Should Your Startup be More Transparent?

Transparency is one of those buzz words that seems to get everyone excited these days. CEOs love to talk about it. Presidential candidates promise “open” and “ethical” administrations. Wall Street traders punish companies that don’t provide it.

So it has been interesting to read about General Motors decision to recall nearly 780,000 vehicles because of a faulty ignition that has been tied to 6 deaths and at least 22 accidents.

Good, right? No.

GM knew about the ignition problem for more than 13 years and didn’t bother to mention it to anyone. They even discontinued and redesigned the part because of the problems it was causing. Then they covered everything up. Which works right up until word gets out, then it is a disaster. The first law suit is already underway and the damages will likely run in the hundreds of millions of dollars.

Don’t be like GM
As the owner of a new startup, you have a choice. Consider how you can be more transparent in everything you do.

One small business that has gotten a lot of attention for their dedication to transparency is Moz.com. Their value statement (TAGFEE) starts with their commitment to transparency and authenticity. And admittedly, they take it to the extreme, sharing financials, negative news, future plans (before they are set in stone), as well as failures and frustrations. It works well for them and may even have led (at least in part) to raising $18 million from Foundry Group.

Perhaps the most celebrated example of corporate transparency is Tylonol’s product recall in 1982, after seven people in Chicago died taking capsules laced with cyanide. Even though the company had nothing to do with the poisonings, they immediately recalled more than a quarter million bottles of capsules and offered a $100,000 reward for information leading to the arrest of the person involved. The company launched a massive public relations campaign urging people not to take their product (something that was unimaginable at the time). The company then relaunched all of its products with a new tamper-proof bottle design.

Some critics have argued that Tylenol had no choice but to be transparent. Perhaps. But recent actions by companies like GM (and Ford and Firestone, or Apple and Google) show that transparency isn’t the natural reaction of most companies.

Hiding illegal or harmful practices or lying is not just bad, it is risky. Covering up problems today will almost certainly cause more problems for your business tomorrow.

So how can you be more transparent?

First, know that people, customers, governments don’t necessarily want more numbers, more financial ratios, or sophisticated press briefings. They want honesty. They’re looking for a trustworthy product or service to help solve their problem. And they’re quick to look elsewhere when they feel like they might not get it.

1. Be open about who you are. Don’t tell people you are big if you’re just starting out. If customers buy your product or hire your company thinking they’ll have access to a team of experts and all they get is you, it will become obvious soon enough. Don’t pretend to have capabilities you don’t have. Don’t make promises you can’t deliver on.

2. Fix things. If your product has a bug or other issue that impacts your customer’s experience, be open about it, apologize, fix the issue for the customer. Then work on fixing the issue so it doesn’t impact other customers.

3. Communicate with your employees and investors. Help them understand the impacts of the decisions you make running your business. Share financial information so they can see what activities generate revenues, profits, and expenses. When you have bad news, treat everyone like adults.

4. Be truthful. It’s one thing to share the good stuff openly, and hold back on the stuff that doesn’t make you look so good. But real transparency means sharing all the pertinent information, good and bad. Hiding a change in your user terms, for example, is a bad idea.

5. Timeliness matters. Talking openly about a problem you discovered and hid for thirteen years is not transparency.

In a world with so many social sharing options, if you get caught lying, everyone will know within a few hours. The web is permanent. Recovering your reputation can take years—more time than your new business has.

So is there a time when you shouldn’t be transparent? Nick Morgan shares a good example here.

Photo credit: marcomagrini via photopin cc