Cre8tive Capital wants to ensure startup tech and tech enabled companies are well managed and stable. We are writing this blog to help you with essential questions that we often see clients struggle with. Welcome to Part 4 of Building a Great Team.
So you’ve built your team, you’ve identified a problem, and now you’re set to develop your world-changing solution. As your entity inevitably grows, how do you ensure that decisions don’t stray into gray areas? How do you retain the original goals and vision you had for the company while also sufficiently growing?
This can be achieved by being deliberate about what your company is and is not. As the company is formed, careful planning is needed to ensure that the growth of the company is guided and moves in the intended direction. Set boundaries and rules for behavior within the company and be strict about how these are enforced. Bending rules eventually leads to breaking rules which can lead to drastic changes and consequences. Determine how to measure success and what it looks like. Thoughtful management of the whole company and re-evaluating beliefs when needed while also not just focusing on numbers or sales is required to be successful.
Re-evaluate your beliefs means also being critical of not only the company but yourself. Oftentimes, an outside view of the company can help when you as a founder may have difficulty. Attorneys, consultants, and boards of advisors are just some of the resources available that can identify behavior that may be detrimental to the company. The story of Parker and his company demonstrate what can happen when a founder is not careful in directing the growth of their company and what starts to take place within.
Parker grew up in New York as the child of a prominent lawyer and an environmental activist. As he got older, he discovered a knack for science which led him to study the neurobiology of sea snails while in high school. His research earned him third place in the prestigious Westinghouse Talent Search. Continuing his passion for science, Parker enrolled at Harvard University and majored in chemistry while there. However, his time there was not easy. He took a leave of absence for some time, but he was able to return to Harvard to finish his studies a year later.
After graduating, Parker successfully landed a job at a biotechnology firm, but Parker had little time to celebrate. He had been diagnosed with testicular cancer. Parker fought against the cancer and was able to eventually beat it. While working at the biotechnology firm, Parker founded the portfolio-management startup with a former roommate of his. Very soon after, Parker and his co-founded had a falling out, and Parker found himself forced out of the company.
Inspired by his own troubles navigating the insurance world for both himself as a cancer patient and for his previous employees, Parker decided to start a company that would assist small companies in navigating the new world of insurance coverage brought upon by the passage of the Affordable Care Act. Parker was able to recruit one of the top engineers from his previous startup as a co-founder and launched his new company in April 2013 with the help of incubator Y Combinator. In less than a year, the startup was on track to make about a million in annual revenue. This drew the attention of noted venture capital firm Andreessen Horowitz who gave Parker’s company a sizable investment and the legitimacy it needed. The company rapidly grew in size from a few employees to thousands of employees and ballooned to a valuation nearing $4.5 billion.
This rapid growth led to some problems for the company though. A lack of organization and planning led to breakdowns in how Parker and his company did business. Growth was a central focus, but it began to dominate how company managed itself. At the peak of the chaos, David was asked to come in by the board of directors. David was a successful businessman having previously been COO of Paypal and oversaw other startups. When David arrived, he saw a company that was disorganized and did not have clear direction. Parker had focused on small businesses that lacked dedicated HR departments. They would most obviously need someone to assist them, but Parker wanted to go after larger companies that had established connections between their HR departments and insurance providers. This plan failed and led to losses for the company. Profits started to decrease, and David pushed for a hiring freeze to control the growth of the company. Declining profits and hiring freezes were the least of their troubles though.
A journalistic exposé revealed that Parker’s company had been frequently breaking the law. To sell insurance within a state, a broker’s license is required, but Parker’s company frequently failed to get licenses in the states it sold insurance. In addition to failing to get licenses in some states, employees of the company were found cheating on broker exams. Several states opened investigations against the company and levied fines in excess of millions of dollars. Parker was forced to step down in the midst of all of this controversy, and David was asked to become the new CEO of the company.
Parker Conrad was ousted as CEO of Zenefits due to a lack of oversight and management. All that he saw was a company growing, but he failed to keep a clear plan for the direction of the company and the type of culture he wanted to establish. It took people from the outside to notice what was going wrong within the company. There are many tools to prevent something like this from happening. In the next blog, we’ll discuss how to leverage these tools to keep your growing entity on the right track.