I think if you’re hiring for a startup, what you’re looking for are people who are interested in the success of the company.
I got a great piece of advice back in the 80s and got promoted. I was told “ Always hire for grey matter. If they can demonstrate honesty, brains and hard work, you will have a successful employee and nothing else matters.”
You know what? He was right. The worse thing that you can have is a stupid, dedicated employee.
The other thing I would say is that with startups, everyone that I see is overstaffed. What they’re doing is they’re hiring in anticipation of demand rather than responding to demand.
What happens is that they end up having to raise more and more money, and the value of those shares becomes less.
One of the key metrics that I’ve always measured in companies that I’ve run is the cost per employee and the revenue per employee. As a startup, you’re not going to be profitable.
If you end up in a situation where your cost per head can’t separate so that you can ultimately be profitable, you have a business model that isn’t working.
It’s the simplest way to determine whether your business model is actually going to be successful.
Thank You, Reed…
… For taking the time out of your schedule to sit down with me.
Reinventing a large corporation is no mean feat – especially when you’re implementing a completely different set of processes to bring it in line with startup thinking.
Whether it’s something you’re planning to attempt – or if you’re setting out to build your first startup – I hope you found Reed’s insights valuable.
Thanks for reading.