I recently sat down with Sabrina Parsons, the CEO of Palo Alto Software to discuss a concept known as the valley of death. Parsons defines the valley of death as the time during which a company grows from 50 employees to 100–150 employees. Many organizations face a number of real challenges during this period from negative cashflow to difficulty preserving a positive company culture.
You might wonder what makes moving from 50 to 100 employees especially challenging. This stage of growth finds companies with the feeling of a small company transforming into one that “has to implement a lot more policy” while also having to expand physically, says Parsons. Another major change is that in companies with less than 100 employees, it’s fairly easy for everyone to know each other. Once an organization grows to over 100 employees, that becomes much more challenging. Parsons says “you go from that ease of everyone knows each other and work in a smaller space to what’s the person’s name and what do they do?”
Negative Cash Flow and Transparency
Any time that a company grows substantially “you have to hire people, you pay them before they are producing results, you have to get a bigger office space, and that requires more capital” says Parsons. There are stages in any organization’s growth, then, where that investment in capital means that profits move into the black. “It can be a very difficult place to be in” says Parsons.
Certainly, the negative cash flow can impact the business model. But what impact does this have on worker engagement? To begin to unpack the issue, I asked Parsons how obvious it was to workers when a company goes through a phase of negative cash flow. She said, “usually it’s not very obvious.” What that means is that sometimes a company is on the verge of going belly up, but there are no indicators given to employees that something is wrong.
Something happens when a company that lacks transparency tries to correct a negative cash flow by firing staff, reducing perks, or through other cost-cutting measures. Staff members who were in the dark about the realities of the growth phase can be caught off guard and feel like they are being punished while the CEOs laugh all the way to the bank (when those CEOs are likely an anxious wreck).
I asked Parsons whether she thought it was better to be up front and transparent with an issue like negative cash flow due to growth. Parsons thinks that making employees aware of the need for being frugal can have a big impact. “I think that the idea of employee engagement and ownership thinking can make a big difference” says Parson. She suggests having a CFO to help employees understand the numbers and “are more likely to make better decisions on behalf of the company.”
When employees don’t know what is happening with a company’s financials, they don’t just accept that they don’t know and move on. Instead, they do what we all do, they speculate. Speculation can be devastating to engagement in good times and in bad. When things are not going well but people don’t know, they might assume that things are great and wonder why they aren’t getting a good raise. Conversely, if things are going really well but people don’t know, they might assume that things are worse than they are and start looking for more stable employment.
Culture Changes and the Valley of Death
When an organization undergoes rapid change, the culture also changes. Without guidance, the trajectory of a developing culture can easily be an unfortunate one. Parsons said that to stay in control of the culture was critical. “We realized we have to be very purposeful about our culture. We have to be very explicit about what it is. And we have to be very quick to course-correct and take action when things happen or people do things that don’t fit the culture that we defined and that we want.” The importance of her last statement can’t be overexpressed. An organization can talk all day about the culture it wants, but if it has no follow-through and no consequences for violations of that culture, the culture will get away from you.
Some of the things that Parsons does to preserve culture while growing at Palo Alto Software include:
- Their career page has a section called the culture deck, a slide show that outlines precisely the culture that Palo Alto Software cultivates.
- Parsons gives a culture presentation to new employees every 90 days, and she goes through every aspect of the culture.
- Once a quarter, leadership meets with management to discuss the status of the culture, which is an opportunity to take the pulse and course correct.
- When hiring, Parsons makes sure that people have more than just the raw qualifications for the job. She has learned that hiring someone who connects with the culture can be more important than a perfect résumé.