For Startups, Is Honesty The Best Policy?

February 1, 2016, 7:52 PM UTC
Gusto plans a grand opening for its Denver office in January 2016.
Courtesy of Gusto

Earlier this year, The New York Times published a detailed piece about what happened to employees of Good Technology, when the mobile security startup was sold to Blackberry (BBRY) for less than half of its most recent private valuation. Of particular interest was how Good Technology CEO reportedly downplayed her company’s financial struggles during all-hands meetings, suggesting that cash-flow was fine and that Good had plenty of attractive options.

Since that story came out, I’ve spoken with several entrepreneurs and venture capitalists about the transparency dance between startups and their employees.

Defenders of the Good Technology model argue that sharing too much negative information becomes a self-fulfilling prophesy ― causing employees to become dispirited or even resign, thus further hurting the company. Moreover, internal financial transparency can open the door for media leaks that, if negative, could damage the company’s ability to win new business.

But, more often, I’ve heard from entrepreneurs who favor internal transparency. Gusto CEO Joshua Reeves, for example, says that his company regularly provides revenue, cash-flow and other financial data to employees. Pinterest CEO Ben Silbermann has said the same, with his employees also able to regularly access information that helps them better understand the value of their own stock options.

Both Reeves and Silbermann say that the risk of media leaks is easily overwhelmed by the risk of employees feeling bamboozled, and that poor performance needn’t hurt morale too much so long as it is contextualized. In short, if you build a strong enough internal culture, you can weather storms.

Here’s a quick related anecdote from Dharmesh Shah, founder and CTO of Hubspot (HUBS): “When it was just my co-founder and I, clearly disclosure wasn’t an issue. Then, when we hired our first employee, we had to make the decision: ‘What do we share with this new person.’ We decided ‘everything’ because couldn’t come up with a good reason not to. Not having to decide what to share with people and what not to is a pretty efficient process. Fewer decisions to make, fewer politics, fewer complex systems, better decisions (everyone has the same data).”

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