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Are You a Force of Nature Who Attracts People or Scares Them Off? These are five startup culture mistakes that make investors nervous.

By Scott Guthrie Edited by Dan Bova

Opinions expressed by Entrepreneur contributors are their own.

Liam Norris | Getty Images

Company founders are forces of nature. Their driven personalities take their firms from garage to multi-million dollar ventures, while also inspiring passion in those who work for them.

Yet as their companies scale into sprawling affairs with hundreds of employees, that tight sense of collaboration and mission can shift or be lost altogether. There's so much to do, so many people to manage, so little time to communicate. Culture is often left to evolve on its own — and not always with the best results.

This is no small concern. Your culture is a proxy for your firm's character, values, behavior, and attitudes. Culture attracts talent, impacts happiness, and drives performance. It speaks to the very quantifiable matter of customer and employee retention. And it's among the most important factors investors look for when deciding where to put their money to work.

Related: 25 Words That Make Other People Feel Inferior

This is especially true in these convulsive times as the COVID-19 pandemic, economic downturn, and important questions around corporate governance and race transform American business.

I've learned the hard way the importance of prioritizing culture when my company reviews possible investments. Here are five characteristics of strong company culture I look for. When they're missing, we may walk away.

1. Does collaboration start at the top?

Our firm once walked away from an investment only a week from funding. Negotiations were difficult, as they tend to be. That wasn't the problem. Instead, we kept hearing feedback from the company's business partners and contractors that the founder could be hard-headed and challenging to work with. At first, we ignored it but we found the same in pre-investment alignment discussions when we introduced ideas we hoped to see happen.

Without a strong culture of collaboration, the prospects for success are significantly diminished. Today, we look for those signs in the first conversation and trust our instincts when we don't see them. Questions we ask: Are leaders are present, accessible and accountable? Do they support, recognize and empower their employees?

2. When professional conduct isn't demanded of everyone

Early on, we look for signs that leaders are willing to change how they behave and interact, even if their previous behavior had been accepted or even encouraged. Years ago, we invested in a company led by two very different executives. The founder was potentially a great business partner and perceived as a perfect gentleman — perhaps too nice and forgiving. His COO was the hard-edged partner, forming the kind of tandem that may have worked in the company's early days.

Yet that hard edge didn't smooth as the business grew. Eighteen months into our investment, it was sewing chaos and toxicity. The board was forced to let the COO go. The business world is hard enough to navigate without someone detonating bombs from within. And all employees—leaders or not—must conduct themselves professionally. It's even better if the company defines a set of standards and behaviors as part of a cultural manifesto.

3. Lack of purpose

Cultural troubles aren't always that obvious. Sometimes well-meaning people simply haven't taken the time to create a strong sense of purpose that will drive inspiration and growth. I was once having dinner with a management team in a loud restaurant. I asked the head of operations what was most critical to the business. Amid the dinner, I presented the same question to managers around the table.

Each provided different answers.

The company had yet to establish a simple, singular roadmap. Managers were left to head in their own priorities and directions. A purposeful culture, on the other hand, comes when leaders engage their employees in building, collaborating, and sustaining the businesses' purpose and priorities.

Related: 11 Bad Personality Traits Costing You Business

4. Reluctance to change

Firms require constant focus and realignment. That's OK. In fact, stronger companies do this regularly. And the more transparency they bring to their efforts, the better.

I know of one CEO who checks employee reviews on Glassdoor every week, then manages toward the feedback. At another company, the founders were some of the most purpose-driven people I've ever met. They were introspective, keenly interested in bringing people together and authentic in their approach. As the company grew, the biggest complaint from employees was that they were no longer spending enough time in the founders' presence.

Change and transparency don't need to be hard. They can begin with simple ideas like empowering lower-level, front-facing employees. If a customer is unsatisfied, grant these employees the power to remedy the situation on the spot. You've saved the time and turmoil of allowing problems to bounce around the organization. You've empowered your employee and the customer walks away feeling that this is an enterprise eager to do what's right — at all levels.

5. Missing social mission

Finally, we look for founders who are committed to more than revenue. Diversity and inclusion are non-negotiable. As startups, founders tend to load their companies with personalities and backgrounds akin to their own. But as a firm grows, it requires different skills, a wider perspective, a removal of the blind spots that come from running on that singular personality. We also want companies to stand for a higher social mission.

Related: 11 Things Smart People Never Say at Work

Employees are more engaged, more productive, more willing to go the extra mile when they believe theirs is a greater calling. Ample data shows that consumers will pay more and show greater allegiance to firms whose purpose is larger than pure profit. As an IBM study revealed, 87 percent of consumers now base at least some purchasing decisions on a company's social behavior. This is especially true for younger consumers just establishing their brand loyalties.

We respect founders who are passionate, who drive their businesses forward with everything they have. But by the time they meet with us, we hope they've grown to respect collaboration, fresh viewpoints, the benefit of change and the vital need for a social mission. Without these, we are likely to take a pass.

Scott Guthrie

Managing director at Virgo Investment Group

Scott Guthrie is a Managing Director at Virgo Investment Group focused on portfolio companies performance, implementing best in class operational SOP and driving transformational enterprise growth and profitability.

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