Bad news is like a rotting fish – it does not get any better with age!
Every very successful company that we have backed at FirstMark has not always performed flawlessly. They make mistakes, they hire the wrong people, the product breaks, etc. But, what separates these successful companies from companies that fail, is that they learn from their mistakes. The only way they can learn from their mistakes is that they examine fully and transparently what they did right and what they did wrong – they communicate and they listen. In other words, there is a dialogue! They listen to and communicate with their people, they listen to and communicate with their customers, they listen to and communicate with their advisors and yes, they listen to and communicate with their VC!
To have an effective dialogue, both sides need to know all the known facts and outcomes. Great CEO’s realize this and they don’t hide bad news nor do they spin it. In my book (as black and white and backward as it may be), spinning is an untruth and untruths are lies and lying is the same as stealing. Someone once said that bad news should travel twice as fast as good news. Unfortunately, for some CEO’s, bad news often takes a slow and circuitous route to reach its destination.
We VC’s have a right to know the bad news as soon as you do. Its not fun or pleasant for us either. But its important. That way, we can be part of the solution, not part of the problem. We don’t have a right to yell and scream at you. That is not part of the rights accorded in this Article. We might do it anyway out of the same frustration you feel because sometimes we can be immature (we are by no means perfect). But sometimes we yell and scream because you committed something different to us and we feel betrayed. You made us look bad to our partners and to our investors and now we need to figure out how to fix that problem too. But in the end, we are in this together.
However, if you lie to us and don’t tell us the bad news its even worse. We have had many CEO’s (and still have one or two) who are incapable of telling their board and their investors any bad news. They shift metrics from meeting to meeting, selectively choosing those that show the business in the best possible light even though they know they are obscuring the bad news and only delaying the inevitable. Why? I don’t know. Maybe they are hoping for a miracle (said before, “hope” is not a strategy!). Maybe they really believe that things really are not that bad. (As an aside, the worst offenders typically hide the results in the most beautiful, color-coordinated graphs that dazzle the imagination. I mean if Michelangelo were a graphics artist, these would be the PowerPoint slides that line the Sistine Chapel. The better the charts, the worse the news – always!)
This strategy is incredibly dangerous. As I said, nothing goes right all the time, but recognizing when it goes wrong and then doing something about it is critical if a company is to be successful. That means telling your board and investors and coming up with a solution and a plan! You can’t do this by yourself nor do we expect you to do so.
Even if the long term benefits of truth telling don’t motivate you, try this one out: you owe us the truth, immediately. That is part of your fiduciary obligation to your board and to your investors and to your shareholders. This is serious stuff and there has been many a CEO, public company and private company, who has been fired for hiding things from his board. In fact, there a couple who have gotten into much more serious trouble than that.
We’re here to help. Remember, that’s why you took our money! Make us part of the solution, not part of the problem. If you don’t tell us immediately or if you spin us, we will lose confidence in your ability to tell us the truth. If we lose trust in your ability to tell us the truth, we lose confidence in your ability to run your company. When we get to this point, we all lose.