Entrepreneurs Hate Rules but Can't Avoid Them

Nick Friedman wanted his startup to be fun and stress-free, but then it started to expand. College Hunks Hauling Junk

It's one of the ironies of entrepreneurship.

Entrepreneurs generally don't like strict rules and red tape. That's why many of them give up jobs at big companies and strike out on their own. But as their owncompanies get bigger, they often realize they need to lay down the very rules that got on their nerves in the first place.

Whether it's dress codes, strict schedules or limited sick days, many entrepreneurs discover they need to rein in their company's anything-goes spirit—because a lack of structure and professionalism can do big damage to the business.

Fun Time Is Over

In some cases, laying down rules means changing the entire company culture. Nick Friedman co-founded College Hunks Hauling Junk with no formal policies about vacation, dress codes and other things. He envisioned "a real-life Never Never Land where work is always fun, and the culture is always stress-free."

Then the company grew from one cargo van to over 50 franchises. And the freewheeling spirit made the employees lose focus.

"Client-service ratings decreased, employee morale was low, and profitability dwindled as excessive expenses skyrocketed," he says. "Also, we didn't have any alignment or positive company culture. We needed structure, we needed processes and systems."

Coming up with rules and procedures "can put a strain on the company culture, but we have fought hard to maintain a healthy balance of fun company culture with an accountable organization and team," he says.

Likewise, Joe Apfelbaum, CEO and co-founder of Ajax Union, an online marketing company based in Brooklyn, N.Y., wanted to start a business that was free of corporate red tape—no meetings, no paperwork, just get the job done.

But when Ajax hit 50 employees, he realized the business needed systems in place to scale properly. In hiring, for example, Ajax used to interview people without asking for an ID or asking them to fill out forms.

Then things started going wrong. One potential hire, for instance, turned out to be a con artist "who threatened one of our employees personally," he says. Now Ajax has a detailed process that involves multiple interviews, personality tests and background checks.

Not a Family

For some businesses, laying down rules doesn't make for a drastic change. But it does mean acknowledging that the company isn't as tightknit as it used to be.

When Paul Levering started his own VoIP service-provider business in 2003, he never thought he'd use organization charts.

"As a startup, we were 'all in this together' and did not need a hierarchy or titles," he says. But "as we grew the business and our new hires were more employees than they were adventurers like the group of founders, we needed more clarity."

What's more, "larger and more sophisticated customers wanted to know we were a real business with clear lines of command and escalation paths to solve problems needing attention from higher-ups," says Mr. Levering, whose company was acquired in 2011.

Losing the tightknit feel also means more potential for mischief and misunderstanding, and more need for rules. R.J. Lewis, founder of eHealthcare Solutions LLC, Ewing, N.J., which sells ads for health websites, went without a policy manual for a while, but as the firm grew, things like unlimited sick days became unsustainable.

One team member was "sick" about 20 times in the first half of a year, and "one or two team members seemed to be sick only on Mondays and Fridays. The combinations of these abuses were enough to convince us that the unlimited policy was not fair to everyone."

Likewise, Sarah Schupp, founder and CEO of UniversityParent, a resource for parents of college students, realized she couldn't play things by ear. For example, she had an employee turn in for reimbursement a trip to see her family because she had stopped to see a potential client on the way.

"It turned into a big mess and misunderstanding because I hadn't clearly defined how we would reimburse," she says.

From The Wall Street Journal