Startup culture is all the rage. Is there a downside?
Back in August 2010, Bend software startup G5 landed its first round of financing, a $15 million boost from the equity firm Volition Capital. Not long after that, according to co-founder and CEO Dan Hobin, company culture took a turn for the worse.
New layers of management, a couple of new departments and systems — all of a sudden, what had once been a hustling, hard-charging startup grew bloated and sluggish.
“When you’re a startup, you gotta do whatever it takes to be successful,” says Hobin, who launched a few startups in California during the dot-com boom and also helped start the Bend technology accelerator FoundersPad. “We went through a period where we got big fast, and we kind of lost that spirit. We laugh around here now. We call it ‘TFC — too fuckin’ corporate’.”
For a young, energetic company like G5, growing into something that no longer fit the bill was tough. The company has since recaptured much of its original vigor, but its trajectory serves as a good example of when a startup might no longer be one — and why it matters.
“I think it’s a psychological thing more than something like a certain amount of revenue or number of employees,” says Rick Turoczy, founder and editor of the Silicon Florist blog and general manager of the Portland Incubator Experiment. “There’s a cultural component to it that can be embraced at all levels of companies. You could have a rapidly growing company with hundreds of employees and still be a startup, or one that has only 10 employees but is far beyond being a startup.”
Startup culture often brings to mind ping-pong tables and kegerators. But these are little more than employee perks, says Eric Winquist, CEO of Portland startup Jama Software. At Jama, he says, startup culture is about being innovative, staying connected with colleagues, and having access to as much information and as many tools as possible.
“When organizations shift and start growing away from that, and the culture changes — that’s one way of thinking about when it’s no longer a startup,” Winquist says.
Just as the early stage mind-set can be a good way to tackle business challenges, it can also be valuable when it comes to hiring and retaining quality employees. On the flip side, companies that behave more like established corporations might have a leg up when it comes to customer stability.
The fully developed internal systems associated with more mature companies — communications, human resources, marketing — can also be essential in helping startups scale.
In 2014, of course, there’s a certain edginess and cachet to calling oneself a startup. But one can’t stay in high school forever. And many new companies wait too long before investing in those critical systems, preferring, for example, to spend money on product development instead of due diligence, says Brenna Legaard, an IP lawyer with Schwabe, Williamson & Wyatt.
“If you have an employee who gets injured on the job, nobody cares if you’re a startup or not,” she says. “If you have a securities problem, it doesn’t matter if you’ve been around three years or 30. There’s no legal period of company adolescence.”
Legaard says many companies could hammer out IP ownership “in the garage stage” but instead wait until they’ve gained market traction. “Having to fight when money’s involved is so much harder.”
There’s a way for startups to transition gracefully into adulthood while preserving that youthful energy. The key is to integrate more mature systems across the company, a strategy that allows startups to retain that sense of internal connectivity.
Jama has grown from three people in 2007 to 120 today. As the company has gotten bigger, internal communications has become a challenge, Winquist says. “It requires coordinated communication, which feels like we’re becoming a big company. When you start bringing new people into the organization, you don’t want to lose sight of your core values.”
That’s what happened at G5. In the early stages, everyone “was cranking and working together to build a really healthy company,” Hobin says. But as the business grew, people thought it might be time to grow up and be more “corporate.” G5 hired new managers from outside who ended up not fitting in.
“They tried to change it, and it caused big issues,” Hobin says. So G5 let some of the managers go and implemented systems and processes that meshed with the company’s original philosophy. Those systems remain in place today, even though the company employs 175 and grosses up to $25 million in revenue.
“If I had to choose between the startup crank versus the corporate way,” Hobin says, “I’d choose the startup all day long.”
