No Surprises...

You missed your sales forecast.  Your CTO quit. You lost a big sales prospect.  You didn't get the term sheet you were expecting.  Your web site has been down for hours.

What do you do?

 

All entrepreneurs know that running a startup company has its ups and downs.  However, how a CEO handles the downs is very important.  If there's one thing I've learned, its that a CEO needs to share the bad news with investors just as fast as they share the good news.

 

I'm a big believer in creating transparency between a CEO and his board of directors.  At Half.com, we created an automated email to summarize our daily sales numbers.  In addition to sending it internally to management, we also sent it our board members.  No one expected them to track our sales on a daily basis (that was my job), but by providing them with the constant flow of information, they were able to make better suggestions/recommendations when asked.  (That's the same reason why Jingle Networks distributes a daily email summarizing call volume to 1-800-FREE411).

 

With the growth of ASP-based management tools, there are now even easier ways to share information with investors.  Several of my portfolio companies have created accounts on Salesforce.com for Board Members with a customized BOD dashboard to provide a "30,000 foot view" of the pipeline.  Other companies have created accounts on Google Analytics so that board members can access traffic stats in real time.

 

By providing open access to information sources there are a number of benefits:

• It eliminates surprises. By providing a continual stream of information, the board should never be surprised.
  
  
• It makes board meetings much more productive.  Rather than spend a lot of time presenting the raw data, the CEO can now provide interpretation and analysis of data -- they can put the numbers in context.
• It allows board members to make more meaningful suggestions.  Different board members have different skills. Some are strong at enterprise sales -- and by tracking a sales pipeline over time they might be able to identify areas for improvement in the sales cycle.  I personally am stronger at online consumer marketing -- and feel that by having access to website traffic reporting I can ask better questions and make better recommendations. 

 

Sharing data with a board does not mean that you are sharing control. Rather, I believe that an informed and knowledgeable board will be less intrusive (and more hands-off) than a board that is in the dark. (That said, a CEO should clearly set expectations that they are not looking to get the "why are Tuesday's sales 2% lower than Monday's sales" phone call. )

 

Too many CEO's try to hide their bad news and setbacks -- they stick it in the fifth paragraph of a six paragraph email.  I get extremely uncomfortable with that approach. It forces the investor into the role of detective -- constantly on the look out for hidden clues. 

 

Just last week I received an email from a portfolio company CEO with the subject line "Bad news. XXXX is reversing his previous agreement to fund us." While no investor likes to receive bad news, I must say that I was impressed by the way the CEO handled it.  He communicated the news clearly and boldly.

 

All CEOs can be sure that they will have their share of bad news. 

All good CEOs will be sure to share their bad news.