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 overheard conversations”), as is email between staffers. Sheridan explains that Menlo uses “high-speed voice technology,” and proceeds to demonstrate.

“Hey Menlo,” he shouts.

The hive goes silent and snaps to attention. “Hey Rich,” they answer in unison. (And that’s how you call an all-staff meeting at Menlo Innovations, which any employee can do at any time for any reason.)

Sheridan also employs a team of “high-tech anthropologists,” who are in charge of discovering what a Menlo software user’s experience is by observing them in their natural environment. Most of the anthropologists don’t come from a tech background (one I spoke to previously worked in the floral department of Whole Foods) and, like Star Trek’s wide-eyed Counselor Deanna Troi, are selected for their finely developed sense of empathy, he says.

“The main reason why I came to work here is, I saw it as an environment where I could learn a lot,” says high-tech anthropologist Tracy Beeson. “I had no idea how much. Beyond actual work, I learned about business because we help clients navigate and make decisions. We are part of the pre-sales process for Menlo, and we take on HR functions—we manage each other. The goal is to be the manager and not be the manager at the same time.”

Yes, but … how do they like working for such an unconventional operation?

“It can be exhausting,” Beeson admits. “It takes a while to get used to. In a cube by myself, I could stare at the wall. With a partner, there’s no down time. We have to lean on each other.”

“But we’re focused on a common goal,” Beeson’s partner Justin Wheeler, the former flower guy, interjects. “Even if we clash as people, it’s not hard to home in on what you’re supposed to accomplish.”

Sheridan knows his methods are unorthodox but he says his company’s success proves they work, and he invites anyone who’s curious to come by the office for a tour. In 2011 alone, 1,381 people across 168 tours stopped by to learn about his philosophies, which he’s currently outlining in a book. [Paragraph corrected to indicate accurate number of people that toured in 2011. We regret the error.]

“I have eleven years of unwavering proof that this works,” he adds.

As a journalist, I have a pretty sensitive b.s.-meter, and, despite Menlo’s slightly cultish atmosphere, I detected no trace of disingenuousness on Sheridan’s part. I think back on some of the fear-based offices I’ve worked in and marvel at the freedom and empowerment Sheridan gives his employees and the productivity that seems to result. Clearly, he’s onto something. And, if his book takes off, the business value of joy might just be coming to a company  near you.

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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