Xconomist of the Week: Rich Sheridan and the Business Value of Joy

[Corrected 2/24/12, 10:00 am. See below.] The first thing you notice upon walking into Menlo Innovations, a small open-plan office in Ann Arbor, MI, is how hard everyone is working. There is a hive-like focus and intensity, so much so that the 40-member staff seems oblivious to the presence of a stranger with a notebook and camera. The second thing you notice is that everyone is working in teams—two to a computer. The third thing you notice is a portable crib in the corner piled with brightly colored baby toys.

“We’ve raised six Menlo babies here,” president and CEO Richard Sheridan (an Xconomist) says with obvious pride about his policy allowing new parents to bring their kids to work. “We’ve probably raised some of the best-socialized children on the planet.”

If you didn’t know before, you’re certain now: This isn’t the typical software development operation.

“At Menlo, we’re focused on the business value of joy,” Sheridan explains about the company named and modeled after Thomas Edison’s New Jersey lab. “Failed IT strategies have put companies out of business—it’s a huge issue to do software better. Here, we’re myopically focused on that as our goal. We’ve changed everything, because the industry is broken and we’re tired of it.”

Joy sounds fun to this veteran of more than one joyless workplace, but is it profitable?

One of Michigan’s greatest venture capital success stories is Accuri Cytometers. Menlo created all of the software for the company’s flow cytometers, and continues to hold the account today. Sheridan says his joy-based focus extends beyond his management style to his business model. To that end, he bet big on his client and what he saw as Accuri’s revolutionary life sciences technology: He traded half his cash pay from Accuri for shares in the company and royalties on Accuri’s products. When Accuri sold last year to Becton Dickinson & Co. for upwards of $200 million, Sheridan says Menlo got its biggest paycheck yet.

Sheridan was 13 when he first started tinkering with computers, and he rose through the software-development management ranks during the tech boom of the 1990s, when companies “turned a death march into a business model” by fostering work environments where people slept at the office and abandoned even their closest relationships trying to meet insanely ambitious project deadlines.

“The old me would get you productive and then demoralize you,” Sheridan says of his past management style. (He didn’t specify where he used to rule with an iron fist, but his LinkedIn profile lists past employers as Tumbleweed Communications and Interface Systems.) “There were moments of joy, but the majority of the time it was fear, uncertainty, and doubt.”

Then the bubble burst, and Sheridan was left wondering if his industry would have survived had it paid more attention to sustaining the people churning out the brilliant ideas. “I was tortured. I desperately wanted to do this kind of work, but I was continually failing. I thought I’d get out of the business, but instead I decided to change it,” he says.

He started Menlo eleven years ago, and he says the foundation of his management style is that he “sucks fear out and pumps safety in.” Once you have a safe environment, he says, creativity and imagination flourish. He does this by interviewing prospective employees first for a culture match (“must play well with others” is the top qualification); eliminating ambiguity by creating a board that tells employees exactly which task they’re to be working on and how much time they’ve been given to complete each task; and he pairs employees in teams that rotate weekly, which means they’re constantly learning, mentoring, and cross-training while they’re working.

“I went into this thinking I’d solve a handful of issues as a manager, but this has exceeded my expectations,” Sheridan adds. “It’s so fascinating to watch old problems melt away. We don’t have emergencies with software and fire-fighting. I don’t even need a human resources department.”

There are a few more rules at Menlo that aren’t found at most (or any) other software development companies. Menlo employees work a 40-hour week, and never on weekends. Earbuds and headphones are banned (you might miss “the serendipity of … Next Page »

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Sarah Schmid Stevenson is the editor of Xconomy Detroit/Ann Arbor. You can reach her at 313-570-9823 or sschmid@xconomy.com. Follow @XconomyDET_AA

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