Bad News is Good News (Building Great Founder/Investor Relationships)

We recently received an update report from a startup team in the Promus Ventures community. The deck was full of bad news: delays for certain product components were increasing, more bugs and unstable builds than usual, longer than anticipated QA testing, certain new hires were not working out, and a list of a myriad of other issues the team was facing.

Refreshing.

The best startup teams are the ones that show all the warts and constantly communicate how they are going about fixing each problem. Who said that building a company was easy? Finding the right people to join your team is hard enough, much less building and scaling a product that is constantly evolving. Be honest with yourself and your investors — nothing ever goes the way you drew it up, so show what’s working, what’s not and what the team is doing to keep pushing the ball down the field.

More often than not, a startup team believes that if they tell their investors all the bad news, it will hurt their relationship with their investors. They believe these investors (who are not on the front lines) will thus think the team is horrible at executing the thesis, and subsequently never introduce the company to strategic customers or put another dime in the company. Au contraire.

When an update from a startup team is devoid of numbers, only highlights new hires, new offices and industry research showing how their space is exploding, investors get nervous. The more open and honest a team is, the more trust will be built, and over time this consistency of transparency will produce deep and strong ties between a startup team and their investors. Show all the customers losses you have experienced, why each passed and what was learned. Be explicit with all the problems in the product roadmap and what is needed to move forward. The messier you are, the more honest board and investor conversations can be and more ground will be gained.

There is humility in admitting that you and your team are making mistakes and not everything you touch turns to gold. Well, welcome to humanity. Stay true to your focus, continually call out and communicate the challenges, and watch the level of help, trust and confidence rise in your board/advisor/investor relationships.