by Dan Lyons
I could see living large if you were running a company like Google, which throws off more than $1 billion in profit—not revenue, but profit—every month. But HubSpot is a relatively tiny company that’s losing money. Shouldn’t HubSpot be running lean, trying to make their VC money last as long as possible? Shouldn’t they be spending their money on software development rather than beer blasts? Why aren’t the VCs imposing any financial discipline?
“Do the investors ever visit and walk around? Do they know how out of control things are?”
“They may or they may not,” Thomas says.
Board members don’t always know everything about a company, he says. They only know what the management team tells them, and sometimes that is not too much.
“I tell my board as little as possible,” he says. “I treat them like mushrooms, I keep them in the dark and feed them shit. I don’t want them meddling in my business and telling me what to do.”
For that matter, the board members usually don’t want to start getting involved in the day-to-day running of the company. Some have their own companies to run. Others are retired, and sit on boards as a kind of hobby. The VCs who sit on HubSpot’s board have skin in the game, but it’s not in their interest to interfere too much.
“You don’t want to get into a battle with the founders. That’s a last resort. If a founder leaves, or gets thrown out, investors get spooked. It sends a bad message,” Thomas says.
Founders and investors need each other, but they’re also wary of each other. It’s an uneasy partnership. The founders see VCs as a necessary evil, tricksters who will try to cheat founders or even steal their companies away from them. VCs see founders the way music labels see bands, or the way Hollywood studios see movies—they’re the talent, the way you make money. You bet on a bunch of them and hope that one or two hit it big.
As for the wasteful spending, the investors may not like it, but what they really care about is the end game. If Halligan and Shah deliver a big return for their investors, they can have all the free beer and British phone booths and Fearless Fridays they want.
What’s more, whatever money they’re spending on cool offices and the frat-house parties, it’s peanuts compared to everything else. “And think what they’re getting in return for that,” he says. “They’re getting all these young kids who work cheap and don’t stick around long enough to vest, and even if they do vest, they don’t have much equity to begin with. When you look at it that way, the perks seem pretty cheap.”
You could argue that HubSpot would be better off investing in software development, rather than spending money to throw a big conference every year, and hiring Cyndi Lauper and Arianna Huffington to entertain people.
“On the other hand,” Thomas says, “what they’re doing seems to be working.”
I’m a bit taken aback. Thomas is a hardcore engineer, and a frugal manager. His company is way bigger than HubSpot, but he’s not throwing money around. Nevertheless, he admires them. The way he seems to think about business is the way I imagine political operatives think about candidates, where all that matters is whether they can say the right things and get themselves elected.
“You know,” he says, “I have an idea for you.”
He suggests I should forget about trying to become a marketer, but stay at HubSpot anyway. “Think of yourself as an anthropologist,” he says. “Like you’ve been dropped into some strange culture, and you’re studying their rituals. You could maybe write about it. It might be interesting.”
We finish our coffees and say our goodbyes. When I get to my car, his comment about being an anthropologist stays with me. Wet snow is falling, fat flakes falling on my windshield. The stores are decorated for Christmas. People hurry past on the sidewalk, carrying shopping bags, bundled against the cold.
Thomas is right about the people at HubSpot. They really are like a strange tribe. What’s more, tribes like this are popping up all over the place. A new kind of workplace has emerged, with culture codes and frat-house parties and rhetoric about making the world a better place.
But the real story is not just about the free beer and the foosball tables and the talk about being on an important mission—the real story is about why those things exist. The real story is about two founders and a handful of investors who are about to extract more than $1 billion from the public markets, and how they pulled it off.
It seems to me that HubSpot is not a software company so much as it is a financial instrument, a vehicle by which money can be moved from one set of hands to another. Halligan and Shah have assembled a low-cost workforce that can crank out hype and generate revenue. HubSpot doesn’t turn a profit, but that’s not necessary. All Halligan and Shah have to do is keep sales growing, and keep telling a good story, using words like delightion, disruption, and transformation, and stay in business long enough for their investors to cash out.
Twelve
The New Work: Employees as Widgets
It turns out I’ve been naïve. I’ve spent twenty-five years writing about technology companies, and I thought I understood this industry. But at HubSpot I’m discovering that a lot of what I believed was wrong.
I thought, for example, that tech companies began with great inventions—an amazing gadget, a brilliant piece of software. At Apple Steve Jobs and Steve Wozniak built a personal computer; at Microsoft Bill Gates and Paul Allen developed programming languages and then an operating system; Sergey Brin and Larry Page created the Google search engine. Engineering came first, and sales came later. That’s how I thought things worked.
But HubSpot did the opposite. HubSpot’s first hires included a head of sales and a head of marketing. Halligan and Dharmesh filled these positions even though they had no product to sell and didn’t even know what product they were going to make. HubSpot started out as a sales operation in search of a product.
Another thing I’m learning in my new job is that while people still refer to this business as “the tech industry,” in truth it is no longer really about technology at all. “You don’t get rewarded for creating great technology, not anymore,” says a friend of mine who has worked in tech since the 1980s, a former investment banker who now advises start-ups. “It’s all about the business model. The market pays you to have a company that scales quickly. It’s all about getting big fast. Don’t be profitable, just get big.”
That’s what HubSpot is doing. Its technology isn’t very impressive, but look at that revenue growth! That’s why venture capitalists have sunk so much money into HubSpot, and why they believe HubSpot will have a successful IPO. That’s also why HubSpot hires so many young people. That’s what investors want to see: a bunch of young people, having a blast, talking about changing the world. It sells.
Another reason to hire young people is that they’re cheap. HubSpot runs at a loss, but it is labor-intensive. How can you get hundreds of people to work in sales and marketing for the lowest possible wages? One way is to hire people who are right out of college and make work seem fun. You give them free beer and foosball tables. You decorate the place like a cross between a kindergarten and a frat house. You throw parties. Do that, and you can find an endless supply of bros who will toil away in the spider monkey room, under constant, tremendous psychological pressure, for $35,000 a year. You can save even more money by packing these people into cavernous rooms, shoulder to shoulder, as densely as you can. You tell them that you’re doing this not because you want to save money on office space but because this is how their generation likes to work.
On top of the fun stuff you create a mythology that attempts to make the work seem meaningful. Supposedly, Millennials don’t care so much about money, but they’re very motivated by a sense of mission. So, you give them a mission. You tell your employees how special they are, and how lucky they are to be here. You tell them that it’s harder to get a job here than to get into Harvard, and that because of their superpowers they have been selected to work on a very important mission to change the
world. You make the company a team, with a team color and a team logo. You give everyone a hat and a T-shirt. You make up a culture code and talk about creating a company that everyone can love. You dangle the prospect that some might get rich.
But Silicon Valley has a dark side. To be sure, there are plenty of shiny, happy people working in tech. But this is also a world where wealth is distributed unevenly and benefits accrue mostly to investors and founders, who have rigged the game in their favor. It’s a world where older workers are not wanted, where people get tossed aside when they turn forty. It’s a world where employers discriminate on the basis of race and gender, where founders sometimes turn out to be sociopathic monsters, where poorly trained (or completely untrained) managers abuse employees and fire people with impunity, and where workers have little recourse and no job security.
In December 2014 Nicholas Lemann published an essay in the New Yorker contrasting the vision of work that Alfred P. Sloan, the legendary CEO of General Motors, described in his 1964 memoir, My Years with General Motors, with the vision laid out in a series of books published by executives from Google.
In the twentieth-century model under which Sloan’s GM operated, companies “were heavily unionized, and offered their white-collar employees de-facto lifetime tenure. Employees got steady raises during their working years and pensions after retirement,” Lemann writes. Things changed with the emergence of the Internet and in particular with Google, the first successful Internet company with a large workforce. Google succeeded, Lemann writes, by “breaking the rules about how to run a business.”
The biggest rupture involves the social compact that once existed between companies and workers, and between companies and society at large. There was a time, not so long ago, when companies felt obliged to look after their employees and to be good corporate citizens. Today that social compact has been thrown out. In the New Work, employers may expect loyalty from workers but owe no loyalty to them in return. Instead of being offered secure jobs that can last a lifetime, people are treated as disposable widgets that can be plugged into a company for a year or two, then unplugged and sent packing. In this model, we are basically freelancers, selling our services in short-term engagements. We may have dozens of jobs over the course of our careers.
“Your company is not your family” is how LinkedIn’s multibillionaire cofounder and chairman Reid Hoffman puts it in his book The Alliance: Managing Talent in the Networked Age. Hoffman says employees should think of a job as a “tour of duty” and not expect to stay for too long. In his view, a job is a transaction, one in which an employee provides a service, gets paid, and moves on. In addition to his duties at LinkedIn, Hoffman works as a partner at Greylock Capital, a top venture capital firm. Forbes calls him “the most connected man in Silicon Valley.” He is widely respected, even revered, and his ideas about the relationship between employers and employees have influenced a generation of entrepreneurs, who take his word as gospel.
Hoffman’s line about a company not being a family traces its roots to a “culture code” that Netflix, the Silicon Valley video-subscription company, published in 2009, and which famously declared, “We’re a team, not a family.” The Netflix code inspired a generation of tech start-ups and “may well be the most important document ever to come out of the Valley,” Facebook COO Sheryl Sandberg once said. Shah used the Netflix code as the model for his HubSpot culture code and lifted the original Netflix line: “We’re a team, not a family.”
Netflix justified the “not a family” idea by arguing that like a pro sports team, tech companies need “stars in every position.” That deal makes sense if you’re a professional athlete who can earn millions of dollars a year and retire at age thirty or thirty-five, but seems a bit ruthless when applied to the rank-and-file worker. The result, according to countless articles in publications like Fortune, the New Republic, Bloomberg, and New York Magazine, is that Silicon Valley has become a place where people live in fear. As soon as someone better or cheaper comes along, your company will get rid of you. If you turn fifty, or forty, or thirty-five; if you demand a raise and become too expensive; if a new batch of workers comes out of college and will do your job for less than what you are paid—you’re gone. So don’t get too comfortable.
This new arrangement between workers and employers was invented by Silicon Valley companies and is considered an innovation as significant as the chips and software for which the Valley is better known. Now this ideology has spread beyond Silicon Valley. We are living in a period of huge economic transformation, in which entire industries—retail, banking, healthcare, media, manufacturing—are being reshaped by technology. As those industries change, so does their approach to treating workers.
But does anyone really want to have twenty to twenty-five different jobs over the course of a forty-year career? It’s hard to see how this arrangement can be good for workers. Bouncing around when you’re young is one thing, but at some point people want to get married, have kids, and settle down. Stability becomes important. In the World According to Hoffman, you will spend half of your life searching for a new job, going on job interviews, getting trained, settling in, signing up for the new insurance (that is, if you get insurance), filling out your tax paperwork, moving over your 401(k) plan. You’ll barely figure out where the foosball tables are located before it’s time to go find a new job.
Amazon, which has gained a reputation as an especially harsh place to work, adds a cruel twist to Hoffman’s short-term “tour of duty” philosophy. The median Amazon worker lasts only one year at the company, according to a 2013 study by PayScale, a company that tracks compensation data. Amazon compensates workers in part with restricted stock units spread over four years—but, unlike most tech companies which distribute an equal number each year, Amazon backloads the grants so that the lion’s share of the stock units arrive in years 3 and 4. Employees who leave after one year might reportedly get only 5 percent of their grant.
While many tech companies treat employees poorly, they also expect them to be loyal, to feel for their employer the kind of passion that a sports fan feels for a team. Employees at HubSpot are told that the needs of the company are more important than their own. “Team > individual” is how Dharmesh expresses this in his culture code, whose subtitle is “Creating a company we love.” Who falls in love with a company? Especially when that company tells you that we’re not a family?
Yet those Millennials running around the HubSpot offices in their orange clothes and orange shoes don’t just like HubSpot; they love HubSpot. It’s their team. It doesn’t bother them that their team feels no such loyalty to them.
One day in the content factory I have a kind of Norma Rae moment where I try to raise awareness among my fellow workers. Specifically, we’re talking about the candy wall. People are saying how amazing it is to have so much candy available. I’m hoping to persuade them that the candy wall is a bit of a con.
“You know,” I say, “you guys are the first generation that’s willing to work for free candy. My generation would never have fallen for that. We wanted to get paid in actual money.”
I’ll admit this might not be the best way to open up this dialogue.
“We get paid,” one says, sounding defensive.
“I know,” I say. “I’m just trying to make a point about why companies do these things.”
“It’s because they want to create a cool culture. They want people to be happy.”
I have no idea how much these people are paid, but most of them are right out of college, and I suspect Cranium has gulled them into taking small salaries in exchange for the great experience they will get at HubSpot, as well as all the fun stuff, like the parties and the outings and the free beer and the candy.
“We’re not getting paid in candy,” another one says.
“No, I know that.”
The others join in. They love the candy. They eat candy every day. Now I’m backpedaling, trying to explain that what I really mean to
say is that a big wall of candy dispensers is not an incentive for people like me.
“If it were up to me, if I had the choice, I would not have a candy wall and I would just get paid a little bit more money instead. You see what I mean?”
They don’t.
“Because I have kids, right? I can’t bring home a huge bag of candy every day and feed the candy to my kids for dinner. I can’t sell the candy and use the money to buy food and clothes for my kids. That’s what I’m saying.”
They look at me like Crazy Old Man Alert! Why is he angry about the candy? Don’t make any sudden moves that might scare him! Back away slowly, and call for help!
The woman who really loves the candy says that she doesn’t think the company actually spends that much on candy. What’s more, even if the company took away the candy that doesn’t mean they would pay us more money.
“I know,” I say.
“But that’s what you said.” She stares at me, triumphantly.
I’m not quite sure where to go with this. Did Norma Rae run up against this kind of thinking in her textile factory? Were there twenty-something people there who loved the coffee in the coffee machine and didn’t want to form a union?
“You know, you’re right,” I say. “I’m sorry I brought it up. The candy is great.”
If I were Halligan, or Dharmesh, or Cranium, I would do exactly what they’ve done: I would hire hundreds of people just like this, give them all the candy and beer they can stomach, and keep telling them what important, meaningful work they’re doing.