Disrupted: My Misadventure in the Start-Up Bubble

by Dan Lyons

It’s a tough thing to be a tech journalist during a tech boom. You spend your days talking to people who don’t seem any smarter than you—some don’t seem very bright at all—and yet they are gazillionaires, while you’re an underpaid hack who can barely pay his bills.

Nobody really knows what’s going to work, or which companies are going to succeed. Some investors are just spreading money around everywhere—“spray and pray,” they call it—hoping that somehow, if only through dumb luck, some of their money will land on the next Facebook, and the payoff from that one hit will more than make up for the duds.

The biggest risk for venture capitalists is not that they will make a bad bet but that they will miss out on one of the good ones.

“We’re not just selling a product here,” Dave tells us. “HubSpot is leading a revolution. A movement. HubSpot is changing the world. This software doesn’t just help companies sell products. This product changes people’s lives. We are changing people’s lives.”

Online marketing is not quite as sleazy as Internet porn, but it’s not much better, either.

One thing I’ve started to figure out is that the top guys, like Halligan, might really want to change things, but below them there are middle managers like Cranium and Wingman, and entrenched veterans like Marcia and Jan, and these people want nothing to do with newcomers and new ideas. They don’t want change. They like things the way things are. After all, they’re the ones who made things that way. Some of them have been here since the very early days. In their mind, HubSpot belongs to them, not to these interlopers and outsiders who are now storming into the place and writing memos and telling everybody how they should be doing their jobs. Many of these people have never worked anywhere else. A lot of them aren’t very good. But here, they’re in charge. And I’m stuck working under them.

Decisions get made but no one knows who made them. Who’s in charge? Nobody. Everybody. One day we are told the company will focus on big enterprise customers and that this decision has been etched in stone and will not change. Two weeks later, we’re going back to selling to small businesses. “I’m worried,” I tell him. “This place seems out of control.” Harvey says everything I’m describing about HubSpot is absolutely normal. “You know what the big secret of all these start-ups is?” he tells me. “The big secret is that nobody knows what they’re doing. When it comes to management, it’s amateur hour. They just make it up as they go along.”

The happy!! awesome!! rhetoric masks the fact that beneath the covers, there is chaos.

“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.”

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.”

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.

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.

Despite all the talk about delightion and creating a company we love, HubSpot is by far the cruelest place I’ve ever worked.

This is the New Work, but really it is just a new twist on an old story, the one about labor being exploited by capital. The difference is that this time the exploitation is done with a big smiley face. Everything about this new workplace, from the crazy décor to the change-the-world rhetoric to the hero’s journey mythology and the perks that are not really perks—all of these things exist for one reason, which is to drive down the cost of labor so that investors can maximize their return.

As former secretary of labor Robert Reich put it in a June 2015 Facebook post: “The ‘share economy’ is bunk; it’s becoming a ‘share the scraps’ economy.”

Precist

Tech companies also are pushing the U.S. government to increase the number of skilled foreign workers who can enter the country on H-1B visas. Reich says that too is a way to drive down labor costs. In a 2015 Facebook post, Reich recalls that during his time in office in the 1990s Valley employers claimed they could not find skilled workers in the United States, “when in reality they just didn’t want to pay higher wages to Americans.” Foreign workers are “easy to intimidate because if they lose their jobs they have to leave the U.S.,” Reich says.

The tech industry’s ageism is blatant and unapologetic. It’s wrapped up in the mythology that has sprung up around start-ups. Almost by definition these companies are founded and run by young people. Young people are the ones who change the world. They’re filled with passion. They have new ideas. Venture capitalists openly admit they prefer to invest in twenty-something founders. “The cut-off in investors’ heads is thirty-two,”

Venture capitalists will insist that they don’t engage in “pattern matching” and are not just looking for people who look like Mark Zuckerberg. But they are, and this makes perfect sense, because that’s what mom-and-pop investors want to buy. Investors in the public markets want to get in on the ground floor of the next Facebook. So that’s what venture capitalists in Silicon Valley try to make for them, selecting “college dropouts with insane ideas going after tiny markets with no idea how to monetize,” as venture capitalist Ben Horowitz of Andreessen Horowitz once put it.

I’m in the camp that says bubble refers to a period when valuations of companies are no longer connected to their financial performance, and that we are now in such a period. Silicon Valley has officially become unhinged from reality for the second time in two decades, and even the smartest, savviest investors have thrown in the towel and are admitting that they can no longer tell good ideas from bad ones and have simply begun throwing money at everything, hoping some of their millions might land on a winner. Spray and pray is the actual term used by investors in Silicon Valley for this roulette-wheel approach. Some people embrace this philosophy and even celebrate it. “A lot of it is luck” is how blogger-turned-investor Michael Arrington once described the art of investing in tech start-ups.

What’s most remarkable is that HubSpot pulled this off even though the company had come within a hair’s breadth of running out of money. Apparently this happens more often than I realized. “It’s called ‘Go public or go broke,’ and it’s not at all uncommon,” says Trip, a former investment banker and venture capitalist. “The one thing people do not appreciate is that these companies are incredibly fragile. There is so much less to them than people believe. The difference between success and failure is so much smaller than people recognize. The whole thing is based on companies trying to achieve escape velocity before they blow themselves up.”

During my time at HubSpot, I was shocked to see how badly managed the company was and how packs of inexperienced twenty-something employees were being turned loose and given huge responsibility with little or no oversight. In the world of start-ups that is now the norm, not the exception.