Two years ago employees at Austin-based software company Square Root had a big problem. "There were 35 of us and only two bathrooms," complained Mary Feild, the marketing coordinator at Square Root. "It wasn't pleasant." The situation wasn't going to change anytime soon either. CEO Chris Taylor knew he had a problem, but he was also trying desperately to close on a new office near the startup's two existing buildings.
In the meantime, Taylor says, he knew that while he couldn't solve the problem, he could at least acknowledge it. So he had a service come three times a week to clean the company's two bathrooms. He also ordered a custom-designed toilet-shaped pi?ata from a local company to hang on the front porch of Square Root's office. Anyone who was frustrated with the bathroom situation could go beat the pi?ata. Feild and others did. The pi?ata is long gone, and now the company has 46 employees, six bathrooms, and $10 million in annual revenue.
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Square Root ranks No. 2 on this year's list from Great Place to Work of the 25 Best Small Workplaces because it has never once let up on its focus on culture. "We do an entire interview just for culture," says Baba Buehler, director of technology at Square Root, who has been at the company for five years. All job candidates are given problems to take home; they then return and present a solution. Because of the company's long hours, they must be excited about devoting time to problem solving with colleagues.
The company builds a software product that helps sales managers analyze and store data. Its customers include Nissan, Volkswagen VLKAF , and other automotive companies. This year it is working to expand into the retail and restaurant sector as well. Taylor says that since it's a bootstrapped tech firm, culture is its best recruiting tool. Much of its feel-at-home, just-be-yourself culture has developed through Square Root's choice of offices.
Taylor first purchased an old Craftsman-style home a little more than a mile from downtown Austin in 2009 to house his four-person company. Two years later he purchased the house next door, since the company was outgrowing its headquarters. The original office was known as the Red House, and the office next door by its street number, 506.
When Square Root reached 12 people, Taylor decided to move half the team next door, but during a meeting two months later someone made a crack about "those people in the Red House." Taylor stopped the meeting and that afternoon moved everyone back into the Red House, turning the house next door into conference rooms.
Square Root now has four houses, each with a living room and some featuring a compelling theme. There's the Craft Brew House, which contains the company dartboard, and the Quiet House, where excessive conversation isn't permitted.
To ensure that the engineers don't all cluster in one house while the data scientists roam the halls of another, Square Root has implemented cross-functional teams, which they call herds, that put members of the engineering, product management, and data analytics groups together daily. The use of herds, Square Root says, refers to a companywide affection for goats. ("It's a software thing.")
In an example of how democratic the culture is at Square Root, an employee who had been on the job less than a month contributed a video and blog post that helped give the herd concept its final shape. Outside their herds, departments still have meetings twice a month and report to managers.
As the company approaches 50 employees, the next big question is how to grow bigger without losing the startup culture that has defined it for the past six years. And there are also the questions of how to find additional houses in real-estate-constrained Austin and what amenities to pack into them. "I'm not going downtown," says Taylor. "You're going to be competing against Google GOOG , which has taken 200,000 square feet of space. We just can't win at that game."
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A version of this article appears in the November 1, 2015 issue of Fortune with the headline "Shepherding great culture."
