Square scandal highlights growing pains at tech start-ups

Mon Feb 11, 2013 4:19pm EST
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By Sarah McBride

SAN FRANCISCO (Reuters) - 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 cherish.

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 little choice.

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 comment.

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 pornography site.

"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 anything racy.

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.   Continued...

Employees work at the headquarters of Box.net, an online file sharing and Cloud content management service for enterprise companies, in Menlo Park, California February 5, 2013. REUTERS/Robert Galbraith