START-UPS: The Perils Of Growth At All Costs

Start-ups are an important part of the business landscape. More crucially, the best start-ups provide much needed solutions to long standing problems. They provide real value to consumers. However, one thing I have observed over the years with certain start-ups is this mantra of ‘growth at all costs’.

If you are the founder of a start-up that provides a product or service that people really need and for a reasonable price, it is fair to say that this start-up has a bright future with a large potential for sizable growth over the coming months and years. That is all well. Yet, it does concern me when I observe the ones that have this ‘growth at all costs’ mindset.

No matter how driven or ambitious a founder may be, it is absolutely paramount that there is a healthy working environment amongst all the people who work at the company. There is currently a huge scandal with the UK craft beer company BrewDog over the maltreatment of many of its workers. BrewDog has been a huge success story. Ever since it’s founding a little over a decade ago, it has grown exponentially and is now the largest craft beer company in the country. It’s become a ubiquitous brand with it’s beers sold in all major supermarkets.

I could be wrong, but I am guessing that during those years when BrewDog was growing at such a fast pace, there was very much a ‘if you can’t stand the heat..’ atmosphere in the organisation. Even though BrewDog do make very good beers, the craft brewery industry is very competitive. There are many players and the way that BrewDog has been able to get to the position it is currently at today has been by scaling very fast in a relatively short period of time. By growing at such a rapid pace, it has now got to a size that gives it a clear edge over it’s competitors. If it had not embarked on this journey of aggressive growth it likely would have lost out to another competitor in the space.

Yet a big consequence of adopting an aggressive growth strategy is that it can create a toxic environment in the workplace. It suddenly becomes very easy for founders/chief executives to forget to care about the wellbeing of the other workers in the organisation as, in an almost single minded fashion, they have their eyes set on reaching their lofty targets they have set themselves out to achieve. They fail to understand that the workers are an integral part of the growth/success of their business. Without those workers, it is unlikely that their company would have been able to grow so spectacularly. This is especially true of those founders with very large egos and a lack of empathy for others.

A more extreme example of a growth at all costs business that makes Brewdog look like a plain vanilla enterprise is the rise and fall of office rental space company WeWork under the leadership of it’s colourful founder Adam Neumann. Unlike Brewdog, WeWork never made a profit and simply haemorrhaged cash. Billions of dollars of venture capital money was thrown at the company, most notably by Softbank whose founder and CEO, Masayoshi Son, really believed in the company. At one point WeWork had a valuation of over $40 billion. An eye watering valuation when one takes into account the fundamentals of the business.

WeWork also suffered from a toxic workplace culture. Those Brewdog workers, who via the Twitter group Punks With Purpose are bringing to light the less than perfect behind the scenes picture of the business, accuse the company of being ‘built on a cult of personality’. They take aim at how the company and it’s founders cultivated an image of the company as authentic (applying a ‘punk ethos’), caring about the environment, being forward thinking and progressive, and an amazing and cutting edge place to work at. Yet the irony is that it was anything but rosy. In their own words they scathingly say that “The true culture of Brewdog is and seemingly always has been, fear”.

Yet compared with WeWork this is small beer (no pun intended). The larger than life WeWork founder Adam Naumann would make make Brewdog co-founders James Watt and Martin Dickie blush. He took the term ‘cult of personality’ to another level. To the point where he was able to get some of the most powerful heavyweights in the venture capital space to invest megabucks in his business. Even though, with just a modicum of due diligence, it would soon seem apparent that WeWork was essentially a start-up with very poor fundamentals. The emperor had no clothes. Those VCs who were smart enough to see beyond the hype and mega personality of Neumann and actually did some stone cold research on the fundamentals of his business, saved themselves a packet.

Sometimes it is not necessary for a start-up to pursue a ‘growth on steroids’ strategy. It may be that you can create a lot of value and provide a unique solution without the need to aggressively grow. Sometimes large growth can happen by default if suddenly there is a massive demand for your products and services. And that is fine. There is nothing wrong with growth. Hell, there is nothing wrong with full on hyper growth. But not when it’s at all costs. Not when workers are not feeling valued and a dysfunctional and toxic workplace environment manifests.

By Nicholas Peart

June 20th 2021

(c)All Rights Reserved

Image: satyatiwari 

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