A few years after graduating from college, I had the good fortune of joining an amazing company. We were a tiny tech company, eight employees working in a small apartment on the top floor of a building in Harvard Square. This was long before the word “startup” had become so popular.
The company was Viaweb and it has since achieved a level of fame for being Paul Graham’s first startup. It was phenomenally successful. In 1995 Viaweb took a $2.5 million investment and transformed it into a $49 million buyout by Yahoo three years later.
Paul then took the Viaweb template – the business model, lessons learned, and success – and used it to create Y Combinator, a venture capital firm specializing in early stage startups. This Viaweb template has since been used to launch a series of notable successes including Reddit, Dropbox, and Airbnb. Y Combinator is now called “The Harvard of Startups” and mentioned in the same elite company as Sequoia Capital and Fairchild Semiconductor.
Working at Viaweb was a formative experience for me, an opportunity I have been grateful for ever since. I learned a lot of good practices working with Paul and his book “Hackers and Painters” is worth reading, especially if you are involved in tech. There’s a lot of wisdom in there on all sorts of subjects.
But there’s one factor in Viaweb’s success that doesn’t get enough mention in Paul’s essays. When I worked at Viaweb, we took an unusual tack in hiring and firing. As a small company, individual contributors had an outsized effect – the good ones had an opportunity to really shine and not-so-good ones could infect and bring down the entire organization. It was very important to make sure we employed good people, the cost of a misfire was too great. We had to, by necessity, be slow and careful when it came to hiring.
But here’s the dirty secret – we were also slow to fire. During my year and a half at Viaweb, we only fired one person and that was after their disastrous first week. That’s not to say there weren’t not-so-great performers and disagreements amongst co-workers. There were but, as a rule, we didn’t fire people. Viaweb was a company designed to be sold, we had no intention of becoming a dominant tech firm like IBM or Microsoft, and our Chief Operating Officer said turnover would be a red flag for potential acquirers. So, no firing.
Instead of firing, we would shift the not-so-great to an area of lesser significance where the potential for harm was minimized. Some people I had no idea what they did all day but every day they were given a choice, they could accept this diminished role in the company and tag along for the ride or seek something better somewhere else. No one was ever surprised with a sudden “You’re fired” meeting with all its stress, unpleasantness, and drama.
Looking back, this was a very humane way to run a company but it is a model that is intolerable to current venture capital thinking. The dominant investment thinking among tech startups was recently, when they were flush with cash from zero interest rate loans, “Hire fast, fire fast” but they have since pivoted to “Hire slow, fire fast” as funding has dried up.
This type of thinking could not be further from how we ran things at Viaweb. Given that, I want to explore the different modes of hiring and firing and the types of companies they generally produce:
Hire fast, fire fast
As mentioned above, this was the dominant method of operating amongst startups during the days of zero interest rates and a flood of pandemic funding. In my experience, these companies are filled with stress and drama. They are, in effect, running at top speed to an absolute standstill, as effective as setting the treadmill on 11 and sprinting on it until you fall apart. When you do, you are surprised to learn you went nowhere and are worse for the experience.
These companies are built around superficiality. Management will manufacture a bunch of measurable goals to justify the frenetic pace, but these goals are all a ruse to cover up that they are George Costanza companies, furiously trying to look busy. I had a friend who once worked for a major investment bank and had no idea what he was supposed to do all day so he adopted the George Costanza approach of looking extremely busy. Any time he got up from his desk, he made sure he had a notebook in his hand and walked with furious intensity. One of his co-workers said to another “Man, that guy is on fire!” so, apparently, it worked.
Why do companies use this approach? Usually it’s an effort to look busy and growing in order to secure another infusion of venture capital cash to burn through. These companies rely on deception and will post lots of job opportunities on job boards even if they aren’t hiring. Same with the fire fast mentality, they make crazy rash decisions then furiously try to recover. It’s all phony marketing and a great way to accomplish nothing, but it was the dominant model for doing business during the days of zero interest rate loans.
Hire slow, fire fast
This is the mode that has become popular amongst venture capital firms as the money supply has been constrained by rate hikes. It gives outsized power to the people who control the purse strings and I call them Mitt Romney Companies, after the three-time Presidential loser who is famous for saying “I like to fire people.”
Usually they are run by risk averse rich people who demand total control over their employees. Authoritarian and austere, they expect a lot from very little. These companies expect employees to work hundreds of hours of unpaid overtime, be grateful for their job, and demand they express this sentiment as often as possible.
The result is an environment where employees seek to avoid risk or stand out in any way. Why would they? If the project is successful, it triggers feelings of resentment, and if it fails, they get blamed. It is a lose-lose proposition to stick your neck out in an organization like this. Creative types can never feel safe and innovation grinds to a halt. In these companies, an employee’s best strategy is to say “That’s a great idea, boss” as hard as you can, find someone to blame before any project, and make sure that person is not you.
Hire fast, fire slow
This is the mode that most offends venture capital. Why in God’s name would you take on the huge expense of a large workforce if not to force out the non-performers and sort the wheat from the chafe?
But this approach works if you are, say, Franklin Delano Roosevelt facing the Great Depression where a quarter of the workforce is unemployed. It is the mode he used when he launched the Civilian Conservation Corps (CCC) where they hired a quarter of a million able-bodied young men and put them to work doing public service projects like building national parks and fixing up roads.
The goal wasn’t so much as to build a dynamic organization in this mode, it was to get people working immediately, train people for jobs, and put money directly back into the economy. I imagine the Soviet Union did the same thing when they had 10 million homeless people in the aftermath of World War II and needed to build hundreds of thousands of concrete apartment buildings.
This mode of hiring also works well for extremely unpleasant, physically demanding jobs, where there is no need to fire people, it’s more likely they will burn out. I have a friend who owns a moving company and, after working there for a few months, I can tell you it is some of the hardest work I’ve done in my entire life. People capable of doing this type of work are forever in short supply and it’s extremely important to try to hang on to the ones you find. The “hire fast, fire slow” mode works well for these employers.
Hire slow, fire slow
This is the way we did it at Viaweb and I’d argue it is the best method. Choosing good people is hard and is worth considerable investment of your energies, go slow there. Ask yourself, “Is this person a net add?” Personally, I think anyone can be a good employee if you get along with them. As my accountant once told me, “People do business with people they like.” Go with your gut, do you like this person enough to hang out with them for long periods of time? If so and they have the requisite skills, they are a good hire.
On the flip side, firing slow adds a layer of safety necessary to do a job well; it is impossible to do good work with a gun to your head. We all screw up from time to time and firing people quickly with little discussion discourages initiative and creates an environment of fear. It only escalates from there - fear leads to paralysis and paralysis leads to death. Employees prefer to have models for success, paths to take, rather than live in fear of becoming like the person who got let go. In a fire-slow environment, mistakes are tolerated and innovation and creativity is recognized and encouraged.
Viaweb was excellent at recognizing and rewarding initiative. I once got entranced by an idea of expanding the use of the software so one night I stayed late in the office, long after everyone else had gone home, and worked on it and sketched out a working prototype. Paul found it, loved it, and pulled the whole company together to announce a new slush fund program for individual projects built using the Viaweb software.
The way the slush fund worked was Paul put an envelope full of $100 cash in my desk drawer that could be spent by anyone staying late working on something to get dinner in the Harvard Square area. No questions asked, he would just check it from time to time and make sure it was stocked. I appreciated the program and used it from time to time and it made me fiercely loyal to Paul. I imagine he is a very good father to his two boys, he knows how to recognize individual effort and encourage them.
Curiously, being slow to fire at Viaweb also made us extra careful in hiring. It was viewed as a serious decision and the two approaches fed off one another. Knowing we would be saddled with someone for a while made us more cautious and judicious in hiring good people. Mistakes would not be easy to rid so it led to our caution and possibly led to better outcomes.
Plenty has been written about the high dollar costs of turnover but I’m more interested in the non-dollar costs, the damage that is done to morale and initiative by a high turnover rate. We’ve gone through an intense period of upheaval in the corporate world over the past three years. I’d like to suggest a return to a more stable, sustainable way of doing business. Hire slow, fire slow worked well for us at Viaweb, let’s get back to it.