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Clear and Present Danger

This entire module we keep tossing around the term “Fail Well.” I believe that failing well is easier said than done and is often judged from the vantage point of not being the person who is doing the failing. I believe that biggest determinant on if one truly fails well is transparency. We all understand that transparency is crucial, my question is: “When and how much?”

“I have failed you all”

I struggle with the amount of information one should disclose once realizing that failure is imminent or even a possibility. Our recent failure case, DINR, was very confusing to me. Markus Berger penned a letter to his constituents and fully disclosed the failures of his company and his failures as a leader. His act showed high character and morality. Moreover, his action plan was thoughtful and showed sound decision making on how to effectively bring the company’s business to a close. This course of action seems especially appropriate when many of your investors are family members and/or friends. Furthermore, I could imagine other instances where employees decided to leave other job opportunities (i.e. Curt Schilling’s early employees) in order to be apart of something they deemed a once in a lifetime opportunity. As I broached in class, where do we draw the line on information disclosure? I would imagine that a large and successful venture capitalist firm would frown upon the myriad of mistakes made by Berger. Sure, they would commend his transparency and laud him for falling on the perverbial sword, but behind closed doors wouldn’t his imaginary credit score be severely ruined? I am not clamoring for hiding the truth or even presenting false information, but I do believe that the amount information disclosure should largely depend on the audience you are disseminating the information to.

“The ship is sinking”

When is it “truly” the correct time to tell your soldiers that they are going to lose the war? When does the head coach tell his team that they have no chance of winning? Never. This is situation is not very straightforward but the premise remains the same – there are certain things that your employees should not know. Complete transparency from Managers, CEOs and Founders can run this risk of ruining employee work ethic and morale. However, giving false impressions or indications that things are trending upward is not the solution. An effective leader should be able to accurately convey the level of urgency that is needed, while maintaining an image of confidence and stability. Easier said than done, I know.

“Clear as mud”

More often than not, more transparency is better than less. However, as the future leaders of the world, it is up to us to accurately gauge the situation and lead by example. I do not know whether Berger’s letter to his constituents was right or wrong. I do know that his letter was brave and honest. Berger sounds like a very good leader and someone that I would thoroughly enjoy working for. However, the wants/desires of constituents are not always going to align with the wants/needs of the company. Although not guaranteed, low employee morale, low credit scores, employee resignations, inability to gain funding and investor blacklist, etc. are all ramifications that one should brace for.

There is a sweet spot for when/how to disclose information and in what quantity. I do not have the answer to either.


  1. Great post, Adam!

    I agree that transparency is the key to manage your failure and it is very difficult to find the sweet spot about when and how. One way to put some thought process on that is to think about the consequence of the disclosure. I also believe that you should be transparent about the situation as much as possible but what you need to think is how the information is going to be perceived by the recipient. Thinking about the trade off might give you the answer about the sweet spot.

    In the case of Studio 38, many of us (including me) voted for disclosing the financial situation only to management team who share the similar responsibility. I thought that the other employees might not be able to interpret the information appropriately and just create chaotic situation. Otherwise, I would be happy to disclose all the negative information to everybody. Those consequence should be well thought before the disclosure.

    Yes, this is very tough but not impossible to get close enough to the sweet spot, I believe.

  2. Adam, thank you for your post. Overall, I agree with your perspective on transparency. It is very important to be transparent to investors 100% of the time but it is harder to make this decision when it comes to employees. There are several things that need to be considered before making sensitive information available to the whole company and as Haruumi mentioned, you want to avoid creating a chaotic situation that won’t help at all.
    But then, the question is, how do you draw the line? If we are leaving it up to the entrepreneur’s moral compass and decision making process, how do we make sure that he or she is making the right call? How do we know he is not simply using this as a pretext to avoid sharing crucial information with others in the company?
    I think that, in the end, the one thing we can all control as entrepreneurs is how we face our investors and employees from day 1. If we are realistic, and we make sure we are not misleading people when they jump into our ship, at least we are sure that they know what they are getting themselves into. After that, we can rely in our personal judgement to decide if disclosing an issue will be helpful or detrimental for the organization without risking having employees feel like they have been blindsided.

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