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Heitor MartinsYran Bartolomeu DiasSomesh Khanna
April 26, 2016
Executives and entrepreneurs from all over the world have traveled to Silicon
Valley to learn the secrets of its success. But in our conversations with
executives about what they ve learned, we ve seen a tendency to focus on
superficial elements rather than on the root causes of companies success.
Sure, speed and boldness are important, but what is it about the culture of
these companies that cultivates them? We decided to do a little digging
ourselves.
Over a week in Silicon Valley, we met with more than 50 people deliberately
chosen to give us a broad cross-section of insights. We spent time with
established digital players, midsize companies (including Box and Palantir),
and startups, particularly those focused on FinTech and technology services. We
met with leaders at private equity funds, venture capitalists, and incubators,
including Andreessen Horowitz and Playground. And we made the rounds of the
thought leaders in the Valley, from the dean of Stanford to the founder of
Lunar to a member of Tesla s board.
These conversations highlighted some attitudes and values that seemed to go a
long way toward explaining Silicon Valley s innovation identity. Here are the
ones that struck us most:
Lace audacity with grit. The kind of innovation that creates new markets always
goes against the grain. But boldness by itself is a dime-store commodity. What
stood out for us in these companies is the day-to-day determination to see
something through despite near-constant failure. We found people at all levels
to be especially levelheaded about failure and comfortable with the inherent
messiness of experimentation. The magic for them is not something s initial
lightbulb moment but the commitment to assessing, refining, and reintroducing
the systems that will make the thing work.
Use strong leadership to enable true collaboration. In the Valley, the leaders
who are shaking things up combine a palpable vision with tenacity and the
ability to build an organization that attracts other top thinkers. They have a
pugnacious, single-minded determination to make their vision happen.
Yet while that kind of leadership is crucial, it s the ability to tap the
collective minds of the organization that drives the business. Collaboration
is a term that s been in vogue recently, but the best Valley companies make it
happen by investing in an environment that fosters collaboration. It s more
than open office plans and Ping-Pong tables it s a culture where teams
self-organize; people from various functions come together to work on specific
projects by habit, not by exception; and good ideas gain momentum organically
by attracting talent from around the business. As projects advance and
coalesce, new teams form to gather the skills and priorities needed. Managers
act more as enablers and connectors, providing regular feedback and tracking
progress.
Give employees (and their dogs) a long leash. The strongest founder-led
organizations recognize what really motivates their people. Mission-driven
employees naturally expect competitive compensation, but more important is the
opportunity to shape the path of innovation, to play a meaningful role in
growing the business, and to develop their own leadership chops. The more
autonomy employees have to be resourceful and make decisions, the more likely
they will be to stick around. Artificial constraints, such as formal
organizational hierarchies and belabored consensus-building processes, create
waste and dampen motivation. The most innovative companies set clear
expectations around goals and investment risk but let employees define the best
way to meet them. If that means being open to flexible work schedules and
letting people bring their dogs or bikes to the office, so be it.
Build platforms, not products. In the old economy, the math was simple: The
more products you sell, the more money you make. Silicon Valley doesn t think
in terms of products, instead embracing the unbounded economics of the
platform, where connecting users and interactions is the new coin of the realm.
Unlike a static product, a platform s value is defined by the users who
populate and use it; a platform can morph to adapt to their needs and
continually unspool new services and innovations. Valley companies think in
terms of ecosystems, networks, and sharable services elements that are
crucial to scaling very quickly. Any business needs to make money eventually,
but the power of rapid scaling is a huge competitive advantage that those in
the Valley understand keenly.
Think like engineers and customers. While user-centered design has become an
increasingly popular term, Silicon Valley lives and breathes it in a way that
senior executives elsewhere can t imagine. In Valley companies all levels of
the business, from the CEO to coders to cross-functional teams, are hardwired
to look at problems from the perspective of the user in order to figure out
what sets of processes would create the smoothest, richest experience. They
obsess about the customer; everyone is expected to solve customer and user
problems whenever and wherever they find them.
Know that money only gets you so far. Gone are the days when the venture
capitalists on Sand Hill Road were merely an elite cash dispensary. Innovation
can have a short shelf life, so entrepreneurs with great ideas but little
business experience need coaching and infrastructure as much as cash. VCs have
evolved from being financing arms and proxy boards to providing entrepreneurs
with everything from lab space and equipment to a small army of programmers and
coders.
Startups need money, too, of course. But in the same way that they focus on
building platforms that scale by connecting people and businesses, the best
startups look for VCs that can plug them into broader ecosystems to provide
additional leverage and extend their vision. That vision part is crucial: Not
all networks are created equal, and understanding how the nodes of a network
align with the startup s vision can be the difference between a good idea and a
good idea that scales in the marketplace.
Get acquisitions right. Large companies looking for new talent and capabilities
have long used acquisitions, but doing them well is tricky. Too many incumbents
are flat-footed in their approach; more than just finding great talent, timing
is what really counts. The time to move is not in the early stages, when
startups are small and need freedom, nor in the late stages, when startups have
established a reputation, but rather in the middle, when the startup has a
proven concept and is ready to scale. What this means for companies looking to
acquire is that they need to develop a detailed market analysis that
demonstrates where value is already being created (i.e., the business is proven
and not relying too much on fanciful projections) but also identifies the
growth that s possible when the technology or business is scaled.
Large companies can also be too controlling after acquiring a startup, layering
on rules and practices that don t jibe with the unstructured gestalt of the
recently hatched business. That s often because incumbents look at how best to
use assets rather than focusing on culture. Established players need to know
when to lead and when to let their young partners set the pace. This point
bears emphasizing given how crucial culture change is for companies that are
transforming their organizations. In many cases elements of the acquired
business culture can become a model for the acquiring company.
As these lessons show, for all the technological advances in Silicon Valley, it
is the region s longstanding leadership in business model innovation that
offers the deepest and most transformational insights.
Heitor Martins is a senior partner in McKinsey s S o Paulo office, where he
leads the Business Technology and Digital Practices in Latin America.
Yran Bartolomeu Dias is a McKinsey partner in the S o Paulo office, where he
leads the Digital Banking practice in Latin America.
Somesh Khanna is a senior partner in the McKinsey New York office and North
American leader of the McKinsey Digital Practice.