Pros & Cons of Transparency

Your team isn’t going to agree with or even understand every decision you make. No matter how transparent you are, you’ll always have just a bit more context about where the business could go than they do.

Realizing that fact makes you wonder… how transparent should you be?

What are the real benefits and risks of total transparency? And what does “total transparency” even mean? Is it sharing financials with your team, or the public like ConvertKit does?

It’s easy to see successful companies being totally transparent and come to the conclusion that building in public is inherently a good thing for your startup.

But, as with most things, it’s neither good or bad — and there are tradeoffs on both paths.

This week I’m sharing:

• The pros and cons of transparent leadership

• My own experience dealing with untrue leaks from disgruntled employees

• My framework for how to think about transparency

• The most important part of being transparent

The Pandora’s Box of Financial Transparency

Once you commit to transparency it’s extremely hard to reverse course and become less transparent. But being transparent provides real competitive advantages, especially early on when your team is still small.

Pros and Cons of Transparent Leadership

One thing to keep in mind as you read these: the “pros” often feel better in the short term and can be a competitive advantage when things are going well, but at least some of the “cons” tend to happen on a long enough timeline.

Pros

Increased Buy-In and Trust

If you’re transparent in the early days, your team will trust you and buy-in to you as a leader. If they’ve got equity in the company (which they should), the impact of transparency is even higher. They feel true ownership over the company and like they’re learning more about how startups are actually run.

The feeling is contagious across your team and within each individual — employee retention will likely be high, they’ll work hard, and see the longterm path to success.

While nobody will have the level of buy-in you do as a founder, an increase in the level of responsibility they feel for the company can boost morale

It’s one of a few good tactics you can use to build an us-against-the-world, cult-like mentality amongst your team. An employee at my previous startup even got a tattoo with our logo.

Better Prioritization

Speed is your best strategy with a startup, and being transparent can save you the time you’d otherwise need to carefully explain various decisions you make.

In a transparent startup, your team will understand your decisions faster because they’ll see the metrics that are driving them.

More importantly, they’ll be able to orient their own time and work around company goals more easily (and hold each other accountable to making progress against them).

Their “why” becomes more self-evident.

Cons

You Could Be Opening Pandora’s Box

If you’re totally transparent — sharing runway, burn, employee salaries — you may reach a point where it isn’t feasible anymore, but it’s very tough to go back and become less transparent.

It could lead to an erosion of trust between you and your team. They may wonder why, assume bad things have happened, and get nervous.

They’ll wonder if you’re hiding something and you’ll see a noticeable drop in morale, productivity, and trust.

Unfortunately, there’s no good way to reverse course. The best thing you can do is be transparent about why you’re no longer being transparent. Some team members may not believe you, others may not like it, but it’s really all you can do.

Potential Leaks

Leaks are the worst. THE worst. It’s hard to overstate this.

When members of your team, whose salary is paid by the company you founded decide to leak something you know you have a real problem.

Leaks cause in-fighting amongst team members, headaches for you, and hard decisions about how transparent to be going forward.

The likelihood of a leak increases based on four things:

As your team gets bigger and you introduce layers of management, it simply becomes impossible for you to spend 1:1 time with everyone making sure they’re on the same page as you. At a large enough scale, the founder stops being a humanized person to junior employees and just becomes synonymous with the company itself.

When I was at Uber, Travis Kalanick would personally lead every all hands on a tiny stage in the cafeteria of our HQ at 1455 Market Street in San Francisco. He was extremely open with how the company was doing and would give his candid thoughts to the entire staff (via Zoom for those not in SF).

But when things began to spiral in 2017, those same all hands became a lot more guarded — junior employees were leaking things from the meeting to Mike Isaac and Kara Swisher before it was even over.

And if you’re in a competitive space or are a brand-led company then leaks can be harmful even when untrue.

My own previous startup, Launch House, had a disgruntled ex-employee “leak” untrue things to a reporter. Even though over 20 people went on the record to refute what the employee had said, it didn’t matter to the reporter (side note: most reporters are parasites who aren’t interested in the truth and just want to better their own careers). They published anyway, and we went into crisis mode.

Thankfully we were able to turn the company into a venture fund (that’s still active today), but it created a few months of internal chaos — employees lost trust in each other, customers were left to take us at our word, and our brand suffered.

The good news is that the vast majority of people would never leak something, and the ones who do tend to only do it in extreme circumstances where they feel they have a moral obligation to.

But if you do have to deal with them, Elon Musk has a pretty interesting solution: text-based watermarks on company emails.

Impact on Morale When Things Aren’t Going Well

Here’s a hot take: letting employees in on the financials is basically asking them to mentally ride the roller coaster like a founder, which most people just aren’t emotionally ready to do.

No, they’ll never have as much skin the game as you do but they’ll feel the ups and downs just like you do. And you might need to start spending time reassuring them to keep them motivated, rather than spending that time trying to right the ship.

Being transparent works well when things go well, but it’s tougher when things don’t. If users are churning and you’re running out of money it becomes something that you dread talking to your team about, and they dread hearing about.

You run the risk of it impacting morale, stress levels, and your employees’ sense of security at the company. In a worst case scenario, it could also impact output and cause people to leave for a “better” opportunity.

So if you’re going to be totally transparent you have to be prepared to deal with the good and bad that can come along with it — 90%+ of startups fail, after all.

A Framework for Transparency

So… what should and shouldn’t you be transparent about? The lame but correct answer is that there’s no universally right answer. It depends on your relationships with your team members and your personal leadership style.

But here’s a simple framework you can use to decide:

1. Is it something you feel comfortable being transparent about forever?

2. Would you feel comfortable with it trending on Twitter/X or on the homepage of The New York Times?

3. Does the expected increase in employee productivity when things are going well outweigh the decrease in employee morale when things are going poorly?

4. Does the expected increase in employee retention when things are going well outweigh the increase in employee attrition when things are going poorly?

If you answered at least 3 of those questions with “yes” then you should probably be transparent about it.

How to Be Transparent

The most important thing about being transparent is consistency. Your team should trust that you’re going not going to say one thing publicly and a different thing in your 1:1s with them (or others).

If you decide to be totally transparent, there’s a few tactical ways you can go about it.

You’ll also want to create a source-of-truth for company info and announcements. Maybe this is a Slack channel, or a private newsletter for your team. Maybe you share video updates every week, or have an all hands meeting.

There are many ways to be transparent, but the universally important thing is how consistently you’re transparent.

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