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When you are your worst enemy

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Should entrepreneurs risk telling their employees the full truth when things are spiraling out of control?

Entrepreneurs are extreme optimists.  Said another way, entrepreneurs are a little crazy.

Every one of us thinks that we have found a golden opportunity the market has missed, or that we can execute on an idea faster and better than other people, many of whom are equally smart and capable as we are.

When our venture is at the brink of running out of cash, we likely still believe it can survive.  And honestly, it might pull through.  It is a common trope that every successful venture went through at least one moment of almost failure.  As entrepreneurs, it is often difficult to shut down our company before exhausting every resource because, just like we’ve always functioned, we focus in these stressful moments on the possibility, however small, of success.

The problem is that not everyone involved in the venture has the same risk tolerance as we do.

Our families, investors, and employees have different personal, career, and financial interests, and the Founder/CEO decisions in these moments of time can profoundly affect each of these stakeholders.  In moments when the company is under more stress than normal, the chances of success may have changed so that it no longer makes sense for others, even when it still makes sense for the entrepreneur.

In an ideal world, we would give everyone the same information we have and let them choose whether to stay.  But this may break the company and take the decision out of our hands.  Telling everything may cause turmoil, indecision, and anxiety when the slim chance of success requires calm focus on the part of the team. Do we, as the entrepreneur, want that?

I argue that Yes, we should.

  • Can you live with yourself if the worst happens and your employees and family ask you how you justified making this decision for them?  Fundamentally, I think the fear of telling others the truth about the situation lies in (a) fear of wasting time explaining and (b) fear that they won’t agree with you.  But the least you owe your team, family, and investors is an explanation, and if they disagree, it is their right to balk.
  • Second, your stakeholders may surprise you and stand by you.  Assuming you are a communicative and transparent Founder/CEO, you have always been clear about the challenges and opportunities the company faces.  You have striven to inspire your team and instill confidence in your investors by being honest and letting them generate their own analysis of the situation.  It might even be that the team will help you find a creative solution that you didn’t consider.
  • Finally, your stakeholders will thank you for your honesty, and this will engender their loyalty in the long term.

4 thoughts on “When you are your worst enemy

  1. Angela insightful post. While I agree that as an entrepreneur we should provide full disclosure at times of almost failure, I would also like to suggest that I think founders can be so blinded by their view on the high probability of their success that even though to all of us it is obvious that they maybe on the last leash, it is not always clear to the entrepreneur! I think it is this information asymmetry on the probability and perceived risks that leads to entrepreneurs not feeling like they need to share all of it. Perhaps if there was an external advisor who can keep the entrepreneur in check and provide that clarity it would help him/her be more transparent.

  2. Good post Angela. The points you make around transparency and honesty creating a longer term relationship of trust and loyalty is true. I feel that founders sometimes prioritize (this need not be wrong) shorter term things like loss of employees who learn that the company is not doing well, trouble from suppliers etc to keep things to themselves. How would you think about the downsides here?

  3. Honesty is the best policy. From class I have learned that stakeholders, even investors, are sympathetic and sometimes will even back you up again after a failure. The secret is to be transparent and honest to avoid burning bridges.

    Thanks for your post!

  4. Angela, thanks a lot for your post! Although, I’m generally a big believer in transparency, I feel that deciding what to tell (or not) to your employees might not be as straightforward.

    Especially in early stages, each startup is balancing on the brink of failure. What would need to happen for you to tell the employees that the startup is failing? How would you decide when it’s the right time to tell them?

    Or would you rather share the news as they come (e.g. “We weren’t able to raise the financing this week… again… We’ll run out of cash in two months…” or “Customers don’t place repeat orders… But maybe they will start once we change the website…”) and let the employees form their own opinion about the likelihood of failure? While management and investors – and perhaps officers and some others in the company – might be able to absorb (and digest) the news as they come, some employees might not. Quite likely there will be people who simply won’t know what to do with that information… They might feel insecure… even scared… and perhaps under unnecessary stress or pressure…

    I believe that it’s the responsibility of the management to guard the information flows and make decisions in the best interest of employees (and other stakeholders). Sometimes it might be in the employees’ best interest not to know everything. Of course, the time will come when it’s right, ethical and smart to tell the employees that the end is coming… My question is how do you make the decision that the time to break the news has come? This might perhaps be material for another post.

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