Of course that's stupid.
Maybe if they had thought about scaling from the very beginning (like so many startups supposedly waste time doing), they would have had a plan in place to address it without having to bring it up at board meetings.
When Friendster finally hired Joyce Park to lead a reimplementation of the site (in PHP instead of Java) there was so much conflict over this inside the company that they fired her immediately after she finished, ostensibly for blogging. Imagine what Friendster could have done if user-focused, practical people like Joyce were honored and listened to, instead of tossed out like trash.
(I know Joyce. I'd even say she's a friend of mine, and I hope she'd agree.)
http://troutgirl.wordpress.com/2004/06/29/friendster-goes-ph...
Incidently, the blogger above was fired for posting about the release, so it would seem they had some other serious corporate issues beyond performance.