“Do not use the stairwells to smoke, drink, eat or have sex.”

That was what Emily Agin, Zenefit’s director of workplace services, told staff members in an e-mail.

8th of February, 2016, was when then-CEO and co-founder, Parker Conrad resigned amid a plethora of concerns regarding Zenefits’s rollercoaster-like growth.

For the most part, Zenefits was deep in legal problems; their insurance brokers were discovered to have been using a secret software, known as a macro, to help them cheat on California’s online broker license course—turns out, it was the company who actually created it for them.

Touted as the most unsexy company in tech, Zenefits sells software that automates health insurance, payroll, and other H.R. functions for small businesses.

Just a year after they were founded in 2013, they saw US$1m in revenue, which reached US$20m in late 2014.

They projected US$100m annual recurring revenue by late 2015 and that was the catnip.

Exponential growth. Scalable product. Enterprise tech.

In Silicon Valley, that’s really sexy even if the company creates something seemingly boring, which resulted in them raising half a billion dollars in 2015 from the likes of Andreessen Horowitz, Kholsa Ventures and Insight Partners.

With a valuation of US$4.5bn at that point in time, Zenefits’s headcount began to skyrocket to 1600 employees.

It was the envy of many other Valley-based startups—after all, the cult of hypergrowth, of which Zenefits was a leading exemplar, was something that many founders and investors were deep in.

Growth is great. Mismanagement is not.

Imagine having to pay for someone to manage your employees’ health insurance, only to find out that because of their clumsiness, your employees have to go for stretches of time without health insurance.

“It became apparent that maybe their brokers didn’t know as much as they should,” said John Arroyo, the founder, and CEO of Arroyo Labs.

They used Zenefits as their health insurance broker. Fall came and Arroyo had to submit to a random audit by his insurance carrier.

“It became apparent that maybe their brokers didn’t know as much as they should,” said John Arroyo, the founder, and CEO of Arroyo Labs.

“A week or two later, I got a letter saying I wasn’t compliant, and our insurance had been cancelled,” he said.

‘It must have gotten lost somewhere’ was the reply from Zenefits, to which Arroyo cancelled their service in December.

The HR software giant juggernaut faced a whole slew of embarrassments and investigations in that year, which BuzzFeed News eagerly covered.

Most of the errors came from the administration, like charging for an employee that has left the company or having too little CSOs to manage customer issues.

Then came the legal scrutiny.

In the heavily-regulated industry of insurance brokerage, Zenefits knowingly brokered the sale of insurance without a license and allowed their unlicensed sales reps to do so.

That year, the insurance commissioner of Washington began investigating the company for such foul play.

Unsurprisingly, it came to light that 83 per cent of the insurance policies sold or serviced by the company through August 2015 were sales made by unlicensed employees.

SEC made history in 2017 when they slapped Zenefits with a fine—the first of its kind at that point. Zenefits had to pay US$430k fine to the SEC. Then Conrad had to pay a US$533k fine to the SEC even after he left in 2016. Zenefits also had to pay over US$11m to state regulators.

The financials were slow too: Zenefits missed their sales targets. Mutual fund giant Fidelity marked down the value of its stake by 48 per cent. Expenses were curbed, according to the Wall Street Journal.

With the claws of legalities on their back, what was regularly exposed was the fraternity-like, alcohol-riddled culture at the company.

Also Read: A learning culture is essential in nurturing the next generation of leaders

According to BuzzFeed News, Zenefits employees were “regulars at Scottsdale clubs like Bottled Blonde”.

Sales were celebrated with shots of whiskey and top performers were given bottles of champagne.

David O. Sacks, who took over Conrad after as chief executive, soon admonished his employees in an internal memo.

No more drinks at the company’s San Fransisco headquarters. No more makeshift love nests in the office stairwells.

“Cigarettes, plastic cups filled with beer, and several used condoms were found in the stairwell,” Agin said in her internal memo.

“Yes, you read that right.”

Sacks soon sacked 250 employees days after his internal memo. Then, 106 employees left in June.

Today, they are left with about 500.

When Jay Fulcher took over the helm of the ship from Conrad, Zenefits still boasted a 1,100-strong workforce.

After laying off nearly half of the company’s workforce, Fulcher began to strategise and ponder on the sort of culture he has to build into the company.

The unfettered growth of Zenefits is a tale of how hypergrowth can destroy a startup. Loads of articles out there proclaim that hypergrowth can be a curse if mismanaged but the advice given is usually the same: have a plan, have a strategy, don’t manage too closely, trust your team.

“It’s really important to recognise that growth at all cost or at any cost is not a good idea,” said Fulcher in an interview with San Fransisco Chronicle, “…managing growth and being smart and responsible about it is really a critical thing, especially for explosively high-growth companies.”

“It’s really important to recognise that growth at all cost or at any cost is not a good idea.”—Fulcher, CEO of Zenefits, 2019, SF Chronicle

Silicon Valley loves the story of a fast-growing startup who raised millions of dollars to grow—wait, it’s not making a profit? No worries, Uber isn’t either. So is Lyft. Pinterest too.

In the startup world, the traditional profit-first, IPO-later has long disappeared into thin air. Today, ‘losses’ has become normalised.

It is okay to be on the ‘path of profitability’. Get on Techcrunch and you’ll be good.

Is silicon valley wrong?

Problem is, the cult of hypergrowth in Silicon Valley is not wrong either: it is a culture, and it is something to be respected.

Growing fast is no easy feat.

It takes a different type of genius to build a startup that can balloon into 1600 employees in 3 years. Not many people have that sort of gut to run a startup with that sort of expansion rate either.

While a contentious issue, the undeniable fact is that Zenefits built without a clear culture. That’s why the fraternity culture became the norm.

Also Read: Have you tried these 6 startup culture disruptions at your company?

Startup culture is so insanely important that it is correlated to revenue and growth.

The importance of great employee experience cannot be understated for startups: when the culture of a startup simply sucks, employees leave. Period.

When the novelty effect of workplace benefits wears off, brand and employee engagement are the only things that can make them stay.

Without a foundation, startups can fall apart quickly, especially with the multigenerational workforce today. A lot of Millennials are going to leave their jobs next year.

A lot more Gen Zers are going to leave their jobs next year.

Fact is, not everyone is good at building culture, especially when it was not set from day 1; it can become a mess to start formalising a culture when the company has already grown to a substantial size.

However, it is still imperative that leaders dig deep into culture-building and centre it around important values.

By driving those values into every single course of action in the company, it will be easier for new employees to ease into, especially if those values are built upon empathy.

There is a wealth of information out there for your employees to take in: is another company doing better? Are they rated badly on Glassdoor? Are they in the news for anything awful?

Sure, Zenefits is still hiring today, but leaders still need to understand that the repercussions are big for culture-less companies.

While not a picture of post-apocalyptic anarchy, businesses who are unable to build a culture and have employees embrace it are businesses who lose out on engagement and growth.

Hidden costs can balloon and HR challenges are always piling up every year.

No Culture, no yoghurt

Whoever at the top is usually the one who brings everything together.

Like a script supervisor, he/she ensures that there is continuity. It is imperative to ensure that the junior and middle-management are doing their best to keep the culture up.

One can argue that with 2-3 employees, it might not really be a ‘culture’.

Yet, that is where the company needs to drive culture much deeper before it grows to 200.

Even a company at a stage of 500–1000 employees can also start building culture if they haven’t—it’s just a matter of time.

Newsflash, employees are humans. Millennials and Gen Zers have high standards for the jobs they are in and that is the reality: their needs are sophisticated and you have to adapt fast. If you’re into growth in perpetuity, the current generation of workers will get you going in no time.

So, employees are humans.

What does that mean? Matthew Lieberman, author of Social: Why Our Brains Are Wired to Connect and neuroscientist, says that humans need social connection and we’re hardwired for it.

Get curious about your employees—yes, I understand, it’s tough. The team is big, there are many people. It’s going to be difficult. Sometimes you just don’t want to talk.

Maybe they’re going to leave the job early and you’ll be wasting time trying to make a connection.

Trust me, that’s the surefire way to start having your turnover rates go up. Sure, maybe there’s some kind of generation gap going on that prevents connection.

Also Read: 4 reasons why company culture is so important with startups

Maybe it is about the employee him/herself. Maybe it is the entire company at fault.

Regardless of what is the reason, businesses need to instil curiosity into the DNA of their leaders: and the best way to do is through having a human-centric culture.

• Trust your employees wholeheartedly—don’t half-ass with this. Trust them entirely and give them your full support. Be genuine with it, and employees will recognise it. Focus on the wealth of opportunities than the small number of losses that you might make (you live a lot happier).

 

• Connect with them. Be friends, or if not, get curious. What do they do outside of the office? Who are they actually? What’s their identity? What are their values and traits? Okay, maybe he’s unapproachable, maybe she’s cold, but sincerity always pulls through. Don’t act like you care, actually start caring as if they are human beings.

 

• Autonomy is king. Yes, you’re a manager, but many employees would love to say fuck off to their employers when they become surveillance cameras. Newsflash: it’s 2019, not 1984. You’re not Big Brother. Give some autonomy, cut some slack. They will give you value if you let them create value on their own.

 

• Management is the queen. This is where you need to show your management prowess. Autonomy is great, but it can become anarchy. You’re the leader but you’re not the hard carry, you’re the support. Build a support system. Let them come into your office for help. Ping them if they need assistance. Ask them if they need more resources.

 

• Approach with positivity. Are they frequently absent? Stop suspecting them, start being curious. Why? Are they sick? Do they have other reasons? Understand that their success is predicated on multiple factors in which you have no control of. Be empathetic and kind. Be a leader before you’re a manager.

 

• Do they know what they are doing? Not in the literal sense, but are there reasons propelling their actions? So what if I write one article? So what if I close one deal? How is this meaningful? You drive the meaning: involve them in the business planning and have them feel personally connected to the organisations’ success. You may be the leader, but a ship does not sail with one person in it.

 

• Do you tolerate mistakes? Or are you forgiving within reason? Take a stance, what kind of leader are you? Empathetic leaders are great, but it’s still a business (or your job). You need to know when to draw the line.

Culture is extremely important, and it starts at the top. If you’re a junior or middle-level manager, your job is to create a culture in your department and allow it to be spread.

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Image Credit: Nastuh Abootalebi