Getting to Initial Scale

Handling Bad News

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Jason Lemkin

The past 30 months or so (24 of them as a VC) I’ve had a chance to observe a lot of SaaS founders, and the vast majority I’ve worked with have just killed it.

But … it’s never all roses.  We know this.

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 🙂

Screen Shot 2015-09-29 at 12.14.54 PMBut hiding the ball can end up being a disaster.

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.

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).

If you are not just transparent, but consistently transparent — you’ll get through it.

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.
  • Meet all your key stakeholders and champions every quarter if you can.
  • Don’t explain it after the fact.  Great founders can always see it coming.  Explain the stumble even before it shows up.  And tell us what you are doing to mitigate it.
  • 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.
  • 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.

Everyone — your team, your investors, your advisors, your customers — is making a long-term bet here.  We expect a few bumps, and maybe even, one really tough one.

EXPLAIN IT TO US.  Tell us what happened, and why, BEFORE we even see it coming.

Great founders see the future.  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 the bad news.  Really, we can.

Published on September 30, 2015
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