Run toward bad news
Sometimes you need a moment. That's OK. But after that, hiding makes it worse.
Process it … Then:
Talk about it
Make a plan
Act on it
Your team and investors will rally
— Jason ✨BeKind✨ Lemkin #ДобісаПутіна (@jasonlk) March 31, 2022
The past 10+ years I’ve had a chance to observe a lot of SaaS founders, as an investor, as an advisor and more … and the vast majority I’ve worked with have in the end just killed it. Gone on to bigger and better things. Five of the first six became unicorns. Two have sold at billion+ valuations. Many are just getting going.
But … it’s never all roses. We know this. And in fact, many, if not most, of you will have a Year of Hell. And right now for some of you can be extra stressful, given the challenges in venture and the public markets at the moment.
And one thing I’ve observed is many founders and CEOs don’t handle bad news the right way. I wasn’t perfect either, I went too far on the transparency side, and maybe spooked my investors a little too much some times. 🙂
But hiding the ball can end up being a disaster. Even best case, it creates anxiety.
Here’s behavior I’ve observed:
- Investor updates are delayed, or never sent, in bad months.
- Strategic changes aren’t communicated before they are executed.
- Informal meetings and catch-ups stop or aren’t scheduled in rougher times.
- Rough months and quarters, and challenging metrics, are glossed over.
This may be natural for some of you. But let me tell you it’s a terrible idea.
Everyone that’s been around start-ups knows there are ups and downs. We expect it. And investors especially expect it.
What people don’t expect is not getting a heads-up on the unexpected. Ideally, an extremely thoughtful one.
Then, confidence evaporates. Investors stop boasting about their investments. The Next Investors get nervous when they don’t see unqualified support.
And the ‘confidence’ game then all falls apart. Because the rough quarter wasn’t communicated and managed right. Everyone in SaaS — everyone — ends up with a rough quarter. Maybe even really, a Year of Hell (more on that here).
So this is a simple post, but so many founders get this wrong. Let me summarize:
- Make sure everyone that is going to be an important advocate for you in the future — investors, key advisors, board members, etc. — gets a crisp and prompt monthly update, always. Always. Do not delay in bad months. Don’t let it stretch past the 10th of the month … especially on bad months. I see way too many founders skip, or slow down, their updates when times are tough. This is backwards. It completely undermines confidence. Everyone notices when the updates stop.
- Meet all your key stakeholders and champions every quarter, at least on Zoom. This is more than just an obligatory board meeting. Do a Zoom at least once a quarter, as a group or individuals, with all your key investors and allies. And don’t leave behind your third or fourth largest investors, just because they aren’t on your board. They can often be your biggest advocates and champions.
- Don’t explain it after the fact. Great founders can always see it coming. Always explain the stumble even before it shows up. And tell us what you are doing to mitigate it. Investors, employees, really all start-up people are wired to take some tough news. But there’s no reason to not hear about it when it happens. In fact, since revenue recurs in SaaS, everyone should hear about bad news before it materially impacts your MRR.
- Don’t dismiss concerns folks have or tell them “I told you about this issue”. That not only doesn’t help, it dis-instills confidence. Weak CEOs and founders consistently dismiss concerns from their team and investors by saying I Told You So. Well, if you’d told everyone so properly, AND had a plan to do something about it, there would have been no reason to say so.
- When you have a stumble, dispassionately and logically re-forecast. When is our Zero Cash Date now? Does this change when we get to $2m or $5m or $10m ARR? Does it change anything fundamental about what we are doing? This will install an almost unimaginable amount of confidence. But if your investors, team, board members, etc. have to try to re-forecast on their own — they’ll quickly lose confidence in your ability to do so.
- Know the current funding landscape cold. You should know if you are fundable or not at the moment, and what to do about it.
- Force your VPs to come up with a plan to improve if they haven’t already (and the best ones do this on their own). Don’t let them blame others on the team, or holes on the org chart. Every functional area can always improve.
- Again, how will we do better going forward? This is what everyone wants to know. If you aren’t 100% sure how to do much better going forward, at least explain how we are going to do a bit better in the future. That’s often enough for now. There just has to be a plan now.
Everyone — your team, your investors, your advisors, your customers — is making a long-term bet here. Everyone expects a few bumps, and maybe even, one really tough one every few years or so.
So just … EXPLAIN IT TO US. Tell us what happened, and why, before we even see it coming. As Todd McKinnon, CEO of Okta said at the recent SaaStr Scale: “99 times out of 100, Truth is Your Friend.”
Great founders see the future. Just make sure we all know that — all the stakeholders.
If we know you can truly see the future, and it’s still a bright (and data-driven) one — then we can take some interim bad news. Really, we can.
(note: an updated SaaStr Classic post)