Startup Therapy Podcast

Episode #95

Ryan Rutan: Welcome back to another episode of the startup therapy podcast. This is Ryan Rutan joined as ever by my friend partner and the Ceo and founder of startups dot com Wil Schroder. Well, today we're going to talk about what will probably be a pretty touchy subject and one that I think, you know, in the discussions that we've had with founders can, can get fairly, uh, fairly heated, fairly confrontational and not everybody agrees on this one and we both have our own personal experiences with it. But it's about how transparent should we be with our staff as founders. You know, when does it make sense to share every little thing that's happening in our startup and when is it probably a good idea just to kind of keep things a little closer to the chest. I remember you telling me a story fairly story fairly recently around the time where, you know, this is many moons ago, but where you were called out for not being transparent enough by one of your staff at the time. And I think it illustrates this this really nicely,

Wil Schroter: you know, it's it's funny because having done this long enough, you actually go through like whole generations of founders that you've worked with, you know, who are like, you know, really far on their career and kind of early in their career and this particular one that was working on our team was super smart guy, but kept complaining as you were saying that we weren't always telling everybody everything that was happening, that we weren't telling the full version of the truth, you know, maybe where fundraising stood or maybe how much cash we had left in the account, things like that. And with that there's always a bit of an implication that you're hiding something nefarious, right? To be fair, that sometimes does happen, right? But it's

Ryan Rutan: never examples of that.

Wil Schroter: You're not telling us enough and the information is probably good. It's always implying that in some way or another you're harming us. And I understood that feeling okay. So I got it. But I said, look, here's the deal. There's certain things that either I'm not ready to share yet or I don't think it's appropriate to share. And he inherently disagreed. Now to be fair, he also never run a company before, but to his credit. He then on low and behold went on to go run another company. Which is awesome. As you know, that's the thing we're most proud of here when people graduate our company and go run another one. We've got long list of folks who have done it. And so lo and behold a few years later he and I are talking and he just starts laughing and he said, I gotta tell you something. I went into this new startup trying to really be fully transparent with everybody. You know, I I shared the bank account balance, I basically shared all the stuff that

Ryan Rutan: you didn't share. Full open kimono

Wil Schroter: exactly how I was feeling Exactly. You know what I thought how things were going to turn out to your point open kimono. I said, how'd that go? He said it was a disaster. It was like you don't say, here's the tricky thing. I think what a lot of founders don't realize, kind of like maybe new parents don't realize is you don't get to share everything, your feelings, you're full understanding of the situation, etcetera. Exactly as you see it every time you see it, and here's why. And we'll go, we'll really unpack this. But at its core, no one else is going to understand things the way you do. You'll give them a version of how you see it. You'll try to explain it. But they don't have the entire backstory or the context or get this the own personal history in their lives to understand how these things work. So to them, everything is doom and gloom. Here's an example, run if the government actually told us everything that was going on every day, the number of threats to our society, number of awful things that that didn't come back to us. You'd be even more terrified than we are. And again, I'm not going to build a case for secrecy. I'm trying to build a case for how founders balance transparency with honesty. Yeah. And and it's a fine

Ryan Rutan: line to walk, right? But but as you said, not everybody processes things the same way. Not everybody has the same context, everybody's the same knowledge level. And and I often find that, you know, when you you can always tell when transparency has gone too far, when you start getting people who have no real interest in a particular outcome, in a particular situation. By which, I mean, it's not part of their remit, it's not part of of their goals, you know, personally, within the company, it's not something they're responsible for. And all of a sudden their head is spinning with trying to come up with solutions for this, right? It just ends up being a huge distraction. In a lot of cases, this is one of many indications that transparency has gone a little too far when all of a sudden, like, you know, we just use an example, you've got the intern coming and telling you what they think about your fundraising strategy, right? Right. Nothing wrong with that person having an opinion on that. However, have they ever raised funds before? Probably not. Do they have, you know, some some hidden wealth of knowledge that is it necessary? Right. And does it just distract them from what they're supposed to be doing, which is making copies or coffee or whatever it is? I'm not in a startup, we get cool jobs, but I think that's where you you really can, one of the ways where you really feel like you crossed the line is when you start to get people worked up and worried about things that

Wil Schroter: aren't their

Ryan Rutan: responsibility to worry about

Wil Schroter: or they don't have the context to understand how to worry about them. I mean I think as founders, we don't realize it's our job to basically process some of this information for them and in their best interest by the way, again, we're not making a case against giving people information. They need to know we're making a case that says there are lots of different versions of how you can present information including things like how you feel personally, including things like you know what the probability of something funding around or a big sale going through, how you feel about other people in the company. There are a million things that you have opinions and feelings on and you're sort of not okay with sharing them. Ryan, I'll give an example if we are to do a mach zoom call right now. Right. And we got everybody,

Ryan Rutan: I'm in to actual zoom calls while we're doing this and I'm multitasking

Wil Schroter: like but but imagine for a minute, right. I I, I opened up for you opened up with a with a quick update the company wide on zoom right? Like 200 people in the company. So everybody gets on zoom. It looks something like this. Everybody, you know, good to see you all on zoom. So my quick update is this we don't know if we've got enough runway to make it to our next funding round, we're kind of sort of out of money and I'm getting a lot of personal emails from folks saying they don't see the vision anymore. And they're kind of thinking about jumping ship and you know, personally I really don't think this was the right decision for me or my family. So who wants to leave the Okay. Our

Ryan Rutan: updates.

Wil Schroter: We

Ryan Rutan: all know. Yeah, you can I can see it in slack right now. You said zoom But yeah, I'm

Wil Schroter: Picturing like just one

Ryan Rutan: by one That grid getting smaller and smaller just disappearing 1 1 after the other.

Wil Schroter: Everyone has left this chat. Yeah,

Ryan Rutan: exactly. Right. That's how this ends. But you know, but you bring up an interesting point there just within that within that example that you gave thinking about something like runway. Now if you gave a very extreme runway in which you said like I don't know if we have enough runway to make it to our next funding round but a lot of people don't have context for what that means at all. And we forget that right? We could say imagine this in chat where there's absolutely no intonation or no emotions whatsoever. We have one year of runway remaining right Now if you have no context for what that means. You can perceive that as being negative or positive. Right? If three weeks before that the update was we have two weeks of runway remaining. And now it's we have one year of runway remaining. That's a hell of a good thing, right? But if you don't have context for that. You could interpret that any way you want. And so I think that that's the, you know, you've you've said it a couple of times but I'm gonna say it again in a slightly different way. When you bring transparency, make sure you bring context as well. Right? Otherwise, you know, with just that single data point, people can run all over the place with it. It's counterproductive and it can create, you know, anguish or false hope or uh, you know, you know, make people scared without reason. There's all sorts of bad things that go on when you give information and no context.

Wil Schroter: But here's the thing Ryan, it's mostly bad stuff. In other words, at the beginning of the fundamental formative stages of a startup, we deal with mostly bad stuff, right? We deal with running out of money. Every startup is perpetually running out of money. Like there's actually no other version for a long time. We deal with employee turmoil. How could you not? You just put a whole bunch of people who have never worked together in a room slammed together at the same time and told them to work beautifully together. It just doesn't work. I mean, of course you're gonna have consternation there and you name it everything about what we do is a total disaster. Right? And so if we were to be transparent, even if I didn't know what your startup did, I could probably come up with five categories of why your startup is a total disaster right now. Yeah. Right, Because that's just the way it goes. What we don't have the luxury of doing as founders and leadership is saying, oh God, this is all horrible, right? Our job is to say yes, this is horrible. Or, you know, yes, this is challenging. But here's how we fix it, right? Here is our our path forward.

Ryan Rutan: So, you're talking about a little bit here about honesty versus optimism, Right, correct? Yeah. So, yeah, I think that you're you're you're right, like we have to inform, but we have to do it in a way that it can be received as positively as possible, right? We will probably say this three times. We're not advocate not advocating for lying here, right? We're not saying, you know, hide things from your team, but we're saying be mindful in how you do this and how it's going to make them feel. There's another side of this too, as we dig into kind of why this is important and that's

Wil Schroter: how

Ryan Rutan: it feels to the founder when we're not able to be as open or as honest, you know, you talked about at the top where there we have lots of personal feelings, we have lots of emotions about this. We have lots of things that we would probably love to just get off of our chest? But that can also be a very selfish act, right? If it creates consternation, if it creates derision, if it creates confusion or just outright fear and and fleeing, you haven't done anybody any favors, right? So you always have to have this balance between being honestly optimistic and and sort of being able to be as truthful as we need to as founders without ruining the mission, right? Because you can also very, very easily do that by just positioning the same thing in the wrong way. Right? I think we've we've provided some examples before where, you know, you take a look at the two versions of the same the same question, right? Or let's let's, let's talk about maybe somebody's thinking about joining a startup, right? And you've laid this out before, right, joining Here's version A right? And this is just pure honesty, joining the startup is gonna be the hardest job you'll ever have. Um You're probably going to wonder if you're going to be employed by the end of the year, maybe even the end of the month. Um You'll have zero certainty about how your compensation will ever pan out or what your career path looks like. And the company itself will statistically be out of business within a few

Wil Schroter: years, employee has left the building, right.

Ryan Rutan: Uh, let me tear up the job offer. Um, version B where we apply some optimism. Um, and and and the same facts. Same joining the startup will Yeah, same same same thing. Joining the startup is going to be the most challenging job you'll ever have, Your role will constantly evolve while we shape the product and the company, you've got nearly unlimited upside on your compensation. And the company itself has a shot at being a unicorn in this space right now. Both can be true.

Wil Schroter: You just described the same company. That's the craziest thing.

Ryan Rutan: That's the thing, right? It's the same, it's the same, it's the same company. 11 allows for the possibility of success. The other one kills it before it even starts,

Wil Schroter: correct. So honesty versus optimism. Exactly part of it too, is it's not that we can't say the challenge in front of us is difficult. It's backing that up with why we're going through it, right? You don't, you know, having an excitement, for example, every single sergeant general, etcetera in the military that had to lead his troops into almost certain death didn't open up that victory speech with, you know, we're all going to die in the most horrific way on this beach right now. He talked about God and country and freedom and all these things that that gave people the optimism to do something honestly, truly heroic, right? The way a coach brings his team out into the field and says, look, this is gonna be the hardest game we've ever played. But the stakes are high. You know, our reputations at stake and and were victors, you know, we're going to succeed, even if it's the, you know, the, the hardest game he's ever going to play. In both cases, he's not being dishonest, he's driving people toward a goal with, with the, the version of the, of the truth that he thinks will get the job done. And I don't think that's being dishonest. I think being dishonest is when you're literally deceiving people, right, when you're saying, hey, everything is great, you know, we're awesome knowingly that you're not gonna make payroll next week like that. Yeah, There you

Ryan Rutan: go back to the version a version B thing again, right? Like, or let's do it this way here. What's in my head, we're out of money. I have no solution for how we're going to get more money. I'm not gonna be able to make payroll and I just want to go hide in a closet somewhere. What I say guys, um, we just need to, you know, stay heads down tough times, but like, we're gonna be fine, everything's okay, You know, just credit, you know, stay in your lane and just, you know, keep grinding and everything's gonna be alright, right? That's not okay, right? It's not okay to have this level of dissonance between what's actually, you know, what the reality of situation is or how you feel about the situation and the information you deliver, right? There's, there's this is that's lying versus optimism, right? We we can't do

Wil Schroter: that, you just can't do that. You know, it's been really effective for me over the years and I've, I've really, I think you used this to better effect is that I say, let me show you the way I'm seeing things, Let me give you the data as I see it. But let me explain to you how I'm processing it and Ryan, I'll give you a great recent example when Covid hit Yeah, right, this, this was exactly that we sat down and we said, look, A lot of things are going to go sideways for us, right? We have to circle the wagons right now. And I remember I was talking about that and said, Hey, look, I've been through this before. I was through, you know, crisis like this in the financial crisis in mid-2000s. I was definitely in this with bust. I said, uh, when things like this happen, everything gets gnarly really fast. And so we said, we've got to talk to our staff, most of which has never even seen the first crisis before. And so what we did and this is, this speaks to exactly what we're talking about is we wrote a series of updates and the updates went something to this effect. I wish I had them in front of me so I could read them off, but they went something to this effect. Things are about to get gnarly, everyone again. I've been through this before. So I understand how this goes right, everyone's gonna be running for the hills. We are not our focus right now is going to be getting X, y and Z done. That's all our focus needs to be. And and we we basically repeated that that context every single week. And what I would say in each of the updates thereafter, we'd say some version of yes, we understand what's happening, we understand what the consequences are. We understand where things have been terrifying. That said, here's what we plan on doing about it and we feel confident that our plan can work now. Here's what we didn't know. We had no idea how severe Covid would get. We had no idea how much of an impact it would have on our business. And we had no idea how long it would last. Yeah, nobody did. Yeah. We didn't try to say Covid is great and it's not affecting us at all. You know, let's pretend it didn't happen. We face the facts dead on and we said, and here is exactly what we're going to do to motor through this and it worked. And I think Ryan, I think what worked and what I'm proud of in that communication and we got a lot of positive feedback, frankly, was that we didn't sugarcoat it.

Ryan Rutan: No, not at all.

Wil Schroter: Right.

Ryan Rutan: But that doesn't mean that we didn't apply some optimism to it either, right? Those aren't the same things

Wil Schroter: agreed. And look, optimism is also a way forward, right? If you're leading anything, you can't lead with pessimism. If you plan on achieving a goal, you can't start with, we're all gonna die. It doesn't work like that. Right? And so here's another distinction, right? I think that for a lot of founders, especially those that are leading for the first time and have maybe historically been subordinate in some capacity, you know, earlier on to their parents and teachers and uh, and later on to employers. And I think they're used to the fact that they can just say how they feel because it's often a consequence of one, just themselves correct what they don't understand when they become a leader is that changes if I come in and say, I'm terrified, I don't know what I'm gonna do. I'm thinking about curling up in the field position and crying. I'm responsible for all the people that that message affects. Yeah.

Ryan Rutan: And, and it will have a profound impact on everyone.

Wil Schroter: Yeah. And, and so I feel like at some level personal transparency where people are just like, hey, I'm gonna just tell you exactly how I feel and you process it for how you will is not only a luxury that I don't think a lot of founders get, I also think it's a liability that I don't think a lot of founders appreciate the consequence of those feelings.

Ryan Rutan: No, there, there is, there's a real cost to it

Wil Schroter: when I see people posting, you know, full transparency and everything on facebook. The first thing I think to myself is must be nice and I say that not not in a negative way, like I'm angry. I mean I'm literally appreciative because I can't run around telling people exactly how I feel. Yeah, I'd like to that, that sounds wonderful. I can't wait till sunday. I can, but I can't because the way I feel doesn't necessarily create the best outcome for our company and I have a responsibility for that.

Ryan Rutan: Yeah. And again, like what, what you yet again, what you share can actually dictate that outcome, right? Depending on what and when you share it has a real consequence. Um, it can actually, it can actually stop outcomes from happening, right? And again, we can't be dishonest about these things. But if we are in that moment where it's like, you know, I I need, I need everybody to be aware of this, but to the level to which they're aware and how I describe what we're going to do about it makes all the difference between whether people will be motivated and we actually have a chance at doing that where we don't, that's what gets really interesting about this for me is that the honesty can either enable or disable and right. So you can actually make yourself a liar by positioning it wrong, right? Simply by if again, if you lead with some pessimism, but you still lay out the plan, you may have just demotivated everybody at the point where you're not going to be able to get there right. So you've now told them we're going to accomplish something, but we're not going to be able to do it now simply because of how you've positioned the context you did or didn't give and the way you couch the information, right? And it's a really fine line and there are literally thousands of variants of how this plays out within the startup company. Um, and so unfortunately, I don't have a great answer for how to get this right every time. It's really more around make sure that you're giving it due diligence and consideration before you open the books, before you open the kimono before you start to go full on honesty. I mean, like, I think one of the other things and you know, we, we draw a lot of comparisons to social media and we talk about the fact that, you know, like using social media as your barometer for anything is really dangerous. One of these places where we started to see a lot of this transparency, where it was from, you know, people who are making their money by being social media influencers want everybody to remember for a minute that yes, that is a career and yes, it can be quite lucrative. That is not a startup company. In most cases right there, there's very rarely their staff or if there are, they're just sort of like production staff behind the scenes doing some stuff handling admin, whatever, right? And so we see these, these influencers, you know, being very open about everything that's happening there at least alleging to, right? But again, going back to your point, that's a cost of one really, right? It's it's just them that that impacts right. It endears them to their audience, but it doesn't impact their staff for their ability to continue to run their their the revenue. I'm not even gonna call it a company at this point, but I think that some of this push towards, like people saying like, you know, we should be more transparent, we should be more transparent is that they're seeing examples of this, but I would say those examples are very mala aligned with startup companies, right? It does not work the same way here.

Wil Schroter: You know, one of my favorite quotes is bravery is being the only one who knows you're afraid. Yeah, and I think about that all the time, because I think about it when a leader of anything really has the incredible job of being able to keep their ship together while everyone else is terrified. Yeah.

Ryan Rutan: Including them

Wil Schroter: in including them. But that's the difference, right? I mean that's what makes a leader a leader a leader can be terrified and still operate right now. This isn't, again, this isn't the same as being this this robot that shares no emotion whatsoever. It's not that either? But I think it comes at its core with understanding that we have a fundamental responsibility in how we share that. Other people just don't have, right? It's just it's not as simple as us being able to say, well, look, I just want everyone to know exactly how I feel because that's, you know, that's what I think is best. It's like that isn't necessarily what's best. It's it sounds good for you, but it doesn't necessarily mean it's good for everybody. Now, everybody's situation is different. This isn't a one size fits all strategy. This is more of a one size fits most strategy, right? Some people have a different style and it works, you know, their relationship with their staff works their type of business, they make it work. I get it. But generally speaking, I feel like this is one of those things that as a leader of any type, you come to understand with time and founders definitely get a crash course in this. You know what I mean?

Ryan Rutan: For sure, right? I remember you giving somebody this piece of advice specifically and you know, it's it's not about being dishonest, it's about recognizing that their frustrations can't take priority over the needs of the of the companies and and and and that's really a key takeaway here and I think then it's also important to talk about. So why do we share what is the actual purpose, right? The purpose isn't, to be honest, or optimistic, right? That's that's just the the the the modality, right? And that's the methodology. We should use the fundamental underpinnings of how we communicate it. But why are we actually doing this? And I remember in that same conversation as you gave that advice to this younger founder, you said what we're really trying to do here, why we're sharing is to protect, not to deflect.

Wil Schroter: Right? Right. And I gotta tell you it's it's just something it's something that people don't really understand until they've been on this job for long enough and it looks something like this. There's a category of information that if I don't share with you, I'm actually harming you again. If I can't make payroll next week, I'm harming you. Right? And in my mind, there's no excuse for that level of not sharing. There's been horror stories among startups who waited till the last minute to tell their staff that they didn't have money to pay them. We acquired one of those companies. And look again, I don't think anybody was acting out of out of malice. I just think sometimes those things do bubble to ahead. And you know, the the decision wasn't made quickly enough. But my point is when we're thinking about what we want to be transparent about? We have to realize that there are certain things that if we share, like the balance in our bank account, right? I just want everyone to know how much cash we have. You want them to know how much cash we have now because you just raised a bunch of money, wait till you have 10% of that left and see how excited you still are about about that that sharing moment, right? It works very differently or something like I think everybody should know how much everybody else makes cool. Wait until you have hired enough people and you realize that that doesn't work anymore. There's reasons some people get paid more than others. There's all these things that may sound like they work at a small scale. I'm going to share all of my feelings with my staff. Yes. Because you have three people that work there and they're all your friends. Right? Once you have 30 or 300 and find out how well that works when people who don't know you are like, why are you crying again? Like what's going on? Is there some bigger issue? Let me go to lunch and talk to everybody else about it and stir up something new. And then you realize with every tear you started a whole new problem that you have to solve things get dicey fast

Ryan Rutan: going back to your example around the money in the bank, right? Because that, that was a thing for a while where you know the the open books was, was this form of transparency for a lot of startups, mostly funded startups, right? Because again, fun to open the books when you know, you've got 100 and $50 million in cash that you now go get to try not to waste Because you're gonna have some angry investors if you do. But going back to that example. So you start sharing um when you've got 10 million in the bank and now you've spent that down to $100,000 in the bank, your staff might get really scared. Now that doesn't mean that anything wrong has happened. Maybe money went to you were supposed to spend the money, right? You've now built an infrastructure, you've hired the people, you need, you've acquired the customers, you need, your cash balance is low. But all of a sudden like this has built a machine that you need to then grow cash flow. But again, without that context, Without the understanding, all that looks like is really scary, ship it to everybody else. It looks like we just lost $9.9 million.

Wil Schroter: Right? So

Ryan Rutan: we need to get the hell out of here when it turns out that we're actually at that beautiful inflection point now where we've now spent the money built the infrastructure, have the customer acquisition machine, have a great operations team were ready to service clients. We've got the clients coming in. Everything is actually fantastic. But that could send a completely different signal, right? So again, like it's, it's about having that context and whether or not that's even important. So for example, like why does that bank balance matter to everyone in the company? It shouldn't. Right. Um now if that means that you're not gonna make payroll next week, that is an important distinction, right? Absolutely. Like it depends on how it's going to actually impact them.

Wil Schroter: I think the biggest challenge that that a lot of founders have early in their careers is distinguishing the two. Yeah, Right? Like wait a minute, I don't understand why wouldn't tell everybody this and here's here's another, you know, kind of data point of overtime why you just start to realize you don't share everything. Well you're just saying a moment ago, you know how much cash we have in the bank or whether a receivable came in or why somebody just got let go, et cetera. You start to realize that for the most part, most of the staff actually, they just don't need to know, right? They need to know when they're going to ship a product. They're gonna need to know how to deal with a client. They need to know how to complete a sale etcetera. That's their role in the company and that's what they're there to get done, your job as the founder of ceo managing team, what have you is to fix all of those problems in the same way, I don't need one of the developers sending me the logs from his code saying he can't figure out how to ship something, right? Not my job. Right? Like, okay, you're being transparent. I thought you were taking care of it now. You're being super transparent. But now you got me worried about a bunch of shit I can't deal with. I?

Ryan Rutan: Re compiled your code

Wil Schroter: by which I

Ryan Rutan: mean, I ran it through the shredder.

Wil Schroter: Yeah, yeah. No, I don't know if somebody on the customer success team, you know where to send me an angry email from one of our clients and said that this person is being a total psychopath with me. I'm like, okay, do you want me to fix it? No, I just think you should know everything. Well, great. Now I have a bunch of information I can't do anything with and I'm just piston often distracted. What I'm saying is like not every piece of information moves the ball forward and, and there's certain things that we do that we maintain, we keep to ourselves for the right reasons because it's our job to process all that stuff. By the way, our emotions are on that list. Right? Sometimes we have to be the big kid and deal with our own emotions, right? And, and put on the big boy slacks and go deal with it. We don't always get the opportunity to just pour our hearts out and everything that's on our minds and pretend like nothing we just said has any impact whatsoever because that does not end well,

Ryan Rutan: that's a wrap for this episode of the startup therapy podcast. This is Ryan Rutan on behalf of my partner Wil Schroder and all the startups dot com family thanking you for joining us and we hope you'll continue to join us. Be sure to subscribe rate and comment on itunes or wherever you love to listen to startup therapy, you can find all of our episodes at startups dot com slash podcast. If you're looking for more amazing resources to launch or grow your startup, be sure to head to startups dot com and check out startups unlimited. It's everything we have to offer from our online university to our amazing community of experts and founders and even all the tools we've built like biz plan, fungible and launch rock. It's everything a founder needs visit startups dot com slash begin that startups dot com slash B E G I N.

Wil Schroter: You'll thank

Ryan Rutan: me later.

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