Carl Robinson, Ph.D., copyright 2004

Current research into factors that contribute to business success provides some interesting insights… some of which are surprising and ironic. “Firms going public that place high value on employee energy, corporate culture, rewards and organization structure outperform their peers on stock price growth, sales growth and size when measured as total assets,” according to a recent study by the University of Michigan Business School’s Zell Lurie Institute for Entrepreneurial Studies. At the same time, companies that focus on the product, technology or venture capitalists have lower performance scores five years after an initial public offering (IPO), the study shows. ‘The initial results show that long-term firm survival and growth is a function of people, but the people who seem to matter are internal to the firm not external,’ said Theresa Welbourne, adjunct professor at the Zell Lurie Institute and CEO of eePulse Inc.” The findings from this research have significant implications for any executive who is interested in building a company for the long haul.

“Welbourne collected data from 300 senior executives who led firms that went public in 1996, the largest IPO year ever. CEOs and senior executives were asked 50 questions regarding different factors that business, finance and management theory experts claim are vital to an organization’s success. Questions on financing, economic conditions, sales, quality, marketing expertise, leadership, employees, how hiring decisions are made, and the use of outside experts were included in the survey. On a scale of 1 to 5 (with 1 being not important at all and 5 being very important), each executive was asked to rank more than 50 different factors on the importance of these items to their firm’s success.

The statistical analysis of all the questions showed seven key factors emerging from the data, ranked by the respondents’ order of importance (with ratings in parentheses):

• Energy: The sense of urgency or energy level that is exhibited by employees (4.09).
• Product/Technology: The overall product and technology the company offered (4.07).
• Culture: The firm’s overall values and culture (4.01).
• Rewards: The rewards and pay system for all employees and executives (3.73).
• Structure: The way the company is organized internally (3.43).
• Board of Directors: The board and advice given by board members (3.17).
• Venture Capitalists: The VCs themselves and the advice they give (1.78).”

On a closer reading of the study, it’s apparent that having a desirable product or service is a given prerequisite for any firm’s success. However, in highly competitive markets where product/service differentiation is minimal, the factors that have the most potential for a positive impact on success are Energy, Culture, Rewards and Structure. Ironically, but I imagine not a surprise to most startup executives, is that advise from the VC’s who fund the startup is way down the list of usefulness. As one serial startup executive told me, “Most VCs should stick to just placing their bets!”

Other research conducted by Welbourne shows that maintaining a high-energy culture that places high value on people and the relationships that the business has with stakeholders, such as employees, will outperform their peers in the long run. ‘They win because employees in these high performance-oriented businesses will go above and beyond to help their firms when the going gets tough,’ Welbourne said. ‘This is particularly true for IPOs because after the IPO, executives are faced with the ultimate challenge of managing to the quarter, it’s easy to lose perspective and focus on the outside (e.g., Wall Street, analysts, board) at the expense of the inside.’”

What does this mean to the executives in charge? All things being equal product/service wise, if you focus your energy on motivating and developing your people you will have a better chance of winning.

Special thank you to Bernie DeGroat of the University of Michigan who provided most of the content for this briefing.