The Era of Blitzscaling Is Over. As a VC, My Money Is On 'Responsible Growth.' Hypergrowth damages companies, people, and the planet. The businesses I'm betting on now are "earning the right to be around for decades."

How fast should you grow?

From the dawn of the dot-com boom in 1995, all the way up through 2020, Silicon Valley had an answer that inspired many others: hyper growth. That's what made headlines, hypnotized investors, and drove a winner-take-all mentality. You want to be Uber, not Lyft; Google, not Bing. Reid Hoffman, a founder of LinkedIn, wrote a popular book titled, Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies.

But over the years, it's become clear that "blitzscaling" can lead to irresponsible behaviors. A lot of founders believe they should scale first and then worry about fixing damage they cause. But by then, their business model is baked and it's too hard to change. All they can do is tinker at the fringes and hope they don't wind up bankrupt (or defending themselves in front of Congress or prosecutors). As a venture capitalist, I now believe "responsible growth" is the path to the best returns.

The way founders think about growth can be examined through a tale of two companies. Both provide businesses with cloud-based software for payroll, benefits, and human resource management. Gusto was cofounded in 2011 by founder and CEO Joshua Reeves, and my firm became an investor. Zenefits was cofounded in 2013 by Parker Conrad, and investors included several high-profile venture firms.

Related: The Growth of Sustainable Investing

By 2015, Zenefits was getting all the attention. That spring, its valuation jumped to $4.5 billion, up from $500 million the previous year. Between 2014 to 2015, its annual recurring revenue grew from $1 million to $20 million. The company set a goal of hitting $100 million in revenue in 2016. It signed up about 10,000 small businesses as customers and hired like crazy to keep up with demand. The press gave it breathless write-ups. "Zenefits was already the hottest startup of 2014. Now it's making a case to grab the same title in 2015," said Forbes.

The poison that would soon cripple Zenefits was buried in that Forbes story. The writer pointed out that Zenefits was growing so fast because it made its software free to businesses, and then profited on commissions from health insurers and other providers for benefits sold to its customers. This meant that to make money and keep up the pace of growth, Zenefits' employees were under intense pressure to push products that customers might not want or need. Conrad kept intensifying that pressure in an attempt to overtake competitors. He said his investors "agree that we should be stepping on the gas and pushing the pedal to the floor."

The pressure to grow led to cutting corners. Regulators started scrutinizing Zenefits for letting brokers sell health insurance in states where they weren't licensed, leading to nearly $9 million in fines. The company's internal software also allowed its brokers to spend fewer hours in online training than was required by California law.

Conrad later admitted that Zenefits' engineering capabilities couldn't keep up with demands, leading to errors when employees tried to do things manually. As problems grew, growth stalled. The Securities and Exchange Commission brought charges of misleading investors.

Conrad resigned in early 2016. "I was hiding at home, like, kind of borderline suicidal and not talking to anyone and watching this disaster unfold around me," he told a journalist. The company's valuation got cut in half, and it laid off nearly half its employees. Now it sells the software as a subscription instead of relying on brokerage commissions.

Related: This Growth Hack Will Help Your Company Win in 2022

As Gusto watched Zenefits go through its drama, Josh Reeves kept his focus on responsible, optimal growth. His motto is, "We want to earn the right to be around for decades." That starts with the right business model. From the beginning, Gusto sold its service as a subscription. Since customers had to pay for it, Gusto didn't get the fast uptake Zenefits did by making its service free. But the model avoided Zenefits' pitfalls and meant Gusto's customers had to get value from the service, or they would cancel.

Reeves also instituted three "checks and balances" on growth. The first was customer experience. Gusto developed metrics to track whether it was solving customers' problems or creating more. If Gusto ever starts causing problems, that's a signal to slow down and get it right. And if the metrics show customers are too pleased, Reeves takes it as a sign that Gusto might be growing too conservatively.

The second check is about employee experience. Gusto does regular employee surveys and keeps tabs on churn and morale. If people feel burned out or would not recommend working at Gusto, or if employees quit after a few months, those are signs that growth is getting ahead of their ability to manage the company well. On the other hand, if employees feel like their jobs are a walk in the park, they're probably not being pushed hard enough to help the company grow.

Finally, Gusto measured the performance of its business model as a way to calibrate growth rate. For instance, it watches how much it spends to acquire customers and how much it spends to serve them. If the company has negative gross margin and is counting on the next funding round to refill that leaky bucket, the growth rate is probably not sustainable. Time to slow down and get it right. However, if the metrics are too comfortable, the company is likely not spending enough resources on growth.

Related: Avoid the 'Too Fast, Too Furious' Approach to Scaling a Startup

How has Gusto's approach to growth worked out? Really well. The company's last round of funding, in 2020, valued it at $4 billion. It has 1,000 employees, and Glassdoor says 65% of them would recommend Gusto as a place to work, while 85% approve of Reeves as CEO. Meanwhile, Zenefits is still in the game, but it's lost a lot of ground. The new CEO, Jay Fulcher, told the San Francisco Chronicle: "It's really important to recognize that growth at all cost or at any cost is not a good idea."

Today, many startups are reinventing big, long-standing industries that impact everyday life: insurance, healthcare, energy, banking and shipping. These markets are enormous. Look at Gusto: It's a multibillion­-dollar business that serves 100,000 small companies in a market where there are still millions of other small companies. Tesla isn't going to make all the electric cars in the world. Teladoc isn't going to replace all in-person doctor visits by offering them virtually. In these industries, winner-takes-all market domination is almost impossible. Instead, companies should focus on aggressive but manageable growth rates over a long period of time. Founders should take the time to build companies that avoid unintended consequences. It's become apparent that in the future, companies that move too fast and cause harm will have a much more difficult time enduring.

Excerpt from Intended Consequences: How to Build Market-Leading Companies With Responsible Innovation by Hemant Taneja (McGraw Hill, January 2022). Taneja is a managing partner at General Catalyst.