Culture - it's how your team acts when no one is watching

As professional students of business, we have always looked to decipher the habits and characteristics of businesses that have survived decades. We’ve seen those businesses with the “ultimate product”. The ones who have invented a product that is truly unique, defended by IP and impossible to copy. They produce otherworldly cashflow, maintain high margins and offer tremendous perks to employees. While these businesses are exciting to watch (and maybe invest in), they are hard to learn from. The heavy lifting of building the business was upfront, and the monopolistic nature of the business allows it to grow for decades, often with subpar talent and focus. The lessons they provide are not relevant for the vast majority of companies.

Alternatively, there are those businesses that survive decades, not by the sheer genius of their product, but by the culture of their organization. The founders have defined a clear mission, set of principles and guidelines that have perpetuated the organization and created a true barrier to entry. These are the businesses we obsess over. Their ability to not only survive but grow in the face of irrational competition, macroeconomic cycles and leadership changes leaves us in awe.

Take for example, Southwest Airlines. The airline industry is a notorious loser, having literally generated more losses than profits since Orville and Wilbur invented the airplane. Since 1978 the industry has lost over $60 billion. The industry is overly competitive, focusing almost solely on price and deals with many irrational personalities. Yet through it all, Southwest has been profitable for almost 45 years in a row! They used the same planes as everyone else, the same fuel and flew the same skies, yet what Herb Kelleher (founder/original CEO) developed early on was a culture of customer obsession. He geared his employees and management to be so customer-centric that it has led Southwest to become truly a differentiated experience. This focus, plus a sincere desire to treat employees fairly, has led to employees feeling and treating the airline as if they were owners. This culture, while hard to quantify, has become a true differentiator. Herb Kelleher left Southwest 10 years ago and the Company continues to succeed – the true proof of the power of investing in culture.

Not convinced? Have you ever been to a QuickTrip store? QuickTrip is a convenience store chain founded by Chester Cadieux. Cadieux realized early on that creating a culture based on values was going to be critical to his company’s success in a ruthless industry. In the business of convenience retailing, where customers have endless options, it’s hard to build a truly differentiated strategy and most chains resort to endless promotional games, neglect reinvestment and have constant employee turnover. Cadieux was different. He spent 2 months a year meeting his employees, learning, asking and training. He spent much of this time empowering workers. He would give employees the ability to make decisions on what products could go on the store floor - thereby giving them a say and stake in that store’s success. This commitment to employee growth and a constant focus on reinvestment led to QuickTrip outperforming all of its competitors on its journey from $1 million in revenue in 1962 to over $11bn today. This growth has turned hundreds of employees into millionaires and maybe, more importantly, the culture which Chester fought so hard to build, has continued well beyond his involvement. In an industry fraught with headwinds, QuickTrip continues to win.

We believe businesses like Southwest and QuickTrip have an incredible advantage: a cultural moat. They both partake in very competitive industries, yet have each turned out consistent growth and profits for employees and shareholders. Their success is directly tied to the culture and not the genius of a founder, the IP around a technology or a big brand. These cultural moats, if guarded and protected, become the single definable characteristic that propels a company for decades.

You need to build, nurture, and defend culture as rigorously as market share and product experience because, over time, it becomes the most important aspect of ongoing success.