Understanding the Critical Intersection of Culture and Performance in Growing Companies
Most founders start their journey believing that a healthy culture is something to be defined, built, and vigilantly protected. When cracks begin to appear in this culture, the immediate reaction often involves pinpointing a “leak”—perhaps a toxic hire, abandoned values, or a founder who’s become too preoccupied to maintain the original warmth. Common fixes might include a values offsite, new behavioral guidelines posted on office walls, or a renewed pledge to “put people first.”
However, these solutions frequently fall short. The reason lies in a fundamental misunderstanding of why culture breaks. It rarely happens because founders stop caring. Instead, it occurs because the company outgrows the coordination system that once supported it. The trust, decision-making processes, and accountability mechanisms that once flowed naturally among a tightly knit team no longer align with the organization’s current scale or the complexity of the market it operates in. This disconnect is what we call “the lag.” Attempts to close this gap with care alone are insufficient, and the culture continues to falter.
The Evolution from Relationship-Based to Agreement-Based Alignment
In the earliest stages, a company’s culture and performance are deeply intertwined through personal relationships. People are close—especially to the founder—and alignment happens organically through daily interactions. This relationship-based coordination works beautifully when the company is small; the founder senses when something is amiss and can remedy it swiftly, often in informal settings like hallway conversations.
But as companies grow, this intimate web of relationships becomes impractical. Relationships don’t scale effectively, and alignment must shift to explicit agreements: clear roles, standards, and expectations that enable people who barely know each other to collaborate seamlessly. This transition from relationships to agreements is crucial but tricky. It introduces clarity and accountability but often meets resistance, especially among leadership layers accustomed to ambiguity and informal understandings.
The Challenge of Building a Both/And Culture: High Care and High Performance
Founders typically gravitate toward one side of the culture-performance spectrum. Care-led founders excel at fostering warmth, loyalty, and belonging but may inadvertently allow performance standards to soften. Conversely, performance-driven founders often cultivate intensity, output, and ambition but may neglect the care component, resulting in a less supportive environment. While either approach can sustain a company for some time, the true challenge lies in creating a culture that holds both high care and high performance simultaneously—without one undermining the other.
Achieving this both/and culture is difficult even when everyone agrees on its importance. Leaders may endorse objective performance standards and agree on what constitutes excellence, yet resist the mechanisms that enforce these standards. This resistance is not duplicitous or indicative of weak leadership but often stems from deep-seated fears about being measured precisely or having standards wielded punitively rather than constructively. Overcoming this requires sustained, patient effort—sometimes spanning years.
Why Culture Often Breaks as Companies Scale
Culture breakdowns typically occur because the company’s coordination system has become outdated. As explained in Work 9.0: The Evolution of Work, organizations coordinate through one of three systems: relationships, agreements, or principles. Early-stage companies rely on relationships, but growth demands a shift to agreements. Eventually, especially in dynamic or ambiguous markets, even agreements become insufficient, necessitating guiding principles that empower decentralized decision-making.
The problem is that companies often outgrow their coordination system long before recognizing it. The warmth of relationships masks the underlying misalignment. Investing in the culture needed for a 100-person company while still at 25 employees may feel premature or like “borrowing trouble,” but postponing this work leads to a slow cultural decay that’s hard to reverse.
This challenge is especially acute for first- and second-time founders who lack experience navigating the transition from relationship-based to agreements- or principles-based cultures. Without a clear model, they often push relational culture beyond its limits, intensifying the lag.
Two additional forces exacerbate this lag: market dynamics and layering within the organization. A faster or more ambiguous market raises coordination demands independent of headcount. Additionally, beyond roughly 30 employees, multiple cultural “layers” emerge—executives, managers, frontline teams—each interpreting agreements differently. The founder’s relational culture may still resonate at the center but fail to reach the edges, where inconsistent rules begin to surface.
Strategies to Prevent Your Company Culture from Breaking
Attempting to retrofit a both/and culture under pressure is often too late. When a high-care, low-performance culture faces sudden market demands, the outcome is frequently replacement: new executives or a new CEO arrive to bring performance, often at the expense of warmth.
A genuine transformation that integrates performance into a care-strong culture usually requires leadership change and disciplined change management. When founders succeed without leadership turnover, it’s typically because they proactively built this capacity ahead of time. The window to act is before the pressure spikes, not during.
Here are five concrete moves founders can take to safeguard their culture as they scale:
- Name the game you are actually in. Understand your competitive environment—how fast your market moves and how much uncertainty it holds. Designing culture to fit your personal comfort rather than your market’s demands introduces risk. A useful tool is a 3×3 matrix gauging pace and ambiguity from low to high.
- Match your coordination system to that game. Identify whether your current system is based on relationships, agreements, or principles, and anticipate which system future stages will require. Many scaling companies falter by clinging to outdated coordination systems. Make deliberate shifts before external pressures force them.
- Design the 100-person culture while you are still 25. Approach culture as architecture, not wishful thinking. The agreements and standards needed for a larger company take years to embed because they alter unconscious assumptions. Starting early prevents a reactive scramble later.
- Install the performance half before you are forced to. Introduce objective standards and measurable value metrics while stakes are low and trust is high. Waiting until growth exposes gaps means embedding accountability when goodwill is scarce. Expect resistance and interpret it as valuable information, not betrayal.
- Watch the layers, not just the center. The founder’s experience of culture is often the least representative. Spend time at the organizational edges, holding leaders accountable to consistent standards. Early warning signs of cultural fractures usually involve teams operating by conflicting rules rather than dramatic crises.
Ultimately, culture is not a feeling to be preserved but a system to be intentionally built and adapted as the company and market evolve. Founders who sustain enduring cultures are not necessarily those who show the most care, but those who anticipate the lag, close it purposefully, and refuse to let the easier half of culture stand in for the whole.
