Radical transparency is changing entire industries as more and more companies are choosing to operate in the open, including a growing number of tech startups.
The working thesis for radical transparency is simple: if markets are healthier when information is perfectly distributed, companies that openly share their vital information must also be healthier. Customers can trust that radically transparent companies will make good on their promises and employees will know exactly where they stand. Everyone wins. Or do they?
In June, Buffer co-founder Joel Gascoigne announced in a blog post that he'd laid off 10 people — 11 percent of the company's workforce.
Buffer, which makes software for sharing to social networks, is one of the loudest and most visible proponents of radical transparency, and yet embracing it didn't stop management from moving "into a house that we couldn't afford with our monthly paycheck," Gascoigne writes. Operating in the open didn't lead to operational excellence. Isn't this exactly the outcome radical transparency is supposed to help entrepreneurs avoid?
That's the wrong way to think about it, Yesware CEO Matthew Bellows says.
Be Transparent Untill It Hurts
"Being transparent does not mean that you won't make mistakes," Bellows says. "I would argue that it reduces the chances of you making mistakes, but it certainly is not an answer for it."
Buffer's Gascoigne can attest to that. After years of growing revenue faster than expenses, the company suffered an unexpected slowdown last year. Cutting costs and staff became necessary. To his credit, Gascoigne took full responsibility in the post. "I had poor judgement and took the wrong actions in many different areas," he writes, going to detail the corrective actions taken since. Buffer is once again on track to be cash-flow positive.
Bellows considers Yesware, which helps salespeople make better use of email, to be a radically transparent company, but wonders whether the world needed to know all the details of Buffer's mistakes. In contrast, Bellows and his team set limits on what they share with the wider public. Salaries remain private, for example.
Also, when asked about revenue and earnings, Bellows would only say that Yesware generates "over $10 million" in annual revenue. Buffer, by contrast, publishes its monthly recurring revenue for all to see ($887,051 as of this writing).
"To me, [radical transparency] means to be transparent until it hurts," Bellows says. "You have to be willing to share things that make you uncomfortable, because that discomfort means that you're actually pushing the conversation into difficult places."
What's that look like? Bellows shared six key principles about radical transparency in a recent interview with First Round Review — rumor management, responsibility, performance, context, and trust. Each principle, he says, is aimed at giving everyone with a stake — employees, investors, but not necessarily the general public — the clearest possible version of the truth about Yesware's current position and future aims.
"Just being transparent in terms of sending out all the data is actually not that powerful," Bellows says. "Because the data is only comprehensible in context of the history, the market, the plans, and so on. To be transparent, to be really effectively transparent, you need to not just share the data but also share the context of the data. That takes a dialog."
Develop Processes That Scale
Can founders really be expected to spend time regularly talking with team members to assuage concerns and answer questions? What about when the company grows from 20 to 100 people? Can radical transparency work at that size?
At Yesware, Bellows devised a two-tiered system to scale radical transparency. Factual data such as whether or not the company beat its quarterly target is pushed to all employees. The details of more nuanced decisions such as the strategy for a strategic investment are shared only with Bellows' direct reports, who are then responsible for setting context as needed. Yesware remains radically transparent but how information is delivered and consumed changes.
"In order to make [radical transparency] comprehensible at a broad level, we can't share everything immediately," Bellows says. "We have to share some things for everybody and then say: If you've got any questions talk to your manager or come talk to me and let me set the context."
For now, that works. Scaling from a team of about 100 people to over 1,000 may be a different story. At that point, delivering proper context could become too much like a game of telephone in which the story changes materially as it travels down the line from executives to front-line workers. Giving all Yesware employees the ability to pull data and then ask questions should alleviate that, Bellows says.
Hire People Comfortable With Radical Transparency
Hiring the right people also makes a difference in how well radical transparency scales, says John O'Nolan, cofounder and CEO of Ghost, which makes a popular open source publishing platform.
"We've had a couple of different people where it wasn't their direct job to be working on metrics but who noticed that there was a drop-off between two steps of the funnel, which led to them figuring out that one of our sets of onboarding emails weren't sending," O'Nolan says. "That led to a bug being fixed, which led to a lot of new revenue."
Bellows says he's seen the same dynamic at Yesware, though some new hires can grow weary of radical transparency — even if they've been warned to expect it.
"They want to be in a place where the roles are more established and the things you can and cannot talk about are well-defined," Bellows says. "That's cost us in terms of time and energy spent. But I also think it's a good price to pay, honestly, to create a good work environment for everybody else."
How can founders mitigate the risk of a bad hire when building a team? O'Nolan advises entrepreneurs to first take stock of whether radical transparency makes sense for the type of business they're in. If the answer is "yes," hire those who share the vision.
"We're working on widely available, open source consumer tech, and we've consistently found that the more open we are, the more collaboration and help that we get from outside. That has fixed many more bugs than it has ever created," O'Nolan says.
And what of Buffer's Gascoigne? Can we expect his company to be more careful about what it shares in the months and years to come? Not likely. "It's our privilege to learn from our advisors, friends, and community every step of the way as we share our journey — the highs as well as the lows," Gascoigne writes. "Right now more than ever, I'm keen to keep sharing and learning."
