What We Can Learn From The Mismanagement Of Zenefits

A cautionary tale for all founders about culture, cash and integrity.

When news broke recently that Parker Conrad, the founder and former CEO of “unicorn” startup Zenefits had built a macro to help his sales reps avoid the mandatory training to get their insurance license, it was easy to understand why the company was in turmoil.

From day one, he created a culture focused completely on doing whatever it takes to win, all ethics and morals aside. Further stories have been reported about the company’s culture of drinking, sex in stairwells and all sorts of crazy behaviour that involved huge amounts of money and social irresponsibility. And it all started with 1) the founder and 2) the team he built around him and 3) his attitude towards company culture.

David Sacks is now CEO and he’s been hired by the board to turn the ship around, which I’m sure he will. Putting all of that aside, the stories and scandals coming out about Zenefits really got me thinking about culture — and two points specifically.

First, how it all starts and ends with the founder, no excuses, no exceptions. And second, how hard it is to change course once you’ve achieved some sort of critical mass in terms of headcount.

The culture of a startup is really born from how the founder(s) views the world and what they will or won’t sacrifice to grow. A lot of it has to do with their upbringing too. What were they taught by their parents? How straight is their moral compass? What do they believe to be true about competition and winning? What does being a founder mean to them and is it all about the money, or is it about building a legacy that outlasts them? Will they hire someone who is functionally great, but morally bankrupt? Etc.

It really boils down to one simple statement: all startups can grow in one of two ways — the right way or the wrong way.

When you make sacrifices in the right way, you do so with integrity and honesty. For example, you might sacrifice time away from your family to open a sales office in another country. Or you might sit through dozens of interviews to find the perfect person because you won’t sacrifice your hiring standards. Or you might pull endless midnight shifts to make sure your next product release is perfect.

Those are all examples of good sacrifices.

So what about making sacrifices in the wrong way? Well, that’s when you “interpret” the law in your own way. You live in the land of make believe and focus on revenue (not profit) growth at all costs, assuming you’ll just continue to raise money from investors who are happy to keep pushing the idea of profitability out in exchange for perceived market share.

You treat people as numbers, cogs in your wheel to get ahead no matter what. When you’re done with them, you replace them. You don’t place too much emphasis on culture because, fuck it, “that doesn’t matter here”. And you don’t worry about your reputation because once you sell your startup for $100,000,000,000 you won’t give a shit what people think of you.

You’re all about that fuck-you-money, baby.

The founder with the correct moral compass tends to make the right decisions and hire the right people early on — good, honest and hard working people like them, who see the world in the same way. This sets the tone for everything moving forward as they start to experience growth and some sort of success. They take pride in their reputation and their integrity and want their name to stand for something. They want their kids to be proud of them not because of the money they make, but because of the positive impact they’ve had on the world.

They don’t tolerate liars, cheats and people who are only in it for themselves. They are selfless and put their employees and customers ahead of everyone else — including themselves, their investors and their board.

They want to go to bed at night with a clear conscience, even if that means growing a little bit slower and in a way that’s a little more controlled.

These are the traits of the best CEOs I know. And these are people running companies which collectively generate billions of dollars in annual revenue. They all work hard, are honest people and shake their heads when they hear about the Zenefits story. Because they know, from experience, there’s a completely different way to grow a startup.

Founders who are primarily focused on the money or short term, tend to take the view that nothing but growth matters. Ironically, though, the best way to grow is to hire people who share the same views on the right way to win — as a team, honestly, with integrity and while serving customers so amazingly well that they tell everyone they know about you.

If your foundation is solid and you’re lucky enough to get past product-market fit and in to the getting ready to scale or scaling phases of your startup’s growth, it’s 1,000 times easier to make that transition when the team you’ve hired is full of genuinely good, helpful people who care about your customers like they’re family.

When you experience that, it’s magic. Everyone pulls in the same direction, based heavily on the voice of the customer. They support each other and help out where they need to. When someone tries to take a shortcut or cheat, they’re called out not by the founder, but by their peers.

The culture takes on a life of its own because the founder made the right kind of sacrifices early on. They didn’t lie, cheat, break the law or take dishonest shortcuts. They put in the work, hired the people and never put revenue ahead of their honest intentions.

That’s the kind of culture that makes a startup great from day one and continues to keep it great on day 10,000. And it all starts and ends with the founder.

If you want to experience rapid growth in your business, build an enduring legacy and become the absolute best version of yourself, then you should check out my private mentoring group for founders. Click here to learn more.

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