Am I Crazy? Navigating Dysfunction in Startups [Updated Oct 22]
Hello! My name is Dave and I consult with startups to build technical IT teams and infrastructure. I see the same challenges at each one, so I created a set of standards to navigating the tech ecosystem. Learn more about my philosophy or inquire about engagements at The IT Plan.
In my experience, there are 6 factors that contribute to dysfunction at a startup:
- No reference nor background checks in the hiring process
- Markedly low base compensation
- Founder assumes role of CEO
- Artificially inflated public reviews
- High churn / executive turnover
- A lack of fiscal responsibility
Qualitatively, we all seem to know dysfunction when we see it. Yet, it is difficult to summarize what exactly prompts that feeling.
In this article, I’m going to share with you six indicators of dysfunction at startups and offer remediation tools for employees at any level of authority in the company.
Let’s frame this conversation with a standard principle of ecosystem maintenance — the importance of the health of the soil. Ignoring it will result in poor yield, whereas nurturing it increases the yield and longevity of the land’s production.
At a startup, this work falls to the executive leadership team as the gardeners/caretakers of the land. When influential parties are negative, neutral, or passive, the responsibility of building positive culture is pushed downstream to influencers without any real power to do it.
But like a parent who lets their child have cake for breakfast every morning, dysfunction also shows up when leadership tries to cater to everyone. To maintain a healthy environment, we need leadership to step up and be the ‘bad person’ sometimes.
Okay, one more thing. Since the topic of this article is dysfunction, it does focus on the negative. Please approach this knowing there is so much positive as well.
Ready to check them out? We’ll start at the beginning with the interview process.
Indicators and Trends of Dysfunction
I. The hiring process requires no reference nor background check.
This is like stepping on ice that cracks but doesn’t break — it’s a clear indicator of something wrong beneath the surface.
In small groups, every addition has a major impact on the culture and potential for success. So why would a startup eschew the opportunity to speak with someone who has already worked with you? Here’s four reasons that I’ve seen.
1. They need people regardless of quality.
Value is not placed on culture, or there is no culture, in which case it really doesn’t matter who is hired.
2. The role or hiring process is reactive.
Those hiring without proper planning are unlikely to be setting you up for success in the role. They’re also the first to have layoffs when they hit a roadblock to growth.
3. The recruitment team is understaffed, stretched too thin to perform them, has not advocated for them, or there is no recruiter
A thinly stretched recruitment team can indicate low investment in operational resources.
4. Churn in the role is high and rather than address the root cause, they replace the person.
In many of the cases above, it is not unreasonable to say that you’re not being set up for success in the role.
Advice to Applicants: Confirm the culture for yourself by:
- Ask to speak with employees who were not in your interview panel,
- Tour during the workday to observe the atmosphere,
- Sit in on a team meeting,
- Research through Glassdoor.
Startup Remediation Opportunity: Clear corrective action is to simply start performing them. At a minimum, hiring managers will gain insight into the applicant’s work style, challenges, and management preferences. The cost/benefit of investment to payoff is significantly in favor of payoff.
II. The Pay is Markedly Low
It must be said that low pay may be related to your industry experience or the value of the role at this company. However, outside of executive roles, sacrificing base compensation is not in your best interest.
Here’s a personal story.
In my role as IT Manager, between 2013 and 2018, in New York City, pre-covid, as a highly autonomous IC/general SME, at early-mid-stage startups with < 5 locations and < 100 employees, the base compensation was always between $95,000 and $120,000 plus benefits.
Around 2017/2018, I was interviewing at a startup for exactly what I had done in my previous roles with a high degree of success. I was offered $87,500 as an opportunity to work for an exciting new startup. And told it was not up for negotiation.
If the organization was mission-focused, there is a case to be made for sacrificing base pay. However consider all the others in your position who have taken the role and ask yourself: Do I want to show up to a place with 100 other people who are underpaid and overworked?
Working at a startup is not like working at other companies.
Consider all the times you have been on a hike in a forest. During any of these times, did you abruptly turn off the path into the thorny brush? Never? I would wager it is because it:
- is full of brush and thorns which will cut you,
- leads to nowhere, into the wilderness, the unknown,
- is not conducive to survival, etc., etc.
Working at a startup is lot like turning off the cleared path into brush.
It looks exciting and could payoff, but not without sacrifice and high degrees of discomfort. That sacrifice occurs every day as you try to establish policies, procedures, and processes, while working with constraints such as no funds, no personnel, late work hours, industry/regulatory compliance measures, inefficient departments, and more. Do you want to do this on top of being underpaid?
Advice to Applicants: I get it — interviewing is exhausting. By the time an offer is in your hands, it’s tempting to just take it. And if you need or want to do that, it’s all good, no judgement.
All things considered, if you feel the base compensation is too low, I would recommend:
- Finding a target number,
- Researching to support your claim,
- Having a frank conversation with the hiring manager and sharing your claim.
Here’s a sample.
Hi Susan. I received the offer letter yesterday and wanted to take a moment to share my gratitude. I know you, and others at the company, invested a lot of time and effort into the process and I’m honored to be given the opportunity to join the team.
With that said, I have to share with you that the base compensation for the role is lower than what my research shows is the average for this this work and what I feel that is fair given my qualifications.
I’m approaching the role from a longevity and sustainability perspective and I want to be a productive and impactful team member for the long haul. I need to feel safe in my ability to support myself financially and that my contributions to the company are matched at the compensation level that others offer. As such, I’d like to ask if you would be open to raising the base compensation for this role to xxxxx.
I’m looking forward to hitting the ground running once we find common ground on this item. Thank you for your continued support and engagement.
Remediation Opportunity: If you’re offering low or underpaid base compensation, whether intentional or not, it often requires pushback from the candidate to change it. Candidates willing to do this in a professional manner show innumerable positive traits and stretching to close that gap should be a top priority. Plus, the gap is generally not wide because if you’ve priced it too low, you wouldn’t have any candidates in the first place. Under-compensating is a very slippery slope that sacrifices long term potential for short term gains.
III. Founder Assumes Role of CEO
I want to share some statistics based on the startups I have worked for.
9 startups had Founder as CEOs who acted in one or more of the following manners:
- Questionable qualifications to run a business and execute a vision,
- Exhibited petty, defensive, egoic, emotion-driven behavior; responding to disagreement as personal threat/challenge,
- were invisible — entirely absent from operations,
- ruled with an iron fist that kept everyone on edge.
1 had a Founder as CEO who was a strong leader with business acumen, the ability to establish a shared vision, and possessed industry experience. He shared the leadership role, taking CEO in title only. It was the only startup I joined with an impressive, active board. The takeaway here is that he surrounded himself with knowledgable professionals and implemented a shared power structure.
1 startup had 3 founders who shared executive roles as their personal agreement to split power. Each one was severely unqualified to perform their function for a mix of the reasons. The takeaway here is that if you let circumstances dictate the role of founding team members, you’ve already given up sovereignty to guide the company.
1 startup had Founder as CEO who recognized upcoming success and found a seasoned CEO to execute a transition. She was brilliant woman and it was easily the best company for which I had the pleasure of working. Awareness allowed her to see the big picture.
3 startups did not have Founder as CEO.
Advice to Applicants: CEO as Founder is the second strongest correlative factor to determine a positive or negative employment experience. You should be able to request a few minutes with this individual — ask to speak with them, or ask people of varying levels what they think of her.
Remediation Opportunity: I’m not qualified to offer the target audience remediation. What I would offer is a personal recommendation that anyone in a leadership position have a daily meditation practice.
IV. Artificially Inflated Glassdoor Reviews
Again, I would like to share an anecdote from personal experience.
I worked at a startup that developed onboarding and training platforms for companies. It had 3 founders who took different roles, CEO, CTO, and Early Exit Through Buyout. The company had loads of 5 star reviews on Glassdoor in clusters spanning every 1–2 months. After joining, it turns out that after every monthly team meeting, a push to leave 5 star reviews on Glassdoor was common practice.
About 6 months into employment, they underwent massive layoffs and were bought a couple years later for pennies on investor dollars.
As an applicant, it is very useful to read former employee reviews, but learn to distinguish between legitimate and vindictive ones. Do you generally get the sense people on the inside are excited about the company? Is there high turnover? If so, why? What are they doing to address it?
Hype creates a lot of smoke in the room. It benefits everyone to be able to see through it — Is the energy harried/frantic or charged with excitement?
Negative outcomes ride the wave of hype.
Advice to Applicants: Look for anomalies in the reviews, but be conscious of developing an echo chamber. Use in-person discussions to endorse or deny reviews. Do not be shy to bring up a bad review during the interview process, but do so very respectfully and without judgement. Do be judicious in your choosing of which to bring up — choose a review that is well formulated and not one that shows signs of a simple vindictive review.
Remediation Opportunity: Building an environment that speaks for itself and being mindful of negative experiences is a great way to encourage new people to join the company. Good HR teams recognize this and take ownership over public forums by acknowledging and responding where possible.
V. High Turnover or Senior Leadership Turnover
High turnover is the strongest indicator of dysfunctional trends within an organization. It alone conveys the message that this is not a good place to work. Plus, it’s impossible to miss.
A startup with a clear mission can avoid high turnover for the same reason non-profits exist — meaningful work can supersede individual drive for wealth-accumulation, less-than-ideal working conditions, and overloaded work schedules. If an individual believes in the mission, if they identify with the mission, they’ll be willing to contribute to it’s realization in sub-optimal circumstances.
If the company has relatively low turnover, but the executive team turns over — that’s also a great indication to get out because decisions flow from the top. If those with direct line of sight to the source run away, then something is rotten.
If the culture is the focus, that means the customer or product is not the focus. The work environment needs to be positive and it needs to be a no brainer.
Advice to Applicants: Ask questions to understand the rate of churn prior to joining. Ask questions to understand what the company initiatives to retain employees. The mission is what attracts talent but an intentional vision is necessary to supersede the daily, petty disagreements and disruptions. Ask 3 people what the mission is and see if it’s the same answer. Do you agree with their answer?
Advice to Employees: Financial analysts use investor relation and earnings calls to evaluate sentiment. In fact, there’s loads of natural language processors that take the call transcript as input and output a buy/sell rating.
There’s clear value in this approach and using it in team or company meetings is a good way to keep a pulse on leadership’s sentiment.
Remediation Opportunity: All relationships require effort and a passive approach will simply not work. It is easy to point at leadership when culture is lacking, but everyone has a responsibility to be the change they want to see. Ask for a budget to form a social group, create a diversity and inclusion initiative, make an effort to effect meaningful change.
Hiring and onboarding is resource-intensive, the benefits of retention allow the company to focus on the product and the customers.
VI. A Clear Lack of Fiscal Responsibility
A tough one to see, but an easy one to smell, financial responsibility shows up in the approval chain.
Most recently in 2022, venture capital firms recommend a reduction in workforce to their portfolio companies. Weak startups immediately reduced through layoffs, some waited and withstood economic downturns while others eventually performed layoffs, too.
What they all have in common is that they exist because a wealthy collection of individuals is supplying them with the means to exist. Should these individuals abruptly choose otherwise, the extent of the startups fiscal responsibility shall determine whether or not you will continue to be employed. This is a risk of working at startups and understanding the debt, revenue, and funding picture will help you make an informed decision.
In my experience, common themes to poor fiscal responsibility are:
- Lack of budgets for anything
- Lack of procurement/cost approval chains
- No restraint shown in purchasing decisions
- Office locations or spaces that reflect imagined status/hype
Surprisingly, the opposite approach can have detrimental effects, too. I have been in startups where justifying the purchase of a set of pencils required the same degree of inspection as a new laptop.
Advice to Applicants:
Here are some things to look out for:
- Willingness to talk about money, in particular, funding.
- An ability to articulate revenue streams or product market penetration.
- A company focus on selling or meeting customer needs.
- How easy or difficult it is to buy small things and large things.
- The presence of budgets.
- The speed at which they are hiring and for which roles.
- A heavy top (lots of executives) indicates lack of direction at high cost to the organization.
- The choice of tooling should match the maturity of the organization.
Remediation Opportunity: I am not in a position to recommend remediation to the target audience. I would share that sustainable hiring seems to be a practice that is lacking in most startups.
Working at a Dysfunctional Startup
If you accepted a role and find yourself saying “Am I crazy? Or does this make no sense?” Then take a look at some of these cultural or leadership blind spots.
I. Employees are not trusted
Do you feel confident making a call here? Does your manager? Does your manager make calls that are frequently reversed or questioned?
This will often manifest as micromanagement or in policies that monitor employees, a low number internal promotions, and high turnover at the organization.
II. There doesn’t seem to be a plan
No processes, procedures, nor plans. Things happen in an ad hoc. There’s a purchase here, an acquisition there, a new hire starting, a new location — things tend to happen all of a sudden.
The environment will be chaotic with persistently high stress levels. Everything will be urgent and reactive as priorities are dictated by environmental variables. A ship at the mercy of the sea.
III. Authority is rarely delegated
Similar to distrust, there is a long chain upwards to get anything done. You frequently find yourself held up without clarity on being able to move forward and projects quickly build up.
You’ll find all projects on extended timelines with many never reaching completion. Accountability will clearly be lacking as everyone keeps passing questions up the chain.
IV. The reason for doing anything is “because the executive said so”.
Do you recall your parents telling you to do something “because they say so”? How often have you heard that since childhood? Never? Me too! Until I worked at a startup where directives required mentioning that the CEO just wanted it done.
Everyone turned off the critical thinking portion of their brains, they forgot all their education and training — no matter how bad the idea was, they executed it because the CEO wanted it.
It will be difficult to assume ownership over objectives as your ideas may be countered without warning and there is little payoff for taking the burden of responsibility. Conflicts and ‘things that don’t make sense’ will be rampant as the directives become a game of telephone from the top.
V. Teams are working in silos
An environment that lacks interdepartmental alignment can be likened to Game of Thrones — various factions playing political games to further their individual goals. Progress will become a pyrrhic victory or grind to a halt from friction as these goals come into conflict with each other.
To get anything done in a dysfunctional way will cost a significant amount of resources. This will become apparent to anyone involved in a project outcome with multiple stakeholders who lack alignment with each other or do not share a common goal.
What To Do With This Information
Dysfunction is a spectrum and all companies operate on it. Identifying it requires time and reflection — akin to the personal development every adult should undertake to graduate from their current state. There are great stories of many companies identifying and overcoming dysfunction within their systems.
If you can identify the problems, you can categorize and prioritize them. Tackling dysfunction with the same commitment that you’ve tackled your work will surely yield positive results for yourself, your colleagues, and the company as a whole.
The reality is that as individuals, we’re often willing to look the other way, but giving the benefit of the doubt is different from negligence. If a company is taking responsibility for its dysfunction, that’s a great sign. If you find multiple indicators outlined here and no road to remediation, it becomes a personal decision of risk and moral value. No matter what you choose, there will be growth and opportunity for you to find.