

Ask HN: Why not more transparency (says the guy who was just laid off)? - sf_angular_dude

Last Friday I was told I wouldn&#x27;t have a job on Monday. It was a bit of a shock (I was unaware of the funding difficulties until the day I was let go. You&#x27;ll also have to take my word for it, that it wasn&#x27;t for performance reasons).<p>I know that some startups practice openness &#x2F; transparency with regards to their financial situation and metrics (I don&#x27;t know them personally, but Buffer seems to be a great example of this).<p>It just seems to me that transparency (to various degrees) is a far superior way of running a startup, and shows respect for all stakeholders (employees, investors, customers).<p>Perhaps I&#x27;m naive (and I know that there are reasons not to be transparent: competition, fear that your customer&#x2F;employees will jump ship), but I really would&#x27;ve loved to have had the benefit of transparency, and I&#x27;ve always been respectful to my employers (I once stayed on two extra months until we could find my replacement at a prior position).<p>I guess I&#x27;m just curious why more startup founders don&#x27;t emulate (perhaps not to the same degree) the Buffer model?<p>Note: I&#x27;m a software programmer, and the recruiting market isn&#x27;t bad, so I hopefully won&#x27;t be out of the game too long.
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onion2k
There are three reasons: fear of losing people, outright greed, and ignorance.

Fear of losing people is simply that people will jump ship before the company
sinks if there's a strong chance that it'll fail; losing key employees then
sinks the company. Pretending everything is awesome up until the last day can
actually save the company if you come up with a last second investment, which
does happen occasionally.

Greed is obvious - founders don't want you to know how much money there is so
they can lie about how much they can afford to pay in order to keep your
salary low.

Finally, and I suspect most commonly, a lot of startup founders are so bad at
keeping track of their cashflow that they _can 't_ be transparent about it.
They literally don't know what money is available, and they're just as shocked
as you are when the business runs out.

~~~
davismwfl
Ignorance is likely a bigger cause when the company is not funded.

Funded companies have people they have to report to with milestones, financial
status etc. So they should not have an ignorance problem when it comes to cash
flow etc. But I totally agree that most small businesses/startups without
funding or outside assistance will likely not really know where they stand day
to day which can cause the big uh oh.

Funded companies that let it get to this point, know they let it go to far. If
they can't meet the milestones or get more funding etc, then they should
really have the wind down plan available and the cash on hand to pay for it.

~~~
onion2k
My startup was funded. During the 18 month runway when we were spending the
investment money we had a grand total of 2 meetings with the investors. We did
_a lot_ wrong, but so did the VCs in my opinion - we were a 'boring' business
tools company from an accelerator full of exciting B2C, 3rd sector, big data
and social media companies. They ignored us. If I did it again I'd absolutely
insist on more oversight and input from the VCs but that's something you only
learn with hindsight. We were definitely one of the ones that let it go too
far.

~~~
davismwfl
Ouch, sorry to hear that, but I believe everyone does a lot wrong, just
hopefully we can outweigh the screw ups with enough successes to make it work.

To me the support from an institutional type investor (VC) is to help you
dodge preventable mistakes and open doors, which is the bigger attraction than
just cash (not that cash can be dismissed). It sucks to hear you didn't get
that. Do you think your experience is more normal from what you know or that
it was more an anomaly?

I ask because I have raised money for a couple of my own companies in the
past, mostly from high net worth individuals and every time I was required to
provide monthly/quarterly financial reports and projections. And they were
reviewed and if stuff didn't line up or they saw something I didn't I would
get a call to discuss it. I sometimes resented it right at the moment because
I was knee deep in a customer issue or feature, but I learned a lot and it
continues to help me now.

------
davismwfl
First, I don't think you were treated fairly. No one should find out at the
last second that the company is out of funds and unable to keep you. It should
be a dialog that is on-going for a little bit to give you options and time to
prepare etc. Their method and motive was selfish, or inexperienced (myself
having done this in the past and having learned my lesson).

Speaking from running my own company (and from a bootstrapping perspective),
it is hard to be 100% transparent. Likely it is easier if you start that way,
but it is hard either way. I also think it is likely easier when you are well
funded because Cash on Hand goes a long way to keeping people comfortable. But
there are so many close calls when you are starting out as a company that a
lot of employees would likely have a really hard time with full transparency
unless they also knew there was 12-18 months of runway in front of them.

Bootstrapping there are months that start and you don't know where the entire
payroll will come from, your job is to keep people focused and find the funds.
Many times that means not taking much or any money yourself, to make sure
employees are paid. Other times it means having to find another small contract
or signup another X people etc by a certain date to cover everything. Partners
accept this risk, but employees many times are employees because they fairly
don't want that risk. So that is why I think more small businesses and
startups don't practice a Buffer level of transparency. BTW -- IMO if a
company is constantly having this issue then its time to talk to employees and
cut back some. And not wait until the last second as what happened to you.

Most other aspects of the transparency is pretty easy to do IMO. Publishing
the burn rate, churn, revenue stats etc isn't really that difficult.
Publishing peoples actual salaries is a little extreme but publishing the
bands and cost of living variances is fair game anywhere. I think when you get
into cash flow and cash on hand is where things get harder for a bootstrapped
business and is the primary reason most don't publish those numbers to
employees until they are quite profitable (if ever).

------
fsk
Actually, there's a competitive advantage to being dishonest if you're close
to insolvency.

If you admit that you only have 2 months of runway left, your employees will
start shopping around. You'll lose your best employees first.

If you keep it a secret, two things can happen:

1\. You raise more money, problem solved! (or market conditions change)

2\. In 2 months, you lay off everyone. Sucks to be them, but you got 2 more
months to try and raise money.

In a nearly insolvent business, dishonesty is a better strategy, because that
maximizes the value of the implied call option if you do turn things around.

There's usually no social penalty for being dishonest. You can always find new
employees.

~~~
sf_angular_dude
fsk, thanks for voicing what may be an "unpopular" opinion. for the sake of
debate, let me provide rebuttal.

in game theory terms, I think you're arguing that the founder's assume all
parties will act only in their self interests, and if they disclose their
financial difficulties, the result will be "Option A", as a result, they
choose to go the "Option B" route, where the founder gets off "free" and the
employees get screwed.

However, I would argue that "Option C" is possible too, where all parties work
together to try to save the ship. I've heard stories of employee's willingly
reducing their salaries to extend runway. I personally am in a financial
situation to do such a thing and would have. For other reasons, I also could
have helped out in a meaningful way with fundraising but wasn't even aware
that such a thing was needed until the day I was fired.

Again, this might be naive, but I do think it's possible in situations where
there is mutual trust and respect amongst employees. I wouldn't be surprised
if there are many stories out there where founders and employees all make
sacrifices to extend runway.

\--

Option A: If A and B each betray the other, each of them serves 2 years in
prison

Option B: If A betrays B but B remains silent, A will be set free and B will
serve 3 years in prison (and vice versa)

Option C: If A and B both remain silent, both of them will only serve 1 year
in prison (on the lesser charge)

[http://en.wikipedia.org/wiki/Prisoner%27s_dilemma](http://en.wikipedia.org/wiki/Prisoner%27s_dilemma)

~~~
fsk
This isn't really a prisoner's dilemma scenario. Why does everyone try to
match a scenario to Prisoner's Dilemma when it doesn't fit.

Consider the payoff matrix for the employee:

Employee finds a new job, old employer fails: +5

Employee finds a new job, old employer succeeds: +5

Employee stays, old employer fails: +0

Employee stays, old employer succeeds: +6 (+10?, +20?)

I wouldn't say finding a new job is equivalent to "defecting".

A better analogy is if the employer really put together an awesome team, and
he hopes to work with them again in the future. In that case, honesty is
better. But that's iterated game theory rather than a single game.

If you play Prisoner's Dilemma once with a complete stranger, you could argue
that the Nash equilibrium is to defect. When you play with the same people
over and over again, then defectors can be punished.

Unfortunately, the modern economy is more like a group of strangers playing
with each other for one game. If you defect, you can always find someone else
gullible to play with next time.

~~~
sf_angular_dude
1\. shouldn't you be looking at the founder's payoff matrix, since they're the
decision maker (wrt to disclose or not to disclose)?

2\. I think you focused on the employee payoff matrix to argue that they'll
always pick to defect. but I would argue that humans have "emotions" and
sometimes even loyalty. like i said, I personally would have stayed the course
and sacrificed some of my "payoff matrix" but never got the chance.

disclaimer: i may have again butchered the theory of prisoner's dilemma, but i
think you get my point so hopefully we can avoid arguing the technicalities of
prisoner's dilemma.

Lastly, I would argue that in startups, this is a game you do want to play
over and over. if you're only hiring expendable, replaceable employees, then
you're probably playing the wrong game, with the disclaimer that I definitely
don't have all the answers and reserve the right to be wrong.

------
mswen
It sucks. Hopefully you will land on your feet. I went through a similar
situation. The founder at least let us know the approximate runway length
before our series A funding would run out. It was clear to everyone as
employees that we were still struggling to get meaningful revenue growth.
Still in the end it was a bit of surprise because it sounded like he had
verbal commitments to do series B funding - and then it all seemed to fade
away over the course of a week and all 12 of us employees got the call on the
same day -- "can't make payroll at regular rate - you will get the minimum
wage required by law and everyone is laid off as of today."

So I would say my boss at the time tried to do the middle road - it was enough
transparency that we weren't surprised at any fundamental level. We had a last
straw hope that then went away. I think that level of transparency helped me
to not to be bitter toward to the founder.

~~~
Spoom
I don't think they can retroactively change your payroll to minimum wage, even
over a single period. I think I would have lawyered up under those
circumstances.

~~~
dangrossman
You can't collect money that doesn't exist. It is normal and legal for
businesses to go out of business while owing people money, and for them to
never get that money. This company couldn't make payroll and laid off all
employees: it's broke and folding. They'll declare bankruptcy, liquidate the
furniture and other assets, distribute whatever they get for it (probably
entirely to secured creditors, not employees), and cease to exist. All the
remaining debt just disappears, and there's nothing a lawyer can do to change
that.

~~~
Spoom
Missing payroll is one of the few items that can pierce the corporate veil.
Laying off employees is one thing; saying that the work they've done over the
last two weeks will now be paid at minimum wage is quite another.

~~~
dangrossman
Actually, so long as you pay minimum wage before folding, there is virtually
no chance a state or federal court would pierce the corporate veil and impose
personal liability. This has been upheld in both California's supreme court
and federal courts. FSLA for example is written broadly enough that a company
officer may be considered an employer and personally liable for FLSA
violations, but only liable to pay _minimum wage_ , not contractual wages and
benefits.

What mswen's employer did would shield them from any personal liability in
California and most every other state.

Here's a good review of the relevant case law on this:
[http://www.latham.com/thoughtLeadership/officers-and-
directo...](http://www.latham.com/thoughtLeadership/officers-and-directors-
personal-liability-for-wages) [PDF]

~~~
greenyoda
But if you retroactively reduce someone's salary to minimum wage, don't they
cease to be "exempt" employees, at which point they're retroactively entitled
to overtime pay?

The Department of Labor says:

 _" Exempt computer employees may be paid at least $455 on a salary basis or
on an hourly basis at a rate not less than $27.63 an hour."_[1]

So the minimum salary to be exempt from overtime is a lot higher than the
federal minimum wage.

[1]
[http://www.dol.gov/whd/regs/compliance/fairpay/fs17g_salary....](http://www.dol.gov/whd/regs/compliance/fairpay/fs17g_salary.htm)

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zippy786
Because most startup founders don't care about their employees. Just like any
other business owners, they have this mentality that developers are tools.
It's the common management mentality that you'll find in any business, most
startup founders learn the same management skills and are no different.

------
brudgers
Getting laid off sucks. And though it in no way lessens the suck for you, it
also sucks for the people doing the layoffs...and since having to lay people
off can be an admission of potential failure of the company, laying people off
can profoundly suck. There's no "they had to do it to me" for an owner laying
off staff. The owner is the doer-it-toer.

Imagine Friday morning, the Owner got the financials, made a decision, and
laid people off in the afternoon. Or maybe they got the financials on Monday,
couldn't close a deal all week, wrote paychecks and on Friday did what they
had been dreading and trying to prevent all week [or month or year].

It's hard enough to be transparent with oneself, we all know that most
startups fail. Sorry to hear about your misfortune.

Good luck.

------
greenyoda
_" Last Friday I was told I wouldn't have a job on Monday."_

I suspect that the same business owner who'd fire all their employees without
notice would be hugely offended if one of their employees would walk into
their office on Friday and announce they were quitting, and would be working
somewhere else as of Monday.

------
AnotherMarc
I agree with the thoughts others have written about fear of losing the best
employees. In addition, I think a lot of managers keep things secret because
they hope to avoid difficult conversations. Also, if there is one person who
you really don't want to share something with for whatever reason, it's tough
to let everyone else in. Those things don't excuse a lack of transparency, but
I think they contribute.

Regardless, absent of some extenuating factor related to performance, no way
should you have been given no notice and no severance. I'm sure they would
have taken it poorly had you (when things were going well) have given them no
notice.

Good luck getting back into the game.

------
MalcolmDiggs
I've found that transparency comes with strength. When you have nothing to
hide, it takes a lot of extra unnecessary effort to be opaque, so you might
tend to lean towards openness.

When you're weak, you lean towards opaqueness and even deception (think Sun
Tzu).

I think it's natural human behavior. So rather than asking "Why not be
transparent?" I'd ask "Why align with a company that is opaque? Isn't that
there way of saying they have something to hide?"

~~~
sf_angular_dude
good point malcolm. i definitely agree with your point on choosing who to
align with -- this process has been a good learning experience on picking the
company you keep.

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andersthue
I have slowly been more and more transparent to my employees during the last
three to four years. Through this opening up process I have realised that the
main reason for not being transparent was my fear of other seeing me as a
failure and my fear of how other judge what I did and how I ran my business.

As my self confidence has grown so has my openess!

------
hippich
startup i was part of was one of these transparent ones. founder told this he
is doing for the first time and this is his 4th or may be 6th company (don't
remember exactly.) Not sure about employee morale - some stayed, some were hit
and left when financial problems came in. But most importantly found told he
will never will do it again, because it cause way more stress than keeping
everything closed..

So... there might be also personal stress management involved.

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a3n
Bidness is bidness, no matter how small.

I hope you had a nice weekend. :)

