Not every employee needs to follow the same core values. Not everyone needs to be fearless and first principled.
Should the janitor operate with first principles and be fearless with trying new cleaning agents? Your office could smell or even poison you. But the janitor was fearless! They created their own concoction.
Is there a better structure than a Delaware C-corp? Maybe, but when incorporating an enterprise SaaS company, it’s not a good use of time to spend researching the best state and entity structure.
There are parts of businesses that are good enough.
Opportunity Costs
This is due to opportunity costs, e.g., parts of the business with 100 hrs of effort can go from 1x to 5x efficiency, parts from 1x to 2x efficiency, and others from 1x to 1.1x efficiency. Assuming they’re all equally valuable parts of the business and would take the same effort, which one do you choose? Obviously the 1x to 5x efficiency. Spending time even discussing the 1x to 1.1x is a waste.
This becomes clear when you allocate capital at scale. If you’re running a $100M fund, you don’t spend much time on your $100K investments. It’s 0.1% of your fund allocation. It doesn’t matter. Similarly, if you run a $10B fund, you spend little time on your $10M investments. It’s the same scale (0.1%) of your fund– it’s insignificant. The best advice a VC ever told me is to concentrate on absolute returns. That’s the only metric that matters. As a fund manager, you aren’t rewarded for 10x returns. You’re rewarded for absolute return.
One could return 11x on a $500M fund or one could return 2x on a $5B fund. The fund managers are each $5B into carry. Assuming 20% carry, the partners receive $1B. Absolute return is the metric fund managers are compensated on.
Understanding Costs
Many have “detail-oriented” as a core value.
A large real estate owner recently told me about an internal meeting that was discussing a $50K tenant improvement to a lease worth tens of millions. He walked out. It’s not always worth senior leadership’s time to get into every detail.
When it’s an important decision, or you’re teaching the team how one should analyze problems and come to solutions, then yes. It reinforces the framework of how one should operate, e.g., I currently get involved in minor things like negotiating SaaS contracts with our third-party vendors. At scale, I won’t always have time for this, but I do it now to show the team how to operate.
Abstraction
This is one of the core reasons management exists, to identify the areas of the business that are most important to spend time on. It’s the same reason a board exists– to govern executives. Board members may understand the market dynamics better. They can see the global picture vs the C-level team being heads down on execution. Each group is working at a different level of abstraction and passing that knowledge on.
It’s easy to forget this. We have a recency bias to fix the things in front of us and think what we see/hear about is most important. It’s not. Yes, that’s an annoying visual glitch that needs to be fixed, but we need this other critical feature to launch, so let’s spend our time there first. In a complex system, what’s naturally front of mind is rarely the most important.
Even leaders don’t always need to be first principled and super detail-oriented in every aspect of the business. They should prioritize and be disciplined, competent, and efficient, but there is only so much time in the day. This is true of every core value. Being 100% of any core value is crazy the same way being 100% of any of the four virtues (prudence, justice, fortitude, temperance) is ill-conceived.
Being loyal and honest are solid virtues, but taken to the extreme lead to ruin. A great portrayal of this is Ned Stark in Game of Thrones whose loyalty and honesty lead to his demise.
Choose Your Character
Core values should be aspirational. Leaders should exemplify the core values, and have core values the entire culture follows. The core value we need everyone on our team to have is being open-minded– this way we can always talk things out. If someone isn’t open-minded, there’s no discussion. We value dialogue.
There’s an optimal spectrum of strength of core values for any given role. It changes over time along with the role. Choose your character.