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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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Real Transparency

Comments (19)

Lots of people talk about being transparent. Lots of companies espouse principles of transparency. Lots of statements start out with “I like to be transparent” or “I’m being transparent when I say …” And several years ago the notion of transparency became the new in thing, especially around the VC and startup worlds.

Most of it is bullshit.

If you want to see real transparency, take a look at Moz’s 2013 Year in Review: More Than You Ever Wanted to Know About Moz, and Then Even More.

I love being an investor in this company.

When Rand Fishkin decided to hand the CEO reins over the Sarah Bird, he wrote Swapping Drivers on this Long Road Trip Together. Or if you want to compare how they did in 2012 to 2013, just read Rand’s post Announcing Moz’s 2012 Metrics, Acquisition of AudienceWise, & Opening of Our Portland Office.

And while Sarah and Rand were disappointed in their off-plan performance of 33% revenue growth, GAAP revenue of $29.3 million, and an EBITDA loss of $5.7 million, as an investor I’m delighted. Given all the things in motion, they and their team have done an amazing job of navigating another step function in the growth and development of the company. They are extremely well positioned on all levels for 2014 – product, strategy, infrastructure, financials, cost structure, and team. And they have huge hearts.

I know transparency is hard. Our legal and regulatory system makes it even harder. Having been on public company boards, I’ve been involved in the endless discussions about level of disclosure. I’m not naive about how the system works. And I know how many people view opacity as a competitive advantage, which is some cases it is.

But when you talk about being transparent, it’s often useful to have a standard of “real transparency” to compare yourself too. I’d put Moz at the top of that list in my book.

  • http://www.about.me/nninoss Ninos Youkhana

    So true!!!

  • http://John.do/ John Saddington

    too much lip-service, for sure. too much ego and pride limit the sharing of valuable information. life is far too short to keep so many great lessons-learned close to the chest. love it!

  • http://www.cornfedsystems.com/ Frank W. Miller

    Let me start off by saying how impressive it is that they publish all this data. First and foremost its gutsy but it also requires time and effort to package and present to if this is what they are into, grats to them.

    I just don’t get this transparency thing. There are lots of reasons for not being transparent. Do you really want your competition seeing all your warts or even getting any idea of where you are and what you’re doing? Do you really want your employees to see every little temporary dip? Do your investors (you excluded obviously) really want you to tell everybody all these details?

    Let’s be a little more specific. The Moz page includes stuff like how much they spent on AWS vs. their own servers (a lot of them leased from what I can tell), a breakout of expenses, number of customers, and profit margins. Now, I suppose lots of this stuff is required for public companies but at the early stages with private investors and probably many prima donna employees, making this stuff public just doesn’t make sense to me.

    • http://www.feld.com bfeld

      Many don’t. But Moz is special this way, and always has been. It’s deeply embedded in their value system.

    • http://moz.com/rand Rand Fishkin

      Frank – these are very fair critiques. Here are my counterpoints:

      Core values are different than tactical or strategic initiatives. Transparency for us is NOT a tactic or a strategy. It is a value. My favorite quote about values is this one from Ralph Larsen:

      “The core values embodied in our credo might be a competitive advantage, but that is not why we have them. We have them because they define for us what we stand for, and we would hold them even if they became a competitive disadvantage in certain situations.”

      Transparency does become a competitive disadvantage in some situations (and maybe even in these), but we’re not doing it as a tactical or strategic win, so we honestly don’t care about the impact so much as whether we’re upholding things we believe to be more important than making money, aka our core values.

      That said, transparency, even in the extreme, is valuable to the company and does provide tactical and strategic wins. For customers who follow along in our journey, it shows them that we remain committed to what we say we’ll do – sharing what we know, do, and learn openly. When we think about competing in the field, we don’t focus on having inside knowledge that our competitors don’t – instead we concentrate on how to win assuming everyone knows everything (and honestly, it’s pretty hard to keep this stuff entirely secret – I’m shocked about how much I know about private companies that supposedly keep this type of information close to the vest). For our audience who may someday become customers, transparency creates trust – especially transparency that honestly shows the ugly warts of our journey. And, for our employees, I think transparency is most important – without it, feelings of distrust, disloyalty, and an inability to share in the big picture and understand how my work contributes crop up again and again.

      Hope that helps answers some of your queries.

      • http://coachwizard.com/ falicon

        +100.

        Core values are where all other value *really* grows and builds from anyway (and only if you remain true to them).

      • http://www.themusingsofthebigredcar.com/ JLM

        .
        Values are values. Writing down some compelling prose and calling them “values” is not the same thing as developing core values from actual experience.

        I served in elite military units whose values were developed in places like Normandy and the Bulge. I was becoming part of their culture and the challenge was always “could I measure up”.

        Real values are not situational. They apply all the time particularly when they are awkward.

        I was once a CEO of a public company in a highly regulated business — multi-state, multi-unit, different regulations.

        Shortly after I took over, I learned of a modestly technical violation of a regulation. The regulators would likely never have stumbled upon the violation.

        I reported my own company to the regulators. No equivocation, just a simple declarative acknowledgement of our offense. Did not ask for any special consideration.

        They were incredulous as the offense was modestly serious and could carry a meaningful fine. It was alien to the expected behavior in that industry.

        I told the company: “In this company, we play by the rules. PERIOD.”

        Never had another such problem. Never had any integrity problems. The regulators never figured out what to do and did nothing.

        I never wrote this down and put it on the wall. I didn’t have to. The word of mouth was incredible. It created a reputation that made us money. Most importantly — it was simply the right thing to do.

        JLM
        http://www.themusingsofthebigredcar.com

      • http://tdp.me/ Jay Shirley

        Hey Rand, awesome that you jumped in :)

        Was it difficult in the beginning? Do you still struggle with certain points? I would imagine that, especially with bad news, there is a moment of hesitation.

        Do you have any specific techniques to unify your actions with the values when/if there is a moment of struggle?

        Thanks,
        -Jay

        • http://moz.com/rand Rand Fishkin

          There are moments of hesitation, and we do compromise transparency when it conflicts with empathy (for example, we don’t share the salaries of our employees because we believe it would be unempathetic to them to do so). But when there’s bad news, we think it’s even more important to share than when there’s good news – that’s what makes it a core value.

          In terms of more on core values at Moz, these two links might be useful/interesting: http://moz.com/rand/diving-deep-on-tagfee/ and http://moz.com/rand/mathematics-core-values/

      • http://www.cornfedsystems.com/ Frank W. Miller

        Hi Rand. I’m so glad you replied to this. I wanted to think about what you said before I responded. So, a couple of followup points.

        First, you mentioned a group I didn’t list in my initial questions, i.e. customers. I can certainly see making all this information available as being potentially problematic for that group as well. What happens when you’ve got somebody thinking about using your service and they know you’re having financial trouble for example? It has the potential to cause you to actually lose business. What this and my original question really boil down to I think is this. When you publish this info and things are going well, it has the potential to be a benefit. When you do it while things are going less than well, its I think more likely to be problematic. Since we all know that early stage companies have many periods where things aren’t necessarily going well, I just wonder whether doing this as a matter of course is such a good idea, i.e. whether this trendy transparency thing isn’t just that, a trendy thing.

        Second, I thought about your description for doing this as a “core value.” While I understand I think what you’re getting at, i.e. you believe it so strongly that you want it to be taken for granted as something that drives you in everything you do, I’m not sure it addresses what I’m asserting. What I mean is this, whether is a value or a tactic or a strategy really isn’t that relevant since in all cases, the data is being made public. The point is whether making this info public results in good or bad for the company. While I appreciate the conviction you are displaying by calling it a “value”, the real question is whether its a good idea or not, rather than whether you want to make it standing orders for your organization.

        Regardless, I hope you and your company roll a hard six!

        • http://moz.com/rand Rand Fishkin

          Frank – I think you’re misconstruing what “values” are and what they mean. If you don’t do something because you believe it may be bad for the financial health of the company, then doing that thing was never a core value. As I quoted above, “we would hold them even if they became a competitive disadvantage.” If Moz’s financials look worse a year or two from now, and we choose not to share, then we would be violating our core values (indicating that they aren’t really “values,” or that some other value, i.e. looking good externally, is more important).

          I agree that transparency has become trendy. However, when we adopted it in our TAGFEE credo in 2006, I don’t think that was nearly as much the case. Transparency (or any given value for that matter) is not for everyone. You should choose core values for your company that you believe in, and that you would not violate, no matter how much they might hurt the performance of the company. That’s what having core values means.

  • http://byJess.net/ Jess Bachman

    Transparency is great, but lets be honest, it’s still a managed view. It will be interesting to see how transparent the glass walls are when the insides start falling apart (though I hope that never happens). Seems internal transparency is 10x more important than external transparency, which feels a bit gimmicky to me.

  • http://www.themusingsofthebigredcar.com/ JLM

    .
    This is one of your best posts as it ties together the reality of being an honest CEO and the reaction of an investor, VC, Board member. It is not an easy task or subject.

    Having run public and private companies for over 33 years, I can tell you that the primary issue is always — how honest is the CEO to start with? How secure is the CEO? Has the CEO really tried his best?

    Through the years this has morphed to two extremes — how honest MUST a CEO be and how little can a CEO disclose while hanging on to his job and livelihood.

    No CEO should ever disclose something to a Board member or VC or investor that could get him fired. This is not a paen toward dishonesty. This is an acknowledgement of discretion being a critical element of any disclosure regimen.

    Board members, VCs and investors who have not been CEOs — not taken a product or company to the pay window but guys who have run companies for a protracted period of time through good and bad business cycles — are generally reactionary, thin skinned, hypercritical and inexperienced. Dangerous characteristics indeed.

    My heart says that CEOs who are completely transparent are the best while my head says that transparency is often a function of the professionalism and experience of the Board.

    I could write forever on this subject.

    The recognition by a Board member that such transparency is an asset in a leader is a huge realization. The real test is what happens when a CEO stubs his toe. Is that Board member also experienced enough to be understanding of the realities of the CEOing business?

    Most are not.

    JLM
    http://www.themusingsofthebigredcar.com

    • tgodin

      “No CEO should every disclose something to a Board member or VC or investor that could get him fired.” That’s a strong statement. What are some examples of disclosures of this type – that would NOT fall in the category of material matters that a CEO is obligated to communicate to the Board. There are certainly instances in which non-disclosure could fall into the category of a fireable offense

      • http://www.themusingsofthebigredcar.com/ JLM

        .
        Before we start the discussion, note that MOST CEOs will get fired in a startup situation. Some get fired because the enterprise fails and some just get fired. The vast majority get fired.

        A CEO is an employee of a corporation reporting to its Board of Directors. It is a legal employer-employer relationship that should be formalized in a contract. That contract should set the standards for reporting by the CEO to the Board. The Board has the lion’s share of the responsibility for setting these standards. Most Boards do not do justice to this duty.

        Any business has a set of KPIs which should be tracked in a dashboard for instant access and assessment and over time graphically to capture the trends. In the end, you will be managing the trend. Make the trend your friend. This again should be codified in a manner that the Board is getting exactly what it needs and desires.

        A company’s financial statements (income, balance sheet, cash flows) should be produced, reviewed, approved and disseminated on a regular basis. The accounting basis — accrual, cash, GAAP — should be established beyond any equivocation and committed to writing.

        A suite of management reports should similarly be codified and handled in a similar manner as financial statements.

        Given all of the above, a Board should have what it needs and a CEO should have to add damn little to have a professional and effective communication mechanism.

        All of the above should be more than sufficient to discharge reporting requirements. Board members, who have a fiduciary duty to ALL shareholders, are also required to be inquisitive and to delve into the actions of management at regularly scheduled board meetings.

        What a CEO should be careful about is the “chatter” that flows through any company.

        A specific example is something that Brad Feld discusses from time to time — his struggling with clinical depression. This is not something I would disclose to anyone who could fire me.

        I would be careful as to things like whether your wife and kids like Richmond, Virginia if you have just relocated there.

        I would be a bit closemouthed about internal discussions as to the effectiveness of the Board or the roles of individual Board members.

        I would keep my own counsel as to internal compensation and equity discussions other than the final results. You should champion the outcomes you need to create and run a winning team.

        I would never provide any inkling of my personal financial situation other than information which accrues to your own benefit in comp negotiations.

        I would not tell a Board member that I had smoked a lot of marijuana in my college days. Unless of course, you are the President of the United States.

        In many of these instances this is only the bit of grit upon which the pearl is built — underlying rather than apparent reasons.

        Having been a CEO for over 33 years of both public and private companies with international investors in some, I can only tell you that as the CEO there is always some reason which starts the conversation which may ultimately result in your firing.

        In working with CEOs I can also assure you that the very best CEOs need an objective ear upon which to vent their frustrations, a process which might get them fired otherwise. This is why, even when retained by a VC, I will only work with and recognize a duty to the CEO and nobody else. A good CEO coach is just a tool in a CEO’s toolbox. Some need one and some do not.

        JLM
        http://www.themusingsofthebigredcar.com

        • tgodin

          Thanks Jeff, for the comprehensive reply. Certainly is clear now what you meant.

  • Guest

    I have no idea why is this ‘one of the best’ posts…

  • orfus

    Seems odd to discuss ‘transparency’ when the US is right now is slipping into a police state. WE are transparent, perpetually in the cross hairs of govt scanners. hey that sounds cool. Anyways, you were promised ‘transparency’, right?

  • Alex Cook

    I’ve been following Rand and Moz for years and he has built a seriously a great team. I watched the entire video with Rand and Sarah talking about the transition and found it all fascinating. This 2013 review post is also a goldmine of knowledge. Looking forward to following over the next year.

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