Growth at All Costs? It’s Gonna’ Cost You

If you reward only growth, employees may make illegal or unethical moves to get there, leading to dire consequences. Make sure your incentives are aligned with your values.

Sometimes hyper-growth can have dangerous side effects. Credit: James Terry Photography

Truth and public trust have become a company’s most valuable assets, and violations can lead to massive legal and financial liabilities. Many of these problems start from the top when leaders — intentionally or not — reward the wrong behavior.

In late March, BuzzFeed published a leaked memo called “The Ugly” in which a vice president of Facebook told employees: “anything that allows us to connect more people more often is *de facto* good…” even if “maybe it costs a life.” #DeleteFacebook spiked and Facebook’s stock lost all the value created in the previous 9 months.

In Silicon Valley, common sense, compassion and judgment are frequently besieged by a growth-at-all-costs mentality euphemistically known as “scaling.” Many companies are legitimately trying to cure disease, reinvent transportation, and connect people across the globe, but some are also failing to fulfill their promises to their users, shareholders and humanity. This entropy can lead to disastrous oversights.

The consequences can be irreversible. In late March, one of Uber’s self-driving vehicles was involved in a fatal accident in Arizona. The company compromised on safety due to “pressure to live up to a goal to offer a driverless car service by the end of the year and to impress top executives.”

Elizabeth Holmes, founder of Theranos, raised a whopping $700 million to help people diagnose disease faster and more affordably through a revolutionary blood test. The technology didn’t work, but Holmes continued to push for growth. Patients got hurt. The SEC brought and settled fraud charges against Holmes in March, and the company is fighting potential bankruptcy.

After Zenefits was busted for creating and using software to let employees sell health insurance without the legally-required training, then-CEO, Parker Conrad said, “There’s a low-level panic that suffuses the organization, a constant pressure to keep moving faster and faster and faster.”

Hampton Creek raised more than $310 million to fuel “the fastest-growing food company on earth.” Employees secretly bought loads of their product (eggless mayo) from retailers, feigning customer excitement. The CEO justified the move, saying: “When you’re a young company, you do everything you can to survive in the early days.”

Growing fast shouldn’t come at the expense of your values. Here are a few tips to help you build a successful company without annihilating public or shareholder trust:

Companies invest a lot of time and money crafting culture documents and “mission and vision” statements. But you also need to deliver on those promises. A company’s true culture comes to life through the many judgment calls leaders and employees make each day;

  • Etsy, the world’s largest marketplace for handmade and vintage items, a $3.3B public company, wanted to promote diversity on its team. When faced with a challenge to hire female engineers, Etsy launched the “Etsy Hacker Grant” to provide women need-based scholarships for a 3-month coding course. Etsy’s female talent pipeline shot from 7 to 651.
  • Asana, a team and project management platform started by Facebook co-founder Dustin Moskowitz, cares about mindful communication and calls on each employee to have responsibility for trust and culture. This internal memo outlines important principles to allow the company to grow successfully.

Be deliberate about your incentives. Whatever behavior you measure, promote and reward will become your culture, regardless of whether it is aligned with your company’s mission;

  • Shopify, a $12B public company that powers the e-commerce sites and POS of half a million merchants, wanted to empower employees and foster collaboration. It deployed its best engineering talent to develop internal tools, one of which was Unicorn, a social media platform where employees could share their accomplishments and recruit help from anyone in the company. Employees could even award each other cash bonuses! The system also became part of performance evaluations.

If you identify any misalignment, act quickly and decisively. What you don’t tolerate speaks as loudly as what you promote;

  • In 2015 Hubspot, a $4B market cap inbound marketing and sales platform company, fired its CMO for ethical violations to the company’s code of conduct as he tried to unethically procure a draft manuscript of a tell-all book about Hubspot. The CEO was officially sanctioned for not reporting the violations in a timely manner.

Pay attention to informal reward mechanisms, such as which topics get airtime, budget and praise. This is a continuous process. Look for places where rules or trust can be broken, and lead by example;

  • This week Slack, a platform for team communication, promoted April Underwood as the company’s first-ever Chief Product Officer — just upon her return from maternity leave. This speaks volumes for what Stewart Butterfield and team think of her contributions. As importantly, it reinforces a belief that it is possible to be a high performer and have a family.

Work with investors, board members and advisors who share your values and are like-minded. If the dialogue focuses solely on financial metrics and aggressive user growth targets, the CEO will end up prioritizing those things. Growth should not be a goal in and of itself, but a natural byproduct of a well-built company, culture and product.

This post outlines Step #1 of a 7-part “Startup Kata” meant to help startups and founders build a better future without damaging themselves, their companies or humanity. If you’re interested in joining the conversation, you can share your ideas on Twitter using #StartupKata, or send an email to participate in upcoming events: kata@luxcapital.com.