By Peter Cappelli

I used to teach a course at Wharton about the special management and HR issues associated with managing start-up companies. I discovered later that the students thought the course should be called “When to Fire the Founder” because the most surprising conclusion was that the abilities that were necessary to get a start-up going were very different and possibly incompatible with what was needed to run a bigger, more stable organization. A simple example of this is that investors love founders who are irrationally committed to seeing their business succeed: Mortgage your house, ruin your life, whatever it takes to make sure the business survives. Once you take investor money, however, all that irrationality has to stop.

I was reminded of this recently with the story trickling down via LinkedIn from Ryan Breslow, CEO of Bolt, a fintech former startup co-founded with Eric Feldman, two Stanford computer science students. It was one of the darlings of Silicon Valley that investors at one point valued at $11 billion. But since 2022, there have been a series of missteps, including SEC investigations, several rounds of layoffs, Breslow stepping down as CEO, and the company’s valuation falling to $100 million. No one would claim that this has been a well-run company. Probably not so newsworthy except that Breslow is now back, and as CEO, he announced another round of layoffs and apparently got rid of its entire HR team.

The most interesting part of that story for us is Breslow’s claim that HR created problems that disappeared when he got rid of the HR team, that they had the wrong kind of energy, and that he needed to get back to a more gritty culture where people were willing to work harder, longer, feel less entitled, etc. In other words, he wanted to get back to start-up mode. He created a much smaller “people ops” group of more junior (read: less experienced) people to take over training tasks.

The reason this story is relevant beyond just another tech company flame-out is because we hear this myth over and over from tech companies that they can somehow keep working the way they did when they were a startup even when they become big. As an analogy, imagine the U.S. Army Generals wondering why they can’t operate like the Delta Force: move fast, change directions, operate without a lot of hierarchy, and so forth. They know the reason, because each is handling a different problem and different situations. Coordination and logistics are big challenges when thousands of soldiers are needed to subdue a region, when they will be working with complicated weapons, when it all has to be moved all at once, and when it is impossible to hide the movement of that many people and their supplies. You need systems, structures, and rules that aren’t necessary when the goal is to surprise a group of bandits hiding in a cave with a small group of commandos carrying most everything they need.

For some reason, tech bros can’t understand why regular employees in regular companies don’t want to work like the maniacs who often get start-ups going. The reasons are pretty obvious. First, the people who set up start-ups have a huge stake in the outcome. They are likely to get rich if it succeeds, they also get bragging rights as being founders. Second, they don’t expect to do it for long. Their goal is to get the company running, not operate it for a lifetime. The reason Eric Breslow has former workers from the company’s start-up phase to hire back is because they quit once it got going, and I’ll bet anything they are going to be offered much better deals than those fired employees.

Onto the theme here of dumping the entire HR department. I don’t know for certain, but I’ll bet HR was handling the kind of problems that regular employees have in regular organizations, such as complaints about fairness and how they were treated by managers. It is not that start-up companies don’t have those problems, but when they are working so hard to stay alive and where everyone can see what happens to the business if they don’t get their job done, the big pay day will likely wash the problems away. Does anyone actually believe that the HR problems at Bolt disappeared when Eric Breslow cut the people who were tracking them? Or is it that the people who were complaining got cut, the new people coming in don’t yet have those problems, the company is back in survival mode, and most important, if there is no one to track them, the CEO won’t see them?

Given that naivete, here’s a surprising and sensible action taken by Breslow. He got rid of unlimited paid time off (PTO), claiming that good people never took enough and others took too much. The reason for unlimited PTO, of course, was never about employees. It was a means of removing the liability for accrued time off from the company’s financial books, making them instantly more valuable. He replaced it with four weeks of vacation for everyone, presumably where employees have a right to it, something that is better for the employees.

The problem with running a company as a start-up, of course, is that start-ups don’t make money. It is only the promise that they will grow out of the phase that makes them valuable. That’s why they can’t keep running like start-ups when they no longer are start-ups.

Peter Cappelli is the George W. Taylor Professor of Management and Director of the Center for Human Resources for The Wharton School.