Startup Therapy Podcast

Episode #202

Ryan Rutan: Welcome back to the episode of the startup therapy podcast. This is Ryan Rotan joined as always by my friend and the founder and CEO of startups dot com. Will Schroeder will one of the things that we hear a lot in our space and kind of in general, but specifically in the startup space, there's this notion of transparency that gets bandied about a lot and some founders want to provide it a lot of employees demand it teams want to know what's going on and certainly there are benefits to a certain level of transparency. But where does this start to go sideways at some point? I mean, I think you and I have both seen that this can go wrong when, where and how does that

Wil Schroter: happen? I mean, I think in general it works great for them as startups when things are going great when things are well, right? When we're winning the game, we all want to be transparent about all the details. It's pretty much the rest of the time, which is really most of the time that things change. I think at the beginning when we first get started, right, you and I just start this company. And we're like, hey, you know, unlike our last evil company that never told us anything or kept things hidden from us or whatever, you know, we're going to do things differently and I think our parts are in the right place and we're going to be fully transparent. And so we are first few team members come on whether we intend to or not. Everyone knows everyone else's salary because we hated that, that, you know, no one knew that before, right? Everyone has access to all the books and everything that we're doing. Everybody can see everything we want to be fully transparent and then it grows a little bit and now we want to start being transparent publicly as well, right? You see this a lot right now building in public and all this cool stuff. And do you remember a company called Bear Metrics? I do their whole shtick was we're publishing, you know, all of our stuff externally and why were they publishing it? Because the numbers were good and we'll get to that in a minute. But again, when everything's new, when everybody is just so pumped up and all the numbers are good and we don't have any consequences yet. Transparency sounds awesome. It's the fact that startups go the other direction for most of our course of our careers where the whole thing falls apart. I think today we get into the case against full transparency and I don't want to align that with dishonesty. I'm saying there's only so much you can share all the time and there's a reason you kind of keep other stuff close to the

Ryan Rutan: best. Yeah, you made a couple of really interesting points there. I think one of them is that we come from environments that really lack transparency. So if you're coming out of that, the corporate job, something along those lines, uh, some sort of a career elsewhere and then you jump into the startup space, you may want to kind of rail against that, right? Like I don't want to be that big evil corporation and guess what? You're not, right? When there's five people in a room, people tend to know what's going on. Osmosis is a powerful force there, right? You're just gonna kind of know by proxy what's happening. And so some of that desires just met right from the beginning, right? And not that corporations are intentionally keeping information, but as you get bigger and bigger and bigger things get siloed for a reason. One of those reasons being it becomes really damn inefficient for everybody to know everything, right? Because at what point you're gonna do your job versus just becoming the Wikipedia of the company repeated by every employee in the company. So there is a real diminishing return to that. The other side of it is, you know, to your point in the early stage, pretty much every news is good news. Right. You go from your zero customers to one customer. That's a huge win right there. And sort of the bad news isn't even that bad, even if it's the worst news we shut down and we were only four weeks old. Ok, cool. So it's not really that bad. Right. So, being transparent about something that doesn't matter that much in either direction is really easy to do. Right. Once they become like, real consequences is behind this, then it's a different story. You know, I I was thinking how often the the incentives behind the desire for transparency kind of the the the reason we would want to do this are very different when you look at it top down from leadership's perspective, which is we want to share everything that's great that's happening. And when you have that demand for transparency from the bottom up where the the team and the staff are saying, hey, we want to know what the hell is going on. They're usually for very different reasons, right? Like bare metrics posted those to show how they were growing, right? You know, there's another podcaster in our space who was teaching people how to podcast and he published all of his metrics. Oh, I forgot

Wil Schroter: about that one. I haven't checked in on him

Ryan Rutan: because you could pay him because you could pay him to teach you how to podcast. So the better he's doing, the more likely you are to buy him. So that wasn't transparency for the sake of transparency. That was transparency as a marketing ploy, which, ok, fine. It works right until it, until it doesn't. Right. If, if all of a sudden it was like, ah, and so here's how to podcast and lose 40 grand a month, right? That report's never getting published,

Wil Schroter: right. Let's stick with that. So initially, we embrace transparency within the startup because it tends to work for us. I think it's two aspects. It tends to work for us and we don't yet have consequences to doing it. So we get our first customers and we've now grown 100% because we've got one versus two, right? And all of a sudden, you know, we're cheering that and we get our first cash in the door, we get our, you know, we maybe break even and get closer profitability. We raise the seed round all of these things. All the early milestones are like when you're first dating someone, everything's wonderful because you get all the upsides of the engagement without any of the consequence yet. And so again, it makes sense to be transparent and I think within that everybody's off to a good start. But what happens is the moment you're not talking about good in information and let's take it a bit further when you have to start talking about information, that could mean you're doom. How transparent do you want to be? Exactly. Everyone talks about raising $5 million no one sends out a press release to say that I have $0 unless you're Silicon Valley Bank. In which case, you actually tell the whole world that you have $0 and look how that

Ryan Rutan: went. That didn't end well.

Wil Schroter: Yeah. And so you know, you look at it and you say, OK, when things start going sideways, why is it that transparency is always the first victim? And I'll give you an example and, and folks listening, just kind of use your own version of how this works. Think about every startup you've ever seen and think about all of their chest pounding milestones. Think about when they had huge fundraisers, right? And they're all over Tech Crunch or what, whatever you're reading, think about my favorite, which is the year in review and I don't want to pick on them because I think they're a good company, but I'm gonna pick on Kickstarter for a minute. Right? And again, I envied the company. So this is, this isn't like, you know, me trying to disparage them, but I just want to point where things turned early on in Kickstarter history. And we know this because we kind of sort of competed with them. We were doing equity fundraising, they were doing rewards, not the same thing but the same space. So we spent a lot of time understanding what they were up to and Ryan, do you remember when they used to publish these massive, massive tomes at the end of every year about how incredible

Ryan Rutan: they are. Yes. Yeah. Massive

Wil Schroter: all of these things. And it was like, it was like they spent the whole year working on how they were going to talk about how they spent the whole year.

Ryan Rutan: That thing was clearly someone's job by which, I mean, like, that's all they did.

Wil Schroter: Yeah, it was incredible. And in good times, boy, those are fun to put together. Ok. Now this is being transparent publicly. Do you remember like the first year where their revenues essentially went flat because they were like doubling and tripling every year. And I'm thinking back off the top of my head, I should have researched this, but I'm gonna say they were probably at around like 20 to 25 million in revenue and whatever, you know, that would have backed out to in gross fees. So about a billion dollars or something like that. And when they hit that milestone, it was like two X over the year before. Remember that? Like, it was just crazy.

Ryan Rutan: They were exploding and they had, they had really, really rapid growth for

Wil Schroter: four or five years in all of their stats and everything they promoted, focused on that. Well, then the next year happens, the first year of this happened and the stats were like flat at best, almost negative. Right. From there out numbers don't matter. That's not important anymore. Right. Let's talk about the art that we've created. Right. And, like, the moment the news wasn't good transparency all of a sudden wasn't that important anymore. Yeah,

Ryan Rutan: they still published the report. Right. But instead of being, like, uh, getting five emails about it about, have you seen the report yet? Did you check out the report? Check out the report. It was like, here's a new beach cooler you might like. And then at the very end in the footer was like, also here's our annual report. Right. Yeah, the publicity around it changed significantly at that point.

Wil Schroter: But let's stick with that last year. I thought it was very important to, you know, going back. If I'm the CEO last year, I thought it was very important to publish exactly what our numbers are. Our numbers are super important. The community should know and we should emphasize that. But when they're not good, all of a sudden, we get real quiet and I don't want to pick on Kickstarter because I don't think they're a bad organization. And again, my memory isn't so perfect. Maybe they did publish the information. I just remember it wasn't good. And my point is when things aren't good anymore, all of a sudden transparency has a consequence to it. When you're saying when you're on Twitter and you're telling the whole world about how great you are and how good your numbers are going. That's wonderful. It's good. Pr Right. Why not do it?

Ryan Rutan: Or when you're Elon. Yeah. Right. Right. What can I say today? That'll tank my stock. Oh, my

Wil Schroter: God. But anyway, so, like, you know, when things are going great, we can't shut up about it. But as soon as things turn and now there's some things going in the wrong direction when we're hiring like crazy everywhere on our site. We, we want banner to say we're hiring et cetera. We want everyone to know internally. We want everyone to know when things tighten up like they are in the in the market right now. We get real quiet. Right. There's no banner at the top of somebody's website to say click here. We're firing. Right. Right. Oh man, we don't really mean transparency. That's what I'm trying to say

Ryan Rutan: no. And again, I think it goes back to what the incentive was and let me throw Kickstarter a bit of a lifeline here. So one way you can look at the motivation around that was they were using that annual report to pump people up, right? And not just to pump themselves up. Of course, they wanted to look good, they felt good about looking good, but they were also trying to attract people to that space, which at the time was still relatively nascent, right. Crowd funding was a relatively new thing. They were growing. The more projects that came on board, the more eyeballs they have in the platform, the more likely people are to get funded. So there was an incentive that was actually a good incentive. Right. It wasn't, you know, just pointed at them. It was actually pointed the entire community. So if we can fire the entire community up around this, then we stand to, to drive better results. The minute you're not having all those results, if you come out and say, yeah, pretty much nobody's buying stuff on preorder anymore because of the number of raises that haven't delivered their products. You've just blown a whole in the bottom of the boat, not just for yourself, right? Yeah, of course, that would impact their revenue would impact their brand image and all that stuff, but it would also impact everybody who was already raising or planning on raising or whatever, it would just ruin their chances. So I think that again to your point like there can be real consequences to transparency and it's doesn't always land squarely on the head of the organization, right? This can Sure. Sure. Well, beyond that. Well, let's talk

Wil Schroter: about that because I think again, the concept of transparency for a lot of people is tantamount to. Why aren't you being honest? And there's a difference, ok. There's a difference between being honest and being transparent just because I'm not giving you all of the facts doesn't necessarily, I'm being dishonest. There may be a good reason. I'm not sharing all of those facts.

Ryan Rutan: Oh, yeah, you want, you want one, I'll give you one right here. Do you like this dress? Yes, I do. That's honesty. Transparency would have been. Yes, I do. But not as much as the green one. Right. Nobody wins from that. Nobody wins in that, that amount of transparency that does not work for me. Right. It doesn't work for her. It doesn't work for anybody. Right. I would never do that. That's the difference between transparency and honesty and that's

Wil Schroter: why you're still married. So, so think about it, but play that out. Ok? Things that where you're transparent, that have genuine consequences. I'll give you an example. Why did Mary get fired? Ok, two answers. One is, you know, we didn't think she was performing at the level, et cetera or something along the lines of something very politically correct, right. We had to eliminate this position. Everybody should want to gloss it over. Now someone's gonna go. Hm. That's not being honest, right? You wanna be honest, right. Mary was terrible at her job, right? And everybody hated her, right? You really wanna be honest. That's what happened. Now again, we're allowed to be transparent when we're positive but when things are negative, we don't get full transparency. We just, ok, and everybody's got a different way of doing things, but I look at it going, what is the cost of transparency in every possible case? Right. If it doesn't hurt anybody, if it doesn't cost anybody anything. Sure. Well, yeah, of course. Right. Yeah. Be transparent. But what I'm saying is I think people have this concept and I think it's a little naive in my personal approach that everything can be transparent all the time. And, and my point here is it kind of can't, we, we don't have that luxury. It's, it's not that simple. I, I don't

Ryan Rutan: think it is, I also think the something that needs to be questioned is what's the upside of transparency, right? So sometimes there are, right? But again, like sometimes and I don't just mean that like in like in some cases in some companies, in the case of Kickstarter, right, we'll go back to that example. There was a period where transparency was very beneficial to the entire community and actually the entire crowd funding space, right? It was great to see somebody who was growing and kicking ass and doing all the things they wanted to do. That was awesome. The minute that's no longer true. Even though it used to be true for them a minute ago, it was true. Now it's not all of a sudden it starts to cut the other way. So then what is the benefit to the to the continuation of that? And I guess also what is the cost of cutting it off? Right. So who was really let down if, if all of a sudden we say like, look, this isn't the time to be transparent. What's the real cost there? Right. Did they fool people into doing something they otherwise wouldn't have done. Were they being untoward? Were they being devious? No, they just weren't doing something that was gonna disincentivize people from taking action that could still be very positive for their business or for their life or for whatever. So I think that we have to, we have to consider, we can't just blanket say like look, transparency is good, right? Needy. But let's reflect on transparency for a minute. Good luck. You have to violate physics to do that.

Wil Schroter: Let me put it this way. First off, you don't want transparency. You want good pr let's call that what it is. You know, we're gonna be transparent about the organization. No, you just want good pr you're talking about your stats right now because they're good. OK, perfectly fine. By the way, you should absolutely do that. The other side of it when we say within the organization, the compact that we're gonna have between everybody within the organization is that we're gonna be fully transparent. What I'm saying is that is a slippery slope that in fact damn near dangerous because so much of what we do as founders has us in like what we talk about that weird abyss where the truth, the honest truth usually isn't very effective, right? In other words, in most startups and, and folks listening to most certainly are going through this right now. They're terrified, they are terrified right about what's gonna happen I'm on the plane. Captain comes on and says, hey, folks, there's gonna be some turbulence coming. I'm terrified. We're probably all gonna die, right? Really? You want that transparency? No,

Ryan Rutan: no, I'm good.

Wil Schroter: No, Captain Ron, can you hold that shit to yourself for a little bit and navigate us through this thing? Yes, he's being transparent, right? No, I don't want to know that. Let's focus on getting me through this. Not terrifying me and most of what we're going through, whether it's everything from personal self doubt, right? You know, as founders, which we're riddled in it to just impossibility of predicting the future doesn't lend itself well to being fully transparent because it's generally terrifying. You know, something that's really funny about everything we talk about here is that none of it is new. Everything you're dealing with right now has been done 1000 times before you, which means the answer already exists. You may just not know it, but that's ok. That's kind of what we're here to do. We talk about this stuff on the show, but we actually solve these problems all day long at groups dot startups dot com. So if any of this sounds familiar, stop guessing about what to do, let us just give you the answers to the test and be done with it. This

Ryan Rutan: is such an important point because I think a lot of people listening are probably going well. We need to be honest, we need to be clear. We need to let people know what's going on. Yes, when we're certain about it, right? When we're certain there's an outcome. So if you know, if so, if Captain Ron's sitting up there and he's like, well, there's some turbulence ahead. Also, our fucking wings are off, so we are definitely crashing. We are going down, right? This is not going to be a bumpy ride. In fact, there won't be any bumps till we hit the ground. That's different, right? But there are so few situations in startup land where we can read the tea leaves and be like here's exactly what's gonna happen in the next second, six months, nine months, 12 months, whatever the horizon you pick is, there's a lot of uncertainty there. And so we referenced Silicon Valley Bank earlier. Let's talk about that for a second because you know, you and I have talked about this. I mean, everybody's talked about this, I think at this point, but had they not been as transparent as they were, there is a strong likelihood that that would have resolved in a very, very different way, right? And so they they had time or had they been transparent? And everybody was like, thank you for your transparency. Now, we will be patient while you resolve this. No people were like get my fucking money, right? Like that's what happened immediately, right? The second they were transparent, they're like, hey, we want you guys to know and everybody was like, yeah, shut up, hand me my money, right? So that created what is now a vast ripple in the financial world uh to the point where today regional banks in the US are down. Why you ask? Because Saudi Bank can't back credit suisse further because they'd go past 10% because that yet all totally makes sense, right? This is what transparency gets us sometimes and I'm not saying Silicon Valley Bank should have been like, hey, no, everything's totally fine. We have no issues but when and how you do that needs to have some responsibility applied to it, right? So, you know,

Wil Schroter: let's play that out. Let let's keep building it because I think it's such a great use case and it's, it's fresh in our minds, but I think it plays to leadership in their ability to be transparent. Now, let's not to overlook the fact that they're a publicly traded company in the US and they have reporting requirements. So when their financials went out in the footnotes, it said, hey, you know, these things are, our assets are not exactly lining up with our liabilities, et cetera. So they have to publicly disclose that, but that's not really what we're talking about. That information had been out there for a minute. What they did wrong is they basically said, hey, we have to do a huge asset sale and we're gonna take a giant loss. Hey, we have a massive amount of deposits that aren't there anymore. They basically layered on all of these doomsday scenarios. And hey, by the way, we're also raising equity on top of that and we're trying to find the suitor for that without considering the consequence of transparency and they paid the ultimate price. And what I'm saying is like while on paper being transparent is a good thing. You know, it's again, it's people make it tantamount. To be honest. I'm trying to say as leaders in a company, we don't always have the luxury of presenting something exactly as we see it for a few reasons. Again, a luxury. If you choose to, you choose to, I'm saying we don't always have the luxury one because sometimes when we present it, how we present it can ruin us. We can say the wrong thing at the wrong time like they did and it could ruin us

Ryan Rutan: and not just us, right? The implications are, are really vast here and there are a lot of companies in the market are suffering now because of the fallout from this. And again, like I'm not suggesting they should have just kept this all a secret. But to your point, how you couch that narrative and and how you make people feel about this has really different because a different way of looking at it was look, we want to let you know there's some things here that we need to assign probabilities to. Right. And some of them are actually quite distant probabilities and they were actually a good likelihood that they would have done, they would have sold some assets at a loss, ok. They would have taken on some equity, ok. All that would have happened no big deal. We could have done that. And in order to stave off the nightmare scenario of the bank collapsing, instead what happened in two days, the bank collapsed without any opportunity to actually fix any of that shit, right? So we got the worst case scenario without even playing out the game to get to the worst. So who won from that? Let's

Wil Schroter: say this. Let's say that everything we just described isn't necessarily a case against transparency. I'm talking about S V B but it perfectly illustrates the consequence exactly of transparency in that they, that it does exist. So I I'll give you a couple of examples, multiple choices. A founder Ryan, you and I are running a startup. We've got three months of runway left in the bank. Do we a publish everywhere to say that, hey, everybody, we've got three months worth of runway left. We put it on our public Twitter, we put it in company, et cetera. In other words, be as transparent as possible. OK. Far into this. Do we notify people that we're out fundraising but not indicate how much time we have left or c just shut up about it and go about our business, all of those have consequences to them, right? But there's not one that works every time. Like that's the danger here. This isn't an transparency wins all the time. It does not.

Ryan Rutan: No, look in certain scenarios, like just imagine one whereby, yeah, you've got three months, let's say you're E to B company, right? Where a couple of big outsized wins can make all the difference if you've already publicly declared that you've got three months of runway left and your average onboarding is let's say 60 to 90 days. And you know, client decision time, all of that, like you're determining your fate at that point, right? You don't have 90 days of runway left. You might as well close it now and bank that money and, and distribute it. However, because you're going to, you kill yourself at that point like you can't, nobody's gonna be like three months runway left. We would love to sign a contract and send you some money that will work it and that, that is how you escape that. Right? So the challenge there is that transparency can absolutely block you from being able to do the thing you need to do to create solvency within the company. Now, of course, you can't go out and sell somebody full knowing that you won't be there to deliver the value that you offered them. That's not ok. That's unethical. That's immoral. But if you're not in that situation and a lot of times you're not, you have the ability to go forward and if you can go get some wins, you can keep moving. Right. But you can seal your fate up front with the wrong kind of transparency to the wrong people delivered in the wrong way. Right.

Wil Schroter: That's the rub. It's that as a founder, ideally, I wanna be as transparent and honest as possible, but I don't get to be, that's the point we're trying to make. I don't get to be because if I've got three months of runway left and let me point out that everyone that raises money, raises money for 12 to 18 months of runway. So any of us in the startup world as a whole, but certainly when we're on the fundraising trail, we are perpetually going out of business. If all we were being was realistic and honest, we would tell every person that work works with us either as a customer, as an employee, et cetera, that this is a temporary part-time job until we go out of business because essentially that's the run rate that we're on. And you know what, as an industry, we tend to forget about that. You know, we don't feel compelled to give that level of disclosure, that level of honesty, but that would be the truth if I've only raised for 12 months of runway. Now I am gonna go out of business in 12 months if something doesn't happen, which is what we're always trying to optimize for point is for us as founders, we look at this, you know, this concept of, well, how do I, how do I present this? How do I go to investors and tell them that everything is gonna be OK? When in fact, I have no idea. I don't know if these assumptions are gonna prove out et cetera. By the way, this is what we all go through. This is the job of being a founder also, I draw a parallel here only because it has some of the same challenges. It's some of the challenges of being a parent where your kids are expecting you to know things, you just can't know,

Ryan Rutan: how are they gonna handle the information, right? Is it going to be of benefit to them? That was kind of what I was asking near the top of the episode, which is like, what is the actual benefit to having that level of transparency? Right? If you know, we've got 12 months to go right now, are you going to start planning a new job? 12 months from now? Are you gonna, are you gonna jump ship now? What if it works out? Right? What if everybody who'd been early at that Facebook had listened to the reality of the situation and had bailed out, not taken their options, not, you know, not vested and, and not, then they'd be pissed about that like, well, I wish she'd been more transparent and that way. Yeah, great. I can be transparent where I can actually see the outcome.

Wil Schroter: That's a really important

Ryan Rutan: point. Yeah, when we know the outcome, we do have a responsibility to tell people what that is. But man, the number of times that we have certainty in the life of a startup is so rare. The one thing we have certainty around is that we can get up tomorrow and we can try again, right? And that's kind of it. And we may have a timer on that, but we can extend the timer too, right? We have 12 months. Now, if we go raise funds in nine months, we can extend up another 12 to 18 months.

Wil Schroter: We're all jumping from Vine to Vine here. You know, the nature of, of our businesses that said, that said last week, week before we met with our staff here internally at startups dot com. And one of the conversations we had was, where is the economy? You know, things are kind of messed up. This was before the whole S B B thing happened. But like just in general, what's the state of the union? And here's the message we delivered to our team. We said, look, things aren't good. And what I mean by that is we work with thousands and thousands of founders. We have a pretty unique purview as to how things are going and they're generally not good. And it's fascinating because every founder thinks it's just their business that's not going well. They're like, oh if I just had that funding round or if we just had got out our product out there or just did this or just did that. And I'm like, dude, every single founder I talked to and every single level of business, every single different industry, they're all complaining about the same stuff, right? Like, ain't just you. And so we told our staff and this is again, being transparent, being honest, we have no crystal ball, we have no idea if the economy is gonna get better or worse. We're not about to do layoffs when we are, we'll let you know. Right. But we're not and we don't know if or when things will get better. Now, that's a scary thing to hear from your management that we don't know if or when things will get better does not inspire people to go. You know, I think you should go buy a house today,

Ryan Rutan: right? That's information they need, right? It is honest and it is transparent

Wil Schroter: enough and that's the point. The rest of that problem where Ryan, you and me and the team have to go figure out how to navigate this whole shit storm in my mind. That's our problem, right? That is incumbent on leadership. That's why we get the badge, right? Even though we put it on ourselves, it's our job to go figure that out. It's our job to bear the brunt of it if, like the world comes crashing down. I genuinely believe it's leadership's job and this is why they get paid, what they do to go navigate that shit to go figure it out, said differently. I'm paid to worry about it. So you don't have to. Right. Captain Ron at the front of the front of the plane. He's paid to worry about turbulence. I'm just, I'm just sitting there. Right. I just,

Ryan Rutan: I know if it's gonna make me spill my cocktail, that's not important.

Wil Schroter: That's exactly it. And so if, if we zoom out a little bit here, here's what I would say, man, I would say for us as founders of an organization, et cetera. If we believe in full transparency, let's call it what it is. It's a cool pr tool when times are good. But if we really, if we're really honest with ourselves, the way our businesses work, Ryan, the way the startup businesses work, transparency doesn't benefit us very often if, if anything, it's often one of the most terrifying aspects of what we do and it's incumbent on us as leaders to take the brunt of that and absorb that and go make it work. And yes, we love to tell everybody times are good all the time, but they're usually not and guess what? That's our problem. So in addition to all the stuff related to founder groups, you've also got full access to everything on startups dot com. That includes all of our education tracks which will be funding customer acquisition, even how to manage your monthly finances. They're so much stuff in there. All of our software including BIZ plan for putting together detailed business plans and financials launch rock for attracting early customers and of course, fund for attracting investment capital. When you log into the startups dot com site, you'll find all of these resources available.

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