The Inevitable Future: Startup Transparency

Stuart Levinson
Apr 11, 2018 · 6 min read

It’s hard to argue that someone can contribute more value to a company by knowing less. Yet, despite the benefits of transparency, most startup founders are slow to embrace the idea that company information should be accessible by everyone. They rationalize their reluctance to share more with stakeholders in different ways.

Some founders want to protect employees from the daily stress associated with startups. “If they fully understood the risks or knew how little cash was available,” they say, “employees might panic. It’s my job to lose sleep, not theirs.” This may seem noble, but it isn’t; it’s self-serving and unfair. Not sharing difficult information isn’t about protecting employees, it’s about protecting themselves, fearful their employees might leave.

Other founders employ a style of leadership that benefits from controlling who knows what. Restricting key pieces of information becomes part of the culture which founders are reluctant to give up. They begin to “spin” information for all-hands employee meetings and investor updates to tell a better story.

I’ve heard other reasons for a lack of transparency — and I’ve used them myself as a startup founder — such as, “it takes too much time,” or “they don’t have the context to understand,” or the old, reliable, “they never asked.” Whatever the motivation, when founders give employees and investors incomplete information to work from, they miss an opportunity to build trust and they handicap their chance for success. The business suffers.

Visionary Founders Embrace Transparency

Forward-thinking founders recognize the importance of transparency and embrace it as a core value to help them build exceptional businesses. These great entrepreneurs are more fearful of what happens when employees and investors don’t have all the information. They feel powerful not because they know something others don’t, but because they have empowered everyone equally to fight for the startup’s success.

Jack Dorsey, for example, couldn’t conceive of any other way to build his company, Square. As described by then COO, Keith Rabois:

Ultimately, if you want people to make smart decisions, they need context and all available information. And certainly if you want people to make the same decisions you would make, but in a more scalable way, you have to give them the same information you have.

Exceptional founders continue to explore new ways to be transparent — some more ambitious than others — making business information public for anyone to see. Buffer co-founders Joel Gascoigne and Leo Widrich didn’t just make salary and equity information public, they published the algorithm used to compute it. They not only published diversity data, they shared the source code and tools used to capture it. For them, public transparency became the path to a stronger business. Their core value — default to open — is how they build trust with a broader audience.

Levels of Transparency Evolve

Does this mean all information must be freely accessible? Idealists might say yes; but there are reasonable exceptions. An obvious exception is personal information, such as when an employee is being disciplined or terminated. There is little value in making that information available to others, and even if there were value it might not be fair to the individual.

Whether or not to share employee salaries is another sensitive example. Many argue it’s reasonable for everyone to know how much others make in the company, and perhaps it is. Transparent salary information could help eliminate issues like pay disparity for women, and employees could understand more clearly how their bosses value their contribution to the business.

The answer probably depends on the founders and the culture they’re trying to cultivate. In Buffer’s case, publishing personal salaries fit their culture and values. As a result, applications to work at Buffer skyrocketed. Candidates felt they trusted Buffer and what they stood for, and wanted to work there.

Other startups find it can be just as powerful, though, to share anonymized salary information, such as total salary expense or salary ranges by job type. Instead of sharing how much equity any one person has, startups might share aggregate percentages owned by founders, employees and investors.

Over time, it’s likely more information will be shared rather than less as open companies out-recruit closed companies for the best talent. As information about finances, fundraising, and key challenges facing the business are routinely shared, fewer stakeholders will be left in the dark or surprised when things don’t go well.

Startup Transparency Goes Mainstream

Given the obvious benefits of transparency, what stops more founders from being transparent with employees and investors, or even the public, from day one? The key is that even when founders want to be more open, they aren’t sure where to start or how to do it.

The great founders mentioned earlier had to spend considerable energy figuring this stuff out. What should we share? What’s the best way to share it with different stakeholders? How do we maintain information going forward in a way that isn’t too time-consuming?

Most founders don’t want to spend that kind of time and effort to create an open culture from scratch given other priorities like product fit, hiring and growth.

New communication tools are beginning to help leaders make sure everyone stays fully engaged with the kind of information that matters most — like company updates, announcements, decisions and plans — so nothing is missed and everyone stays aligned. This is key to making startup transparency the default standard for all startups.

Startup Transparency Will Have A Transformational Effect on the Larger Economy

As more companies default to open, businesses will be built with fewer barriers, politics and friction. Savvy employees will expect to know more about the companies they join and will be motivated and empowered in return. Investors will have a clearer view and markets will choose winners based on better information.

Transparency will drive more equitable pay for women, greater diversity in hiring, and more equitable distribution of profits.

Transparency will even be the catalyst for a far more efficient and empowering form of capitalism. Startups based on closed, autocratic and “need to know” models simply won’t be able to compete. Ultimately, open companies will outperform closed companies in substantial ways, and the rout will be on. Open will win in the long run.

Transparency isn’t just for startups, of course. Every organization has stakeholders that deserve equal access to key information. Governmental organizations serve workers and citizens; social enterprises have employees, donors and the public; schools serve teachers, parents and taxpayers; research organizations have scientists and funders. All of them will benefit from greater organizational transparency.

Startups will lead the way, but all industries and organizations — public or private — will learn to be more transparent with their stakeholders.

Leading In The Open

Regardless of the type of organization, transparency starts at the top. It requires leaders who are willing to be vulnerable — being honest about real challenges without having all the answers.

The benefits of startup transparency for employees, investors and advisors are obvious; and yet no one will ultimately benefit from it more than the founders themselves. The leader’s job is less isolated and stressful when everyone is fighting together with equal information.

The demands for transparency from all stakeholders grow louder by the day. To compete, founders must be open. Fortunately, they will find leading with transparency is the the simplest and most valuable thing they can do for their startups and for themselves.

Carefully controlling information is a seductive path, but leaders embracing transparency are creating engaged organizations with outsized impact.

Stuart Levinson is the CEO and co-founder of Carrot, the company digest that keeps everyone aligned around what matters most.

Get early access to Carrot here.

Photo by Bethany Legg on Unsplash

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