The first thing we normally notice about a company is its product – but that’s just what’s on the surface. The true nature of a company involves many components interacting amongst each-other, much like our own body has many systems working in tandem to make up the whole.

Companies each have their own processes, values and pace. Whether it’s “move fast and break things” at Facebook or “being a force for good” at Canva, these core values set the discourse of a company.

Whilst it’s easy to compare growth metrics and product specs, there is a, je ne sais quoi, a feeling, an essence in the culture that’s far harder to measure from the outside. Ultimately – it is this essence, that determines so much of who succeeds, and who fails.

For many years Enron was perceived as indestructible, until it demised under the weight of its own lies. More recently we’ve watched the boom and bust of Theranos as its culture of fear[1] caused the company to ultimately implode. WeWork rose to the top of everyone’s watch-list, outpacing any previously witnessed growth, before breaking into pieces before our eyes.

Over my 10 years as an investor, I began to recognise a clear pattern, something intangible.

As my experience grew, the conclusion became clear … what made the essence of a valuable company was not the product… it was in the people and the agreed acceptable conduct between them … the backbone is truly the culture. But how do we get an insight to this from the outside? What makes a superior culture and how do we spot the fault lines in the failures?

One way to understand this is to imagine a company as a sentient being – a human with many of the same systems working together.

We create the following map:

Skeleton = Culture

Soul = Founders values

Skin = Product

Cardio-vascular = The Speed

Nervous system = Systems / Operations

Brain = Strategy

Cash = Adrenaline

Human Skeleton

Skeleton = Culture

At the core is the skeleton. This is what keeps it all together. For a company, this is its culture. It cannot be faked, and a seemingly small broken bone can, in time, cause a deathly infection.

If a company does not operate under stressful conditions (it lazes on the couch rather than sprinting a marathon), that limb may not be overused, and the fault may go unseen for a long time.

However, overworking a sore bone can cause irreversible damage. A growth at all costs culture at Enron forced further and further lies to be swept under the carpet, bringing an infection to a broken bone as accounting fraud commenced. When tough decisions start needing to be made and a clear and ethical culture code is not present, it is easy to excuse hiding a mistake. Over time, little lies or indiscretions (such as at Theranos) tend to cumulate. Left untreated this can spread as an infection throughout the whole body and ultimately be fatal to a company.

There are of course treatments, but they can be difficult to execute. If the bone is isolated, one may undertake surgery to remove the individuals who perpetrate a toxic culture – clearly this is more difficult when it stems from the top (it’s hard to amputate a skull). Alternatively, antibiotics (cultural transformation) may be used for treatment over a long period of time, however changing culture takes many years and is one of the most difficult forms of transformation[2].

Soul = Founders Values

Anyone who has been a founder or worked intimately with them knows of the hardship, the hours and the emotions they pour into their dream. In fact, as the company grows, you notice that start-ups tend to personify their founders – their personality, values and beliefs become embedd