By Sarah McBride
SAN FRANCISCO Feb 11 When Square Chief
Operating Officer Keith Rabois left his job last month, citing
legal threats from a young colleague with whom he had a two-year
relationship, he threw a spotlight on the risks associated with
the freewheeling startup culture that many entrepreneurs
Startups often thrive on a lack of rules and boundaries. But
experts say that as they make the transition from a handful of
people in a room to sizeable businesses, the hazards of
operating without manual - including lawsuits, reputational
hits, and waning employee morale - grow exponentially.
Longtime employees sometimes chafe at the arrival of human
resources professionals, codes of conduct and other policies
that they fear will step on the company's culture. Yet
entrepreneurs and start-up investors say they ultimately have
Take Facebook Inc, which displayed murals of naked
women, some riding dogs, in the Palo Alto offices it leased as a
small company in 2005. As proud as some of the early employees
were of them - one was painted by the then-girlfriend of
Facebook impresario and serial entrepreneur Sean Parker - they
got painted over shortly after venture-capital firm Accel
Partners invested in the company. Facebook had no immediate
About a year into the life of online-ad tracking startup
DoubleVerify, an employee gave a presentation about how
advertising fraud takes place. Many in the room got a rude
awakening when a slide popped up showing an example of an ad
where it shouldn't be: next to a particularly raunchy image on a
"That was the first time we realized, 'We gotta get a little
more institutionalized," recalls founder Oren Netzer. Today, the
company has policies concerning naked images. The same
presentation would use a less controversial example, or obscure
Alcohol is another dicey topic. "We used to have these new
employee hazing ceremonies," said Dheeraj Pandey, chief
executive of virtualization company Nutanix, largely involving
knocking back tequila shots with chili peppers. But once the
company hit about 100 employees, some new hires pushed back and
he started considering the potential for liability.
"It just faded away about four, five months ago," he said
about the hazing. Potential concerns run the gamut from some
employees feeling excluded if they don't drink to incidents that
sometimes accompany drunken behavior.
At 250-person social-media management company Hootsuite, "I
somewhat infamously have said I never wanted to work at a
company with an HR department," says founder Ryan Holmes.
"That's coming back to bite me a little bit now."
MISSION STATEMENTS, HR FLUFF
A year ago, Holmes made his executive assistant the director
of human resources. That type of promote-from-within strategy
for HR is commonplace, startups say.
A few months into her role, the new HR director told Holmes
the company needed a mission statement. "I said, 'Oh my God,
this is HR fluff,'" Holmes remembers. But shortly afterward,
when he overheard new hires discussing beliefs he thought were
out of step with Hootsuite's ethos - he says he cannot recall
the details - he realized she was right.
But Holmes says he is resisting conforming on other levels.
Hootsuite employees attend teambuilding trips, including a
recent stay at a hot-springs resort. That is the type of event
big companies cut out - Google Inc halted its famous
all-employee trips in 2009 - often because of the potential for
various kinds of legal liability and cost.
Holmes says he might have to rethink his overnight trips if
the company ever goes public, but for now, he plans to keep
going. "We think it's very valuable," he says.
At Nutanix, Pandey decided last summer's annual whitewater
rafting trip on the Sacramento River would be the last. "We used
to go through some rough rapids, and had a couple of close
shaves," he said. "A couple of the guys aren't good swimmers."
Part of the philosophy is that young companies want to
encourage a "think different" attitude, employees say.
"Start-ups by design want to differentiate themselves from
the large companies like the HPs that have very thick employee
handbooks," said Brian Samson, chief executive of HR for
Startups, referring to computer company Hewlett Packard Co.
Start-ups often deal with the inevitable by aiming for a
careful, light-footed approach to new policies.
"I've tried to make sure we don't talk about rules," says
Evan Wittenberg, HR head at cloud-content firm Box. "The
language around this really matters. These are guidelines."
Still, there are tensions as the company, which now employs
around 700 and is considered a likely prospect for a 2013
initial public offering, grows. Cecilia Wong, people manager at
Box, cites the daylong orientation process for new employees.
"I've had some managers ask, 'Why's it a full day? On my
first day, it was just an hour, then I could hit the ground
running,'" she says. She believes the full day is important for
explaining the company culture, business and logistics issues.
The consequences of neglecting HR policy and other
big-company practices can be dire.
Rabois said he resigned from his post after an ex-boyfriend
that he recommended for a job at Square threatened to sue for
sexual harassment. A Square spokesman declined to say what kind
of HR policies, if any, the company has in place, and he
declined to comment on any issue related to the relationship
that led to Rabois' resignation. Square had about 30 employees
when Rabois joined and now has about 400.
Many large organizations - not just companies, but
nonprofits and government agencies - have firm policies about
intra-office romances, and often prohibit them if one party has
any kind of supervisory authority over the other.
"You can be open to liability if the relationship goes sour,
and you have a person in a position of power over the other
person," said San Francisco employment attorney Therese
Lawless. "Any actions of that person in power can be deemed to
In addition, it can create a morale issue if other employees
believe the more junior employee in an ongoing relationship is
receiving favorable treatment, she said.