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Summary:

After shutting down energy efficiency startup Hug Energy at the beginning of 2011, serial entrepreneur Marcus Tallhamn writes about the most important lesson he learned from the experience: value systems are crucial, and you’ve got to know what matters.

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Most people, at some point throughout their career, have felt lost, unhappy or unproductive at work. Have you? If so, there’s a good chance your value system was trying to tell you that you needed a change of scenery.

You can think of the value system as a lens through which you view the world. It helps you make sense of it by telling you which things are “good” and which things are “bad”. Without this lens, there would be mental chaos, and therapists all over the world would rejoice.

I like to think of it like Arnold Schwarzenegger’s heads up display in Terminator 2 only much more advanced. It’s so well integrated into our minds we rarely even see that it’s there. And it’s a bit ironic that it’s so easy to forget it, when it’s so important not to.

Know when to fold ‘em

In 2009, I co-founded a company named Hug Energy with two other guys. One of them previously co-founded a company that later sold for $125 million and the other one co-founded a SaaS business with 40,000 paying customers. They are brilliant people and it was an honor to start a company with them. Fueled by adrenaline from past successes we decided to tackle one of the biggest problems that face our generation: energy waste.

When we, 18 months later, shut down the company with enough uncashed investor checks to give us an 8 month runway, I wrote a blog post about it that resulted in a stream of emails. One of them was from Katie at GigaOm asking if I’d be interested in sharing some of what I learned.

There’s rarely a single reason for why teams consisting of capable and motivated individuals sometimes fail, just like there isn’t a simple reason for why even the greatest baseball players bat at best 0.400. I could tell you about what we did right and what we did wrong, but I think that’d get boring. So instead I will tell you about the most profound lesson I learned: how incredibly important value systems are when you’re building a company.

Value systems are crucial

To give some context, here are two value systems that are popular with humanoids and humans:

3 Laws of Robotics

  • 1. A robot may not harm a human being, or, through inaction, allow a human being to come to harm.
  • 2. A robot must obey the orders given to it by human beings, except where such orders would conflict with the First Law.
  • 3. A robot must protect its own existence, as long as such protection does not conflict with the First or Second Law.

 10 Commandments

  • You shall have no other gods before me.
  • You shall not take the Name of the LORD your God in vain.
  • Keep holy the Sabbath day.
  • Honor your father and your mother.
  • You shall not kill.
  • You shall not commit adultery.
  • You shall not steal.
  • You shall not bear false witness.
  • You shall not covet your neighbor’s wife.
  • You shall not covet your neighbor’s goods.

The first thing to realize is that it’s easy to swear by a value system, and a different thing to follow it. To see someone’s true colors, you have to observe them when they are forced to compromise. Even the most morally bankrupt individual will adhere to “you shall not steal” if he’s alone on an island. Without a forbidden fruit there will never be a test of will, and you will never know what the person’s made of.

Companies also have value systems, and the ones that run well make sure they’re clear, internally consistent, consistently applied, and acceptable to everyone who is hired. Their value systems help them act fast, sound and consistently, and help them reject people that are bad for them (as opposed to bad).

A well run company’s value system often gives a fascinating glimpse of what the world must look like through the eyes of its founders and employees. Take a look at these quotes for example:

Don’t be evil
– Paul Buchheit and Amit Patel, Google

Optimism, pessimism, f- that; we’re going to make it happen.
-Elon Musk, SpaceX

That’s been one of my mantras — focus and simplicity.
– Steve Jobs, Apple

My role is about unleashing what people already have inside them that is maybe suppressed in most work environments.
– Tony Hsieh, Zappos

Only the paranoid survive.
– Andy Grove, Intel

Know what matters

These quotes give you a glimpse of the magic that makes these companies tick. They’re so intertwined with the companies’ DNA that it’s almost impossible to imagine them operating with a different “lens” — stripping them of one of these values is just unthinkable. And the reason we feel this way is because we know that extraordinary sacrifices have been made to stay true to these values. That’s how we know they are real, and not just a bunch of bullets on a company’s website.

On the inverse, companies that lack or have inconsistent value systems often have an incredibly difficult time executing well, no matter what engineering, sales or marketing skills they have. Because they disagree on what is good and bad, and right and wrong.

Marcus Aurelius once said, “Always get to know the character of those whose approval you wish to earn, and, the nature of their guiding principles.” It’s a good quote and if I had to choose one lesson to share with you it’s this: Know What Matters:

  • Make sure you understand your own values. Few people do. Ask yourself the really hard questions, and be brutally honest.
  • Make sure you understand which values your fellow co-founders and early employees consider non-negotiable, and screen for them in yourself and others. If these values cannot be reconciled, someone has to leave. Immediately.
  • Make sure you understand which values your co-founders consider important but NOT non-negotiable. Talk through what the lack of alignment means in practice: what types of issues may arise and how do you deal with them? Make sure everyone has the same expectations.

I paid a lot of attention to values when co-founding otelic.com, my new company, and I hope you will too the next time you take a job, hire someone or start a company.

I look forward to seeing you in the trenches, aligned and well.

Marcus Tallhamn is a Swedish entrepreneur that landed in San Francisco via France. He’s the CEO of Otelic.com, a company that helps you create happiness at work and share it with the world. He was previously CEO of Hug Energy Inc, and before that President of Prover Technology Inc. Marcus’ dropped out of his Engineering Physics M.Sc. at Chalmers after New Scientist featured a Humanoid he built at age 20.

Image courtesy of joaoism, smaedli, osde8info, dullhunk.

  1. Armando Machado Monday, October 17, 2011

    I really enjoyed your article, I will try to use this on my next actions and see the results.

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  2. Ravi Sanagala Monday, October 17, 2011

    Baseball metaphors will fly by the ears of your non-American audience.

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    1. Marcus Tallhamn Monday, October 17, 2011

      As a Swede I understand where you’re coming from, but the analogy just seemed very fitting :)

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  3. Brian Schmitt Monday, October 17, 2011

    Marcus, That is a valuable lesson learned. I just launched TestMyMessage.com, but did so with total strangers. Our place of origin was a business school that has a biased toward some basic value systems. Since our basic value systems were pre-filtered by being a part of the school’s patronage we were able to quickly decide what we were about as a firm. I’m not sure it was really a serious issue even. Maybe it should have been more of one. You can see how we came about in the Denver Examiner: http://www.examiner.com/business-commentary-in-denver/launching-a-new-business-going-from-concept-to-revenues-just-72-hours

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    1. Marcus Tallhamn Monday, October 17, 2011

      I think often teams of people that have known each other for a very long time (preferably in a work setting) have an advantage. It may not necessarily be that they are more aligned with each other, but at least they know each others values so they have the right expectations from day one. This makes it easier to compromise and eliminates a lot of the frustration that comes when somebody’s behavior or priorities doesn’t match your expectations.

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  4. Rajesh Varrier Monday, October 17, 2011

    good points made Marcus,having value systems which are aligned is very important. But like you rightly said, despite what people vouch for, you never know what they are made of.So beyond alignment of value systems, probably certain ground rules too have to be set, which is agreed upon as to what happens if value systems are violated.

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    1. Marcus Tallhamn Monday, October 17, 2011

      Absolutely Rajesh, the second you stop rejecting violations of your value system the value system itself starts to deteriorate.

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  5. When you say “Ask yourself the really hard questions, and be brutally honest,” do you have an actual list of questions you now ask yourself and potential partners?

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    1. Marcus Tallhamn Monday, October 17, 2011

      Yes, we will publish a list of specific questions. If you want to be the first person to know when it becomes available, feel free to follow http://www.twitter.com/otelic and registering on http://www.otelic.com.

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      1. Thanks!

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  6. I agree with your philosophy. In 2002, as a successful telecom analyst at a bulge bracket bank, I realised my value system was different to the bank I worked for. So I wrote a book about what was wrong with banking. The book was called “City of Thieves” by Cyrus Moore and is published by Little Brown Books. I left corporate banking to run my own business and agree with you that a good value system creates successful companies.

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  7. Ryan Stanton-Wyman Wednesday, October 19, 2011

    Valuable, if not painful, lessons. Just wish Solyndra, Evergreen, etc. could have taken a hint from you!
    http://www.energystorageblog.com/2011/08/21/what_the_energy_storage_industry_should_learn_from_the_pv_panel_price_collapse/

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  8. The ultimate startup lesson: knowing what matters | Cleantech News and Analysis http://t.co/w8NDZGDb

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  9. RT @betobetico: The ultimate startup lesson: knowing what matters | Cleantech News and Analysis http://t.co/w8NDZGDb

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