Healthy vs Toxic, Where Do You Stand?
Jacob Kent and Jason Katz • October 3, 2022
As trusted advisor to companies large to startup, industries ranging from ecommerce to SaaS software, and industry leaders to emerging startups defining new categories, we’ve seen a lot. While there is no substitution for product market fit, thoughtful strategy & planning (even in weekly agile sprints), and reliable execution, the question of how work gets done has a big impact on all participants in the global economy - that’s a lot of people. Creating a healthy work environment makes a big difference in the lives of many but toxic work environments have become too commonplace. We’ve explained these dynamics and created a framework to diagnose them to empower business leaders to actively manage them for the better.
Workplace Health in the Innovation Economy
Innovation is a cornerstone of capitalism and in turn wealth accumulation; with the current influx of new businesses the economy is continually growing and changing faster than ever before. As Economic Innovation Group reports, approximately 5.4 million new business applications were filed in 2021 alone; a 22.7% increase from 2020.
The growth of large publicly traded enterprises like Meta (Facebook), Google, Amazon, Tesla, Netflix, Aramco, etc…, combined with the rise in unicorn valuations in the private sector has directly affected the current trajectory of the economy. CB Insights found that from March to July of 2022, “the unicorn club has grown 9.8% from 1,066 to 1,170.”
With so many rapidly expanding organizations of various sizes, founders and business leaders are constantly undergoing immense pressure from investors and stockholders–and while some are able to rise above and empower their organizations, others fail and risk potentially adding their names to the ever growing list of toxic workplaces.
The existence of a toxic work environment tends to negatively impact team performance, productivity, and morale. One significant trend of toxic work environments is increased absenteeism and turnover rates, meaning there is less work being done and more time is spent onboarding rather than producing. Although there are companies that will continue to succeed regardless of where they fall on the workplace health spectrum, organizations–and their leaders–must acknowledge the types of environments being cultivated and strive to maintain a healthy work environment where employees can produce their best work and contribute to the goals set by and for the company.
Furthermore, the types of cultures created within companies overflow into other aspects of employees’ home and personal lives; therefore, not only employees but an even larger audience are forced to rely on leaders using their positions of power to establish and maintain healthy work environments.
Understanding Healthy vs Toxic Workplaces
Defining a healthy workplace
In order to understand toxicity in the workplace, one must also examine healthy work environments. Since the definition of a healthy workplace is subjective in nature, it varies depending on a multitude of factors including employee position, size of company, industry etc...
From a managerial perspective as 6Q reports, “A healthy workplace environment improves productivity and reduces costs related to absenteeism, turnover, workers’ compensation, and medical claims.” When employees invest their time working for a company, companies in turn are invested in their employees’ well-being, including but not limited to, physical and mental health. Thereby, organizations provide employees with a sense of stability while promoting a productive social environment that pushes for mutual respect and collaboration.
Alternatively, when looking from an employee’s or individual perspective, a healthy workplace—and what should be par for the course—is one that empowers employees and allows them to advance their careers while promoting a healthy and sustainable work-life balance. The World Health Organization (WHO) states, “A healthy workplace provides physical, psychological, social, and organizational conditions that protect and promote the health and safety of all workers of a company” (HRD). With the “normal” work model undergoing dramatic changes over recent years, the definition of what a healthy work environment is has also expanded to include more employee-centric characteristics that account for employee and company values in addition to culture rather than productivity and advancement.
Many Fortune 500 companies such as Cisco Systems and Salesforce are considered some of the best companies to work for with exceptional ratings and held in high regard in their respective industries. Cisco is known for its exceptional work-life balance and how upper management treats employees. Whereas Salesforce puts emphasis on company-wide sustainability and employee well-being, as depicted in its widely known company retreat. Companies like Salesforce begin as startups and grow into massive corporations; therefore, it is important to understand the direction that a company’s culture and workplace health is heading from an early stage.
Healthy startups
Healthy startups much like larger companies range in where they fall on the workplace health spectrum as well as what is considered healthy for each particular industry and type of work. Superhuman, an up and coming email client startup has been reported as not only healthy, but also demonstrates its care for their employees by addressing controversies and discussions around mental health and how that plays a role in maintaining a healthy work environment. The culture is reported to be inclusive and their CEO is regarded as a visionary in individual reviews.
Another notable startup that has been championed as one of the best startups to work for this year by Proofhub is Hootsuite. Hootsuite gained traction as an application for managing social media channels and continues to rise in popularity. Employees at Hootsuite comment on the work-life balance and fast-paced nature, and how the competitive culture leads to better work being produced. Though it is true that competition leads to innovation, when competition under one roof ceases to be healthy, there is a good chance that it will take a turn for the toxic.
Defining a toxic workplace
Workplace toxicity is different from one company to another, often muddying the specific characteristics dictating a toxic workplace. Forbes notes that a toxic workplace “can also be one that pays poorly, does not recognize or reward exceptional performance, prioritizes customers over employees.” These newer and more modern definitions of what a toxic workplace puts employees well-being before or on the same level as that of the company. Forbes continues by saying that a workplace is toxic if, [It] fails to allow internal mobility, denies employees a voice, violates trust or prevents its employees from unplugging.”
Because of toxicity’s obstacles in being measured objectively, it is therefore a range of characteristics. Essentially, a toxic workplace boils down to any work setting or situation that makes an individual feel uncomfortable or brings an employee down in any fashion. This can also be any work environment that has a negative or off-putting atmosphere for an employee.
Many large and small companies have issues with toxic workplaces. Even in larger corporations with substantial HR departments there are still an abundance of toxic workplaces. Fox News for example had its toxic work environment explored in the 2019 film Bombshell. Other films such as Horrible Bosses (2011), a comedy, and The Assistant (2019), a drama, comment on instances of toxicity frequently experienced in the workplace. Is it because of toxicity’s subjective nature that we constantly read and hear about discrimination and sexual harassment lawsuits at these huge conglomerates?
Toxic startups
Toxicity is evident in tech startups but may not be reported on as frequently as it occurs since the majority of startups are considerably small; they may not have dedicated HR departments to deal with claims and complaints. Because of this lack of oversight, there is a greater probability that instances may fall through the cracks, be dismissed, and swept under the rug.
There is also a tendency for the leaders and owners of these startups to be what some would characterize as psychotic. Forbes reported that, “Roughly 4% to as high as 12% of CEOs exhibit psychopathic traits,” and startups are no different. For example, Uber’s former CEO Travis Kalanick, infamous for a variety of scandals, is said to have spied on journalists, dodged the police, mistreated Uber’s drivers, as well as had knowledge of an executive in Asia obtaining a copy of a rape victim’s medical record after a case came up against Uber (The Outline). CEOs often have a hand in the public perception of a company, but they also have an impact downstream on how employees see the company and their peers.
Roots of Workplace Toxicity
Tech startups unlike larger companies as well as companies in different fields or industries may be more likely to have toxic work environments due to a multitude of factors, including:the role leaders take in shaping an organization’s culture, the elevated demand for results, limited size contributing to stress and overlapping of departments, and lack of diversity (specifically related to gender).
Leaders
Many company cultures stem from the top down, and employees may look to leaders and CEOs for clues as to how to behave within an organization. Therefore, business leaders need to set an example and be a person employees can look up to and rely on since they are investing their time and energy to work under that CEO or business leader.
One CEO who has had a direct impact on the toxicity of their company is with Elon Musk and not only Tesla but SpaceX as well. Musk is known for pushing the boundaries but also his employees, sometimes beyond their breaking point. This high demand for results in conjunction with the persona he cultivates in the public eye, causes toxicity downstream in his companies. In Twitter posts and other forms of social media, Musk has made some comments in poor judgment that may have alluded to him being somewhat of a male chauvinist. This directly correlated to sexual misconduct alegations in recent years at Tesla. SpaceX too has been under fire in the news for discrimination allegations. Regardless if Musk’s off-humor jabs are or are not a valid portrayal of his true opinion, employees may take cues from the people in positions similar to Musk’s.
Leaders may or may not be the direct or only reason for toxic workplaces, but have a responsibility to the company and the employees to promote and establish healthy workplace cultures.
Demand for results
Much like academia’s publish or perish, startups are known for their cutthroat environments and sink or swim mentality. This sense of having to prove one’s self in the workplace can often lead to competition between employees and hinder collaboration due to fear of missing out on recognition. Many startups require longer hours than other more established companies and also come with less job security and being employed at will, meaning the company has little commitment to the employee and this often leads to a fire quickly mentality. Granted the leaders and CEO of these companies are often geniuses at what they do and have had to put in the time and energy to get where they are, however they do need to realize that the people that work for them are not the same as them otherwise they would also be the CEO of a company or startup.
Size
It is possible that due to the limited sizes and continued work in such close proximity to one another, toxicity may be more likely to occur in startups. True, there are various ranges in sizes of startups, however many tend to be relatively small. Much like staying in close quarters for an extended period of time with any group of people; if people are working too closely for too long without external stimuli there is nearly a 100% chance that someone will get on someone else’s nerves and/or will do something that will not be taken well by others.
Lack of diversity
The lack of diversity is more drastic in tech than other industries and therefore more drastic when it comes to startups. However, if a lack of diversity can arise in one workplace and cause issues relating to workplace health, then it can happen in another given the right or wrong conditions depending on how you look at it. The tech sector by race is primarily caucasian (~55%) with ~10% Hispanic/Latino, ~5% African American, and ~30% Asian as reported by Beamjobs.
Combined with large racial inequity, the tech industry is dominated by men. Fortune reports, “Women make up just about 25% of technology workers.” Furthermore, the tech startup industry is even more skewed when it comes to the gender divide. Pave recently did a study of startups with 100 or more employees finding that, “36% of the workforce is female” (Pave). Therefore it is reasonable to say that there is definitely a disparity between the male and female workforce in tech startups. This leads to the question–are males just inherently more toxic in the workplace than females? Or toxic in general?
Although each of these characteristics: leaders, a high demand for results, limited size, and a lack of diversity, can significantly impact the overall health of startups, it is often the combination of two or more of these factors that ultimately tip the scales in favor of toxicity over health.
Analytics Help to Determine Startup Health
Employee analytics can reveal company health or toxicity. Through looking at different ‘symptoms’ of toxicity relating to employee ratings, reviews, retention trends, and company financial performance it is possible to determine the potential for a company–startup in this instance–to have toxic tendencies and/or be harboring a toxic work environment.
Our sample population included 60 U.S. technology based startups; half software companies and the other half companies that primarily focus on E-commerce. Health was determined by examining specific, overall, and percentage based Glassdoor ratings, revenue, changes in headcount, as well as reviews/first hand accounts by current and former employees. It was found that if a company scored low in at least three of these six categories, excluding revenue, there was a tendency towards toxicity.
After determining whether a company was toxic or healthy, the individual reviews and accounts were used to further categorize companies into where they fit on the workplace health spectrum.
In order to understand the underlying causes and symptoms of a toxic workplace we looked at the tech industry, known to be one of the more toxic industries with numerous reports and accounts. To better understand the ins and outs of the culture and environments being nurtured in the tech industry, startups provided a smaller, yet significant, sample population.
Approximately 36% of the companies analyzed were deemed to be of varying levels of toxicity.
Startup employee ratings & reviews
Overall Glassdoor rating was reviewed for every company. Low scores include an overall rating under four. These low scores were received by various sized companies ranging from startups like MAELYS, ModCloth, and Hemster to larger companies such as Fandango. Similarly, high scores were received by various sized companies ranging from startups like Vitally.io, Proton.ai, and Knowde to more established, well known companies like Mixpanel, Calendly, PandaDoc, Sendoso, Apollo.io, and Superhuman.
Most Toxic were companies with 7+ individual reviews commenting on toxicity or toxic characteristics experienced at the company. More Toxic were companies with 5-7 negative reviews. Toxic were companies with 3-5 negative reviews. Healthy companies had some negative ratings or reviews, but none commenting on toxicity or toxic characteristics. More Healthy were companies with few negative ratings or reviews. Most Healthy were companies with very few or nearly zero negative ratings or reviews.
After determining whether a company was toxic or healthy, the individual reviews and accounts were used to further categorize companies into where they fit on the workplace health spectrum.
Large corporations may have obscured ratings or poor ratings may be buried or hidden beneath hundreds of other reviews, whereas startups have very few reviews thereby giving each more weight than they would carry in a large company. When examining reviews from large corporations it is easier to obtain statistical significance due to the high number of reviews, yet the percentage of employees reviewing tends to be lower than that observed in reviews of startups. Each employee in a startup represents a larger portion of the company when compared to the percentage an employee of a large corporation represents. Looking at larger corporations’ ratings and reviews may give a general picture of what employees think, but ratings and reviews from startups display unique workplace experiences. An aspect to consider is that employees may review startups differently than more well established companies since their reviews are more likely to be read and have an impact.
Startup percentage based Glassdoor ratings
The three percentage based Glassdoor ratings, Recommend to a Friend, CEO Approval, and Positive Business Outlook–although not factored into the overall rating provided by Glassdoor– showed significant correlations between how companies rated in these three categories and where they fell on the workplace health spectrum.
When comparing the percentage based ratings to the overall ratings, there was a general correlation but also a much greater rate of correlation between the percentage based ratings and a company’s determined workplace health. The single most accurate predictor found in Glassdoor for judging a company’s workplace health was found to be the Recommend to a Friend rating followed by the Positive Business Outlook rating.
Low scores include three or more individual categories equal to or less than three, or under 75% in at least two of the three percentage based ratings. These low scores were received by various sized companies similar to overall score, however some startups like AppOnboard and RocketDocs stood out in the individual categories. And MAELYS was much stronger in these individual categories than in overall score.
Startup employee retention trends
By examining this sample population, we were able to uncover more insights into the environments cultivated in tech startups and what effects toxicity has on employee retention rates. Many companies showing the lowest employee growth had a tendency to be toxic in nature, however it is not enough to confidently say that toxicity hinders company growth. Only looking at the employee turnover or retention rate will not paint a full picture of what the degree of health of a company may be. Low retention or high turnover rates can often be a symptom of a toxic workplace but should not be used as a primary indicator of toxic workplaces.
Not all companies that grew significantly were deemed as healthy workplace either. Companies that showed growth less than 20% in the last year had a tendency for toxicity. Alternatively, companies that grew more than 20% tend to be on the healthier side of the spectrum, save a few exceptions.
For example, some companies headcount growth was very low as were their Glassdoor scores such as AppOnboard, Fandango, and ModCloth. Conversely, some companies headcount growth and Glassdoor scores were high such as Superhuman, Clickup, Sendoso, and Proton.ai. However, some companies with high growth and low Glassdoor scores include Burrow, Daloopa, Leap, and MAELYS. And some companies with low growth and high Glassdoor scores include Mixpanel, DataVisor, and Chubbies Shorts.
Many startups, not only toxic ones, have high turnover rates with employees likely to move on to other larger companies. Although turnover rates as noted before are a good indicator of potential toxicity, they cannot be used as a primary statistic in determining workplace toxicity. The change in headcount of a company also was found to have little impact on the revenue and is again dependent on size of company as well as what the overhead may be for those companies. Because nearly all startups from our sample are privately held, the little available financial information about each company makes it challenging to understand how large of an impact toxicity truly makes to a company’s bottomline.
Unfortunately, many toxic startups tend to show just as much if not more promise than startups boasting a healthy workplace. Toxic workplaces are still able to produce and attract more new talent as well as new business regardless of the fact that employees may be working under subpar conditions.
By looking at retention trends, one can determine which companies may have issues with the health of their workplace; but, it will require further digging and analysis before drawing any concrete conclusions about companies.
Startup financial performance trends
When it comes to understanding startup financial trends it is difficult to know the ongoing performance of these companies because many are privately held and owners/leaders are not the most open or willing to share this information with persons or companies outside of the organization or its investors; only way around this is paying for premium financial services like PitchBook.
Most recent annual revenue is often available but not previous years, profits, or annual sales. Many toxic startups are high performing, and although their average ratings may not show that it is toxic—with overall ratings at 3.9 and 3.4 respectively—Twitch and Fandango, both found to have toxic tendencies, prove to be extremely profitable and both were acquired by much larger corporations (i.e. Amazon and NBC Universal respectfully). There is no clear correlation between the health of a company and revenue, however, this can be dependent on the different sizes of startups and how much revenue they require to stay afloat, therefore a single year's revenue makes it impossible to understand the direction that a company is heading and required a longer period of observation.
Although, there is little correlation between the financial performance of a company and where they fall on the workplace health spectrum, the financial toll brought on by toxicity can dictate the longevity of an organization. Toxicity on a day-to-day basis will likely increase in absenteeism and elevate turnover rates, however, when toxicity reaches beyond minor offenses the allegations and ultimately lawsuits brought against companies can cripple an organization both financially and in the public’s perception. Therefore, business and organization leaders need to consider the underlying expenses associated with toxic workplaces as well as how toxicity may negatively impact their ability to do business.
The great resignation correction
The Great Resignation has become known as the mass exodus from the workforce or changing of positions that is currently taking place as we finally move away from the height of the pandemic. In the beginning of the pandemic many people were only going back and forth from work or strictly working remotely full time. This feeling of being stuck in a job with little outside stimuli could be a key factor driving much of the thinking behind job changes or leaving the workforce entirely.
Forbes reports that, “According to MIT Sloan’s recent study, toxic work culture is the number-one reason people cite for leaving their jobs.” It continues, “Searches for ‘toxic work environment quiz’ increased 700% in April alone. [It] also found that “HIPAA violations in the workplace” searches increased 350%.” The workforce is beginning to acknowledge that they should not be putting themselves through toxic work conditions regardless of the stability and monetary value the toxic workplaces are able to provide or incentivize employees with. NPR reports that, “Workers at Starbucks, Amazon, and Chipotle have unionized in a demand for higher wages and better working conditions.” As support for unions has hit a new high since the 1950s more employees are banning together in efforts to elevate the health of their workplaces.
Conclusion
Toxicity in tech startups is inevitable, however that does not mean that it has to be the norm. There are many unicorn startups that promote healthy work environments and encourage productivity through community and positive workplace culture. However, as we continue to see, some companies that allow toxic workplaces will always find a way to succeed.
With nearly half of U.S. companies anticipating layoffs combined with the grand exodus already happening, the economy is facing a significant challenge. Organizations and business leaders are going to play a pivotal role in what comes next and need to consider what they are or are not willing to sacrifice in order to maintain or achieve success. In some cases we may start to see more instances of toxicity due to increased pressures and workloads. Only time will tell how U.S. companies weather the economic downturn, however leaders and decision makers do control how they respond. Toxicity in the workplace may never truly come to an end but the leaders of these companies do have a responsibility to their companies and employees do everything in their power to promote a healthy work environment.
The most valuable thing an employee can invest in a company, or leader, is their time; a company’s most valuable asset is its employees. Therefore business leaders and decision makers need to consider how their actions and the standards they set may affect the company and ultimately the employees’ lives downstream. The way business leaders shape their organizations does more than paint a picture in the public’s eye, but rather subjects their employees to what image is being portrayed.
Tech startups, when compared to other sectors, may have a larger percentage of successful yet toxic companies due to factors ranging from high stress levels, to an elevated demand for results, to a lack of diversity and to constant interaction with the same coworkers in limited space. Unfortunately, toxic startups will continue to prosper in the tech world due to the extreme level of competition and therefore toxicity is not a decisive factor in determining whether a business will succeed; however, because startups can move more quickly than larger business when implementing change, we can use these lessons for large companies so the changes which are much harder become much smarter.
