Building a Durable Company Culture | Durable Value Ep. 20

Joe and Ryan discuss how company culture went from being an afterthought to being a core part of Graceada Partners' business model.

Transcript

Ryan Swehla:
There are certain attributes that our company finds to be really critical to how we do business and people of very diverse backgrounds can all align under that same cultural environment that we have as a company.

Narrator:
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Joe Muratore:
Ryan, today we're going to talk about creating a durable company culture. I'll be the first to say that in the last 15 years of building this company, there were times, especially in the beginning where I didn't understand why mission mattered or culture mattered. There's a lot of books on the topic but-

Ryan Swehla:
We were too busy solving cash flow.

Joe Muratore:
Yeah, we were too busy growing a company, it didn't resonate with me.

Ryan Swehla:
And I'd maybe go one step further and say it wasn't that we didn't care or that that wasn't important, it was just that we didn't realize that we actually were creating a culture even as we were building this company.

Joe Muratore:
And now today, that's among the most important parts of our business. I'd say along with our business model, having a profitable business model, company culture might be as important or more important. Part of the reason is, businesses pivot. I mean, the average business pivots two, three, five times. And we certainly did, especially in the earlier years, but the thing that came through that whole time was our company culture. It was who we are and what we wanted to create.

Ryan Swehla:
Yeah, absolutely. And it was kind of a iterative process when we actually went about through EOS Traction, the book by Gino Wickman, it was kind of a roadmap for creating more structure and, I don't know, a rhythm of our business and we actually went through that exercise of trying to put down on paper what it was that embodied our culture. I remember that we started with certain things and I think the first time that we really tried to put pen to paper, it was a three, four hour discussion amongst our management team trying to figure out what were those three, four or five things that were most critical to us.

Joe Muratore:
Yeah. I remember the question. It was, think of your best employees and think about what you love about them. Start with a big list and then get down to the four or five that really moved the dial and then hire around those in the future. And of course, bonus around those and have evaluations around those.

Ryan Swehla:
And I remember that we started with certain core values, but as we went through our quarterly process, we vetted those further and had further discussion until we really kind of distilled down to our true core values. But once we struck that balance, they haven't changed since. I think it's been three, four since we've put those to paper. And every time I look back at them today, this is exactly what we're striving to be, who we're striving to be.

Joe Muratore:
Yeah. Well, if you think about it, why would core values matter? And among other things, they reduce friction within a business. Every day, 25 personalities walk into our business and have their own personal lives and their own goals in their careers, their own thoughts about the future and that reverberates around the company. And to the extent you can get people who are aligned, who feel a similar sense of mission and purpose, they're not all alike by any means, but they approach life and they approach their jobs with a similar approach that adds speed to the business. I heard that quote that said that most employees spend 50% of their time working on their jobs and 50% of their time navigating the organization, thinking about their manager, does that person like them? Do their coworkers like them? Are they doing well? Are they not doing well?

Ryan Swehla:
Are they on track, are they off track?

Joe Muratore:
To the extend you can minimize that with culture pillars and core values. And with being a great leader, you can get a lot more effort and energy out of people. And also they're going to have a lot more fun in the process. They're going to enjoy their jobs and feel less friction in that way.

Ryan Swehla:
And an interesting thing about culture is, and we'll go through what our core culture is. But an interesting thing about it is that you can take two people with very different backgrounds, very different perspectives, very different personal lives, whatever the case may be and yet there are certain attributes that our company finds to be really critical to how we do business and people of very diverse backgrounds can all align under that same cultural environment that we have as a company.

Joe Muratore:
Yeah. Well, there's this saying also that companies reflect their owners and to the extent that we are not working to be the best possible people we can be, to the extent we are not working to live with integrity and live with our values and honor and respect people and drive the company forward. The day we don't do that, we are hurting the company and it will be reflected in the culture.

Ryan Swehla:
That's partly why at our quarterly meetings, we not only look at everyone in the company and how they align with our core values, but we look at ourselves, we as senior management, all evaluate each other in person together talking about how do you match up to excellence and execution? How do I match up to extreme ownership? And that helps keep us focused on the attributes that we believe are most important for our business.

Joe Muratore:
What I enjoy is there's this overarching theme, which is our mission statement, which is we create environments that transform people's lives. What I love about that is it speaks to what motivates us. What motivates us is improving the world and having everything we touch be better for us having been there. I don't want to work on a building that isn't fundamentally better for our company having touched it. I don't want to work with people who aren't uplifted by what we do. As a business partner of yours, I want to uplift you, that sort of ethos transcends our core values and our business model to the extent we're able to improve the world. We can also raise rents a little bit. We can also add value and charge more for it. It's an exchange, but there's a fundamentally good purpose that it begins with. And without that, our company doesn't move in the right way.

Ryan Swehla:
And I think part of that came from our roots here in the Central Valley. This area is a historically underserved area. It's an under-invested area. To our knowledge we're the only investment managers based in the Central Valley. There really is a lot of mission around being able to do what we do in the environment that we do it in. I think that gets into our core values. Our first core value is honesty and integrity. And what's interesting about that is we often say that investing is a trust business. The very first box that a person has to check is can I trust you?

Joe Muratore:
Absolutely.

Ryan Swehla:
If you're buying a television, a flat screen TV, you'll have to ask yourself, can I trust the salesperson? At the end of the day it's the product that matters. But with investing, they're investing in us, they're investing in our ability to garner exceptional returns and to do it in a appropriate way. And so honesty and integrity is absolutely foundational to who we are. We often actually say that, when we're having our conversations, we always say, "There's always an investor in the room." Whenever we have internal conversations about how we handle this situation or how we do any number of things, we always ask ourselves and investors in the room right now, is that the result that that investor would want?

Joe Muratore:
I was talking about a person selling a building last week and we had a great conversation. And I said to him, "The moment we don't do what we say we're going to do, there is a vote against us out in the marketplace. There's a little piece of drag voting against us saying those guys didn't do what they said they were going to." That does not mean we don't have difficult conversations regularly.

Joe Muratore:
"Mr. Swehla, this came up, this isn't going to work for this reason." But the point being is, when we act with integrity, votes in the marketplace multiply, people say positive things. And when we don't, which we don't, there's a negative vote and that deters business and creates drag on the business.

Ryan Swehla:
Yeah. Absolutely.

Joe Muratore:
So second one would be, made famous by Jocko Willink, Extreme Ownership. We love this core value. This means that every person at every part in the organization is going to make decisions as if they own it. The buck will stop with them. We create a low bureaucracy organization. Certainly we have an investment committee and management teams, but we do not lead by committee. When someone comes into my office to talk about something, the first question is, what do you recommend?

Joe Muratore:
And almost always, I want to go with that person's recommendation. And if the person's not making good recommendations, they're not in the right spot but we all build equity within our organization like, did that person make the right decision in the last five times in a row? Yeah. Okay. Well, number six, it's going to be pretty easy to say yes. But the point being that, one thing that we do really well is leadership. We are extremely good, me and you, as owners with buck stops here leadership, and that translates down to the organization. I'm really proud of it. I think that's one of the main things we provide as a company.

Ryan Swehla:
Well, and that leads to agility, right?

Joe Muratore:
Yeah.

Ryan Swehla:
When you lead by committee, you get dragged down in the marketplace, you get dragged down in decision-making, but by empowering well-equipped people to make good decisions, it allows us to have a speed of execution. That really is a differentiator for us.

Joe Muratore:
Yeah. I love that about our partnership. 35 years of being friends. When did we start? 1986 and 15 years almost to being in business. But when we go to make decisions, there's all that experience in the background. And there's all that shared understanding of where we're going and we are often able to make important decisions within 20 minutes, 30 minutes. And we were able to make good decisions because we balance each other out and we have that shared history and we have that shared understanding of where we're going. Next core value would be positive, caring and humble. This is giant. The main idea is that we approach the world from a low ego perspective. Personally, I've been working to run at 50% ego. That is my mantra these days. Whatever, we've built a little bit of a company here, we've made some big decisions, but with that hubris starts to creep in, blind spots start to creep in.

Joe Muratore:
And the lesson I'm internalizing these days is whatever sense of ego I feel entitled to, for whatever reason on any given day with my wife, with my kids, with my business partner, with anyone I'm going to stop and roll at 50% ego. I think that is a safer place to be. But in this business, in the real estate and investment business, there are plenty of giant egos and that's fine, but that's not fine here. With ego does come blind spots, with ego comes organizational friction, with ego comes entitle moment and a sense of my way or the highway. That kills companies, that leads to bad decisions. And that's not what we're about. We're about building something exceptional, but doing it from a positive caring and humble way.

Ryan Swehla:
And I think I'd add to that a little bit. On the positive side, we've all known people in our histories that operate from a more negative or pessimistic mind frame. We believe that hampers our ability to look at options. When you come from a negative mind frame, the answer is no or this won't work or that's a bad idea. And by coming from a positive mind frame, it really opens us up to new ideas and new opportunities. And we want all of our team to come in with that same perspective of open mind frame, what can we do rather than what can't we do.

Joe Muratore:
Yeah. I love the idea of holding something loosely. Life is full of tensions. There's always tensions. And if you hold an investment idea or whatever it is loosely, in other words, you're holding it, you have something but you are not holding it tightly like this. That is a dangerous position. This is a much safer, more defensible position because you can pivot. You're open to other people's feedback. You're not defending your identity, you're not defending you about this decision. You keep the focus on the decision and that makes for better decision-making.

Ryan Swehla:
And it also allows a person to come from a more caring perspective because they are not focused on themselves. They're not focused on negativity. They're an open and receptive mind frame and we often talk about in buildings, we're often buying buildings where it's a bad culture and we're bringing a new culture to that building. And a big part of that is caring, because tenants are frustrated. They're not getting what they expect from a value standpoint, the vendors are dissatisfied and we bring a different culture, a different ethos to that building. And a big part of that is caring. And I think that ties back to our changing the environment. Our fourth culture pillar is excellence and execution, and this is one that really resonates with all of us. But I think of actually to borrow a Steve Schwarzman quote. I remember a video where he's talking to the new analyst class and he says, "There's only one thing that matters and that's 100%."

Ryan Swehla:
And at first that sounds daunting because it's like, well, people make mistakes and life isn't perfect. But I think an important grain of truth to that is we're in the investment business and unlike a particular manufacturing environment where, okay, well, if it's three centimeters off this way, not a big deal or it's two centimeters this way, not a big deal, in our environment we're dealing with dollars and we're dealing with millions of dollars. Oops, we undercut this way or we over expected that way. Those have big consequences. And the idea is creating a culture and an environment where our standard is 100%, recognizing that people are people, we created an environment that allows people to learn. But part of that excellence and execution, going back to the hiring process, we ensure that everyone we hire meets all four of these culture pillars and one of those excellence and execution relates to competence, ensuring that a person has the competency to be exceptional in the role that they're being hired for.

Joe Muratore:
Especially seeing as we live in an art meets math world. On the one hand design is incredible to how our buildings turn out. That's subjective. On the other hand, we have data points or risk. We have our financial model. There's all these different pieces but to have a person execute excellently in multiple spheres and also be able to rely on experts in our company, in those spheres, it's a dynamic process. I really enjoy it.

Ryan Swehla:
Yeah. Absolutely. And it's interesting. One of the things that we've reflected on is how do we take these cultural pillars and ensure that not only are they a part of our company, but that they're constantly reinforced.

Joe Muratore:
A really key point is hiring the right people. Before we reinforce anything, we have to have the right people on the bus. And one way we talked about that is with, gets it, wants it and capacity, again from traction. But the idea when we're interviewing people, we start with, do these people match our culture pillars and our core values. And then we say, "Do they get the job? Do they want the job? And do they have the capacity to do the job?" And these are things we evaluate quarterly.

Ryan Swehla:
Another part about hiring the right people is setting up our system to attract those people.

Joe Muratore:
Absolutely.

Ryan Swehla:
I think an important thing that we've been doing is making sure that people understand who our company is and what we do and how we do it, because that becomes a natural filter. If someone is looking for a high ego, all money-focused, how do we extract the most in our business type environment, I think just by going on our website and listening to podcasts like this, you get a sense that we're not a right fit for that.

Joe Muratore:
That said, we do work to pay top of market salaries.

Ryan Swehla:
Absolutely.

Joe Muratore:
And we do work to create a talent [inaudible 00:18:39] organization. Both of those borrowed on the Netflix model.

Ryan Swehla:
Exactly. One of the things that we've done is really put thought in our website in our careers part our website into who we are and what our values are so that by the time someone is interested in applying at our company, they already have a sense of who we are.

Joe Muratore:
Absolutely. Interestingly, actually, one of the reasons we do these podcasts is because people who might work at our company at some point can get a sense of what our company is like and who we are and what it might be like to work here. We enjoy doing that.

Ryan Swehla:
Yeah. And then during the interview process, we have our core values on the wall in multiple places and anywhere we're interviewing someone, no matter which room it is, we can all look to that on the wall and have that be a conversation point.

Joe Muratore:
I was in an interview about two weeks ago and a person on our finance team, we were hiring for a finance person. And she literally said, can we go through the core values and can you rank yourself on a one to 10 on each of those core values? And we did. And it was a little bit awkward, but I love that this person owned the core values in that way. It was stunning to me, it was amazing.

Ryan Swehla:
I think she was the same person that said how much she loves when numbers align perfectly.

Joe Muratore:
No, that was a different person.

Ryan Swehla:
Okay. There's excellent in execution right there, someone who's just passionate about making sure that the numbers line up perfectly.

Joe Muratore:
Well, in a sense they're bought in because these are the agreed upon rules to this game, so to speak, and people who are already in the organization begin to defend that, hey, this is how we roll. When you come into the organization, are you going to disrupt the way this thing works? And that was beautiful. One other part of hiring is that we look to be the place that people will do the best work of their entire lives. We want to be an environment where someone can come and experience that the height of their career here and what an honor it is for us and for the company to have colleagues who are willing and interested in doing that. To the extent that we can create a company where people see us worthy of them coming and doing their best work, potentially in their whole careers, that's a great honor. And that's something we look for.

Ryan Swehla:
How do we keep culture alive and present? How do we keep these core values top of mind as people do their day-to-day work.

Joe Muratore:
Right. Well, the first thing we have to say is you and I and our leadership team and managers in the company have to be defenders of the culture.

Ryan Swehla:
Another aspect of keeping that present is our quarterly evaluations. We have bonuses for everyone in the company. Those bonuses are not only around work product or goals, but they're around those core values. And so that's true for everyone in the company, including yourself and myself, every quarter, we have a-

Joe Muratore:
We rate each other and we-

Ryan Swehla:
We have a partner evaluation and we rate each other on every single one of those aspects.

Joe Muratore:
I would point out that the bonuses are pretty small relative to overall salary. We don't want people to live in a bonus driven world. We want them to be well compensated, but it's almost like when you get your evaluation, there's enough money to it to matter, but it's not a major part of overall compensation, but you'll notice.

Ryan Swehla:
Absolutely. And the departmental level tens every week when they're meeting in their departments, they're talking about this, they're talking about our core values. And then every other week, the combined level 10, they're talking about our core values. They're talking about examples of when people have lived those core values. I'd say another thing that's been really helpful for us is we have something that we call a high five, which is where we acknowledge a person publicly. And it's not really designed where senior management acknowledges that someone did a good job. It really is designed as a peerness thing where if someone sees someone exhibiting one of these core values, we have a group distribution that goes out to everyone in the company that says, "Hey, high five way to go." And these are ways that help reinforce those core values.

Joe Muratore:
I love that. And people seem to enjoy those. We haven't spoken about our culture pillars much, and that's not really for this segment, but a couple of them are, we don't send harsh emails. And most importantly, if someone has something negative to say about another person, we call the other person in the room and we talk about it right then. There's been a few times someone wandered into my office and said, "Hey, did you see that this person did that?" Stop, let's call the person in here. Let's talk through this, let's solve it. And what that does is number one, it discourages too much of that kind of talk. Number two, it solves problems quickly. If there's fewer politics and there's more solutions and there's less friction on the organization and doing well.

Ryan Swehla:
People aren't having to spend time navigating politics.

Joe Muratore:
Right.

Ryan Swehla:
Our goal is to eliminate politics from the workplace as much as possible.

Joe Muratore:
Well, that is mostly how culture is done in our company. We are very proud of the culture we've created. And I think it's been absolutely crucial to what we built and we continue to invest in it heavily.

Ryan Swehla:
Absolutely.

Joe Muratore:
Any last thoughts from your end?

Ryan Swehla:
I'm really proud of the culture that we've created. It makes it a joy to come to work every day. I think it makes it a joy for people to come to work every day. And it's also reflective of our client base because people are naturally attracted to people that share their values. And they know that we live by them. And it's a joy to be able to work with people both as clients and as employees or team members that exhibit those values.

Narrator:
Thank you for listening to Durable Value and investors podcast, where we demystify commercial real estate with safe, sound investment strategies to help you balance your portfolio. If you enjoyed this podcast, be sure to rate it on iTunes or wherever you get your podcasts. To learn more, visit graceadapartners.com where you'll find more information, investors tools, case studies and more. This podcast is hosted by Joe Muratore and Ryan Swehla. It's produced, edited and mixed by Melodic with intro music by Ian Post. Thanks again for listening. And we'll see you next time.