Recently, I was working with a Founder/CEO through some fairly complex and challenging issues. In this case, I was not a member of the Board, but instead acting as an advisor/coach to the Founder. And, the issues being worked through were significant – it is not an exaggeration to say that the combination of issues could be fatal for this company.
In some ways, I felt relieved that the Founder had called on me for advice. This is my specialty, the very tough business situations where there are no clear “yes” and “no” answers, where strong emotions and poor communication can quickly derail a situation. But as I started to go deep with the Founder, I realized the ask was not to help the company through the difficult times. It was also not to help determine the best way to communicate the challenges. The ask from the founder was how to manipulate the situation to avoid acknowledging the very real business and leadership issues confronting the business. The founder kept repeating the phrase “I can’t lose credibility with the Board.”
Too late. The business is on the verge of failing, and the Founder is worried about losing credibility? Really?
I believe you must have extreme transparency to create an environment of alignment between companies and boards. I like to think of extreme transparency as the three components of sworn oath testimony:
- The Truth – no outright lies
- The Whole Truth – no facts/circumstances conveniently left out
- Nothing but the Truth – no B.S. thrown in to make it look better or worse than it is
The reality is the Founder had just raised a large round with a significant valuation. The market is strong. The team is in place. The product is gaining wide acceptance. There is excellent press coverage. That checks the first box (The Truth).
But, consider this. At least two members of the executive team are not working out and immediate changes are needed. The up and to the right ARR chart had higher than normal risk due to known implementation challenges with several key clients leading to 30-40% of the ARR at risk of churning. And, the product that was earning press coverage, awards and accolades from clients, was written in a way that simply could not scale, creating massive technical debt. Had the founder shared these data points openly, that would have checked the second (The Whole Truth) and third (Nothing but the Truth) boxes.
For this founder, he did what most people do, he put his company in the best possible light to secure funding at a high valuation. But this also created massive misalignment. The first Board meeting following the raise, the Board had very intense divergent opinions on what the near term priorities should be. The early Board members that know the business issues and supported the team/business through them have one set of ideas. The new investors/Board members have a completely different picture and want to start scaling immediately, heavily investing in sales and marketing. The Board is now split and the founder is left trying to bridge the difference.
Having been on the operating side, I know how much courage it takes to be vulnerable, admitting the strengths/ weaknesses/challenges in a transparent way, especially when you are raising capital. It may impact the investors interested in funding your company. It may also impact the valuation. What is hard to get most entrepreneurs to realize is that it always catches up to you. You must play the long-game and building a large successful company requires addressing challenges head on with transparency and resolve. The mental energy spent trying to figure out how to manage the Board, is better spent trying to solve the issues.
Before MATH invests, I always ask questions about challenges in the business – since all early-stage companies have them. How the founder answers these questions tells me a lot about the level of transparency we can expect as we contemplate investing in and partnering with a team. I am also smart enough to know that investors and Board members rarely know what is really going on in a company. I believe investors need to earn the right to be trusted – just as founders do. At MATH, I work every day to earn the trust and the privilege of helping entrepreneurs work through the real challenges. Yet, I know my place is to offer advice and suggestions – that ultimately, it is up to the entrepreneur to decide which path to take. In this case, I hope the entrepreneur does the courageous thing and practices extreme transparency – from my view it is the most expedient way to make his bold, long-term vision a reality.
