The hidden cost of startup buzz: how founders and investors can avoid a culture of hubris

It’s the dream of many startups: grow aggressively to chase the hype and become a unicorn. However, trying to pull this off all too often turns into a nightmare for founders, employees and their stakeholders alike. Our recent study found that growth-chasing startups risk ingraining a damaging “hubristic culture” – characterised by the sense of being entitled to break rules without caring about consequences.

A hubristic culture often looks exciting to employees but actually damages the company. It leads employees to believe they can do no wrong in the pursuit of growth. This is a recipe for disaster. A report by debtors of failed crypto exchange FTX Trading, for example, blamed its collapse on “hubris, incompetence and greed” (the company’s founder, Sam Bankman-Fried, is appealing his conviction).

Together with Elena Dalpiaz, I have studied hubristic culture in a tech startup that initially achieved hypergrowth for a few years. However, this culture led the startup to adopt harmful behaviours that hurt stakeholders and threatened its very survival until the company embarked on a major reform process. While this turnaround was a success at the time of our study’s conclusion, the company, like many others in the sector, later exited the market due to new regulatory changes. This has helped make the case for broader volatility of the industry rather than undermining the impact of cultural reform.

Red flags in startup culture

We found that one major red flag for a hubristic culture is when startups pursue growth at all costs. This is problematic because employees believe it does not matter how their growth-chasing actions affect stakeholders. Consequences of this can include: regularly letting customers down during the hypergrowth; getting ever more regulatory fines; and receiving increasingly hostile coverage on key (social) media channels.

Another major red flag for a hubristic culture is a specific type of excitement shared among the startup’s employees: what we call “antagonistic excitement”. This is the enthusiasm to operate in opposition to outside norms. For example, an employee of the tech company we studied was thrilled when masses protested the company’s rule-breaking: “we were getting attacked […] You live off that adrenaline”.

Getting excited about breaking rules and about receiving external criticism is dangerous because employees risk losing moral awareness, i.e. the ability to care about (not harming) the outside world.

How to build a sustainable startup culture

How do startups avoid the trap of a hubristic culture? First, by focusing the team on pursuing growth that can be sustained over the long-term, rather than seeking growth at all costs. This forces employees to pursue growth that fits with society because only this is sustainable over time.

Second, it’s important to banish antagonistic excitement. Whereas excitement about the startup’s mission and about any constructive plans can be very positive, what stores up trouble is fostering excitement about breaking rules and getting criticised. It’s important for startups to emphasise that, amid all the excitement, the pursuit of growth should not endanger the well-being of others.

Hubristic cultures in startups are initially intoxicating for employees but they are ultimately toxic for everyone. When startups collapse, founders, investors, employees and stakeholders are all harmed. It’s important that hyped companies fix a hubristic culture before it’s too late. This gives them the chance to build a company that will last, rather than becoming a cautionary tale for the next excitable startup.

This article draws on findings from the Journal of Business Venturing article “When Hype Collides with Morality: How Entrepreneurial Framing Affects the Behavior and Legitimacy of Hyped Ventures” by Christian E. Hampel (Imperial College London) and Elena Dalpiaz (USI Lugano).