What does transparency buy you?

I had an emotionally intense conversation with a startup CEO today about the benefits and costs of regular, transparent communication with company investors and close advisors.

My point of view — which I articulated forcefully if not very effectively — was that transparency within this limited set of insiders was incredibly valuable and created far more benefit than it cost in time + effort.

The CEO’s view — which he defended calmly and rationally — was that his job was to maximize shareholder value, and that the communications effort was too costly — not just in time away from hands-on product + coding, but even more in the randomization of effort and attention that those investor interactions often unleash.

Since I failed to express myself well in person, I figured I’d try to write it down instead…

First, what do I mean by “transparency”?

It may not be the most comprehensive sample, but among our 30+ Founders Co-op investments, the companies that have grown the fastest, and attracted the best follow-on investors, customers and team members, are all led by CEOs who practice some version of the following:

1. Frequent (weekly or monthly) written status reports to investors

Most Founders Co-op CEOs use Thinkfuse (a fellow FC portfolio company) to manage regular investor reporting. (A few have become such passionate evangelists for the product that they’ve virally seeded it into the portfolios of other venture funds). But the tool isn’t as important as the content — use email or carrier pigeon if you like.

Some of these weekly reports are very brief, some rival Moby Dick in length and completeness, but all of them include some version of the following:

  • The Numbers — where are we on our top one or two Key Performance Indicators (KPIs) and what’s the period-over-period trend?
  • Did — what important things happened in the business — good, bad or otherwise — since the last report?
  • Doing — what big projects and issues is the team focused on in the current period?
  • Help needed — where could we use the kind of help investors and advisors are best-suited to offer: e.g., recruiting, fundraising, business / corporate development, strategic input?

By developing the discipline of regular, lightweight reporting, the CEO can keep her most important non-employee stakeholders current with needs and priorities of the business. Not only does this help her maintain ambient awareness among an important influencer group — which often leads to serendipitous intros and connections for the business — it also opens up a regular channel for specific asks that complement and leverage the internal team’s efforts.

2. Automated, web-accessible performance dashboards

Since our portfolio founders are super-numerate hackers, they’ve all instrumented the hell out of their most important business processes. With a little extra effort, most have also built private but remotely accessible dashboards that give insiders an at-a-glance sense for how the company is performing on its KPIs. The over-achievers in the group have also spun up automated daily emails providing a 24-hour snapshot of key financial and customer metrics.

The more comfortable a CEO is with sharing these internal dashboards, the more informed their employees and stakeholders generally are about the company’s vital signs and underlying trends. That can be uncomfortable when things aren’t going so well, but it’s hugely motivating when the business is making progress, and — no matter how things are going — it also serves as a daily reminder of the leadership’s commitment to an organization-wide culture of trust and empowerment.

3. Regular (weekly to quarterly) phone or face-to-face meetings with key stakeholders

Emails and dashboards are great, but there’s no substitute for regular, face-to-face interactions to stay on top of the complex emotional and interpersonal dynamics that exist among founding teams, employees, investors and advisors.

When you’re running a growing business with limited resources, and your hair is on fire all day and deep into the night with stuff you need to deal with RIGHT NOW, it can be hard to make time for open-ended conversations with anyone who’s not on that day’s critical path.

But the founders who *do* make time to invest in those relationships — who reach out proactively even when they don’t need something, who show up at dinners and social events, and who get to know all the people who touch and influence their business as human beings — those are the ones who tend to navigate the really challenging moments in their business (and personal) lives most successfully.

4. Active promotion of contributions made by other key team members

All of the traits and habits listed above are table stakes for competent startup CEOs — if you aren’t doing these things, my strong advice would be to start thinking about how, and to what degree, you want to begin adding these to your management routine.

But the biggest level-up for founder-CEOs — especially those who haven’t been in a leadership position before — is the transition from doing to leading. An early indication of this ability is when founders begin to hire people who are clearly better than they are at something of critical importance to the business, and to trust these new hires with meaningful chunks of responsibility.

An even stronger signal is when the founder makes a point of calling attention to the performance or contributions of other team members in areas that they previously controlled. It’s one thing to have the confidence to hire above yourself — it’s another to call your investors’ attention to that outperformance, and know that they will value you all the more for having built a team that can carry the business to the next level.

What are the costs of transparency?

Startups are more acutely aware of opportunity cost than any other type of organization — there is never enough time, money or manpower to do all the things that need doing, and every choice requires painful tradeoffs against the myriad other things that won’t get done.

In this context of brutal, daily triage, the unstructured, open-ended activities — which includes most of what I’ve described above — are the first to go.

The argument I tried to make in my conversation today — and am now reprising in long-form tonight — is that small but consistent investments in transparency, relationship development and team development are the foundational work of creating scale in your organization.

None of this seems obvious in the moment, but over time, the depth of knowledge, accuracy of understanding and intensity of relationships that this kind transparency can bring will far outweigh the tactical value of the checks your investors have written to fund your business.

That doesn’t mean things won’t go wrong — I can practically guarantee they will — but when they do, the founders who have made these investments will have an army at their back, not at their throat.