6 tips for building a successful risk-taking culture

In his new book, Okta co-founder Frederic Kerrest shares tips on how startups can build a culture where everyone feels comfortable taking risks.

What do you do when your contacts list includes C-suite executives from Amazon to Zoom?

If you’re Frederic Kerrest, you take all that business experience and put it into a book designed to help entrepreneurs at every stage of a startup. In “Zero to IPO,” publishing in April 2022, Kerrest weaves anecdotes and advice from fellow founders and entrepreneurs into his own story about founding identity management company Okta.

“Over the past 20 years, I’ve diligently taken notes on the advice I’ve been given,” writes Kerrest, Okta co-founder, executive vice chairman, and COO. “I’ve been lucky enough to meet hundreds of business leaders and investors across the country, and I always pepper them with questions. The nitty-gritty tips in this book represent the distilled wisdom of two decades in the business trenches, and it comes from people who have built over a trillion dollars’ worth of wealth for themselves and their investors.”

In the following excerpt, Kerrest, MBA ’09, shares what he learned about encouraging a risk-taking culture where innovative and unconventional strategies and ideas are part of the business model.

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Startups are, by definition, risk-taking operations. They go up against giant corporations that are better funded and more firmly entrenched. They upend industries. None of that happens by following tried-and-true paths. It only happens by plunging into the unknown.

Founders aren’t the only ones who need to be comfortable with ambiguity. In the early years, everyone in your company has to be ready to shoulder risk. Not just in their initial decision to join your unproven startup. They need to be comfortable taking risks in the ways they do their jobs — especially when you’re still trying to figure out what the product is and how the business model should work.

If your company’s culture doesn’t encourage taking calculated risks — trying out unproven features, or innovative marketing strategies, or unconventional pricing ideas — you’ll never "10x" it [growsto be 10 times larger than your original valuation] in the short amount of time you have to work with. Here are six practices that will help you build a successful risk-taking culture.

1. Hire for entrepreneurial mindsets (at least among the first 100 employees).

The first 10 employees define a company’s culture, and the next 90 solidify it. Of course, the bigger you get, the more you’ll start bringing in people who are psychologically more conservative. But the culture that those first 100 hires create will live on as your headcount grows to 500, 1,000, and beyond. The more entrepreneurial those first folks are, the more that ethos will get baked into your company’s culture.

2. Let your teams know that you know a project is risky.

One year, Minted launched a new business around personalized handbags. “I told the team, ‘I don’t know if this is going to succeed, but let’s just go have fun with it,’” [founder and CEO] Mariam Naficy says. Her people went into it with confidence, knowing that even the boss knew the project might not live up to her hopes. That gave them courage to run with it. “Nobody was saying, ‘Oh, God, we have to be perfect so I don’t want to be on this team.’”

3. Make it fun.

Not “fun” as in a beach vacation. Fun as in playful, open-ended, and adventurous. Research has shown that the more playful a person’s mindset is, the more creative breakthroughs they have. When you task people with trying something new, put more emphasis on exploration and discovery, rather than on producing a specific result.

4. Don’t “punish” employees whose projects fail.

A culture where failure is penalized makes a founder’s job harder. People will start hiding bad news out of a reasonable sense of self-preservation. If a team fails at something, “Don’t come down on them too hard,” Box’s [co-founder and CEO] Aaron Levie says. And be mindful of what project you give them next. Putting “failed” teams on backwater projects sends a dangerous message. “People are going to start to think they should only work on high-profile, low-risk projects that are assured of success,” he says. Then, over time, “the company is going to stop doing really innovative, interesting things.”

5. Set guardrails.

The risks you and your teams take need to be calculated. The size of a project needs to be appropriate to the person or team’s experience. You’re not going to ask someone to climb Mount Everest before they’ve summited a hill in their own backyard. Establish guardrails regarding the size of the project, the budget, or the timeline. Set milestones for reporting back on the progress they’ve made and what they’ve discovered. And define parameters for the circumstances under which you should kill the project.

6. Do post-mortems and celebrate learnings.

A “failed” project isn’t over until your team has studied what worked and didn’t — and they’ve extracted insights that the rest of the company can learn from. Then break out the champagne. That’s what they used to do at Google X, which was launched by Sebastian Thrun before he went on to found Udacity and then Kittyhawk. “We always wanted to tell people that failure is about learning. When you learn something that gives you an important insight, that’s great,” he says.