The Transparency Trend: Democratizing Company Data

37signals

In May 2003, Reid Hoffman and four co-founders created LinkedIn. Initially, skeptics far outnumbered supporters. Who would want to share their résumé openly? Why would I want everyone to see my personal information?

Fast forward 10.5 years later, and LinkedIn boasts more than 259 million members around the world. The de facto online network for professionals, members openly share their experiences, their education, their skills, and their work. Reid Hoffman and his co-founders changed the paradigm regarding the online resume: Once private and confidential, people now willingly and readily distribute its essence. Along the way, LinkedIn has disrupted the recruiting industry.

That’s terrific for the professionals. But what about their employers? I think a material “Transparency Trend” stews among us. In this post, first I’ll differentiate between internal transparency and external transparency. Second, I’ll share a few companies, both present and past, who are leading the Transparency Trend. Lastly, I’ll discuss what this means for companies and the public, and where it might go from here.

Distinguishing Openness from Transparency

Several companies have a culture of internal transparency, that is, amongst their employees. I refer to this as Openness. For example, Stripe has a practice of allowing the entire company to opt-into all emails. Buffer does something similar, including all employees from the same functional team on emails. Social Finance (SoFi) has a culture where the leadership team discusses their equity structure and fundraising plans with employees. At LinkedIn, every two weeks we hold a Company All Hands, where our CEO discusses the state of the business, upcoming product launches, and takes any questions from our colleagues.

The benefits of Openness are well documented, but best described by Keith Rabois, an investor at Khosla Ventures and former COO of Square:

Ultimately, if you want people to make smart decisions, they need context and all available information. And certainly if you want people to make the same decisions that you would make, but in a more scalable way, you have to give them the same information you have. Complete information also helps reduce the politics in an organization. One of the key drivers of politics in an organization is information asymmetry.

If Openness is the extent to which information is freely shared within a company, then Transparency is the extent to which it’s shared outside the company. This is where I sense a revolution starting to take place, with a few companies at the forefront.

The Visionary Transparent Companies

There are several examples of transparent companies, so I’m likely missing a few from this list. But here are some notable examples of companies that are leading the change, and how they are doing it.

• Buffer. A startup that enables users to share timed posts across social networking services, Buffer is leading the Transparency Trend. For starters, value #2 is “Default to Transparency”. This small but growing team takes transparency to a new level. Every month, CEO Joel Gascoigne shares an update on traction, including revenue, daily active users, new users, and even their bank account balance ($359K for the curious reader). Furthermore, Chief Happiness Officer Carolyn Kopprasch details monthly customer service figures such as volume, speed of response, and customer-satisfaction metrics. If you aren’t impressed yet, consider that Joel also freely answers questions about Buffer’s equity structure and dilution. Finally, in a move that gathered widespread media attention, Buffer posted all of its employees salaries last month. In an era where other startups leave people guessing about their key metrics, it’s incredibly refreshing to see Buffer be so proactively transparent.

• Homebrew. A seed-stage venture capital firm, Homebrew was founded in 2013 by Hunter Walk and Satya Patel. Hunter recently told me that he treats his VC as a startup, and they try to role model the right behavior for their own portfolio companies (nine and growing). To help others in the industry, Hunter shared how Homebrew raised its first fund, including sourcing figures, how to build credibility, and what “no” looks like. He has also discussed how he thinks about investment decisions, how he spends his time (unarguably a VC’s most important resource), and how they lost potential deals. His partner, Satya, revealed rarely-seen insight into Homebrew’s deal flow, sharing the 1.0% success rate across all opportunities evaluated. They are just getting started, too, with plans to track diversity metrics across the founders they meet. Not surprisingly, their portfolio companies are following the Transparency Trend.

• 37signals. A startup that produces a handful of online collaboration apps, 37signals hosts a popular blog called “Signal vs. Noise”. Similar to Buffer, they publish a monthly report card outlining their app up-time and speeds, customer satisfaction, and average service levels. They also detail some operating models, such as their benefits plan. And it’s not always good news, either. Last month, after a major site outage, they published an in-depth post covering the what, the how, and the how-never-again. While they don’t publicly share financial data, they have been profitable every year since launching the company in 1999.

Financial markets require that publicly-traded companies disclose financial data, in addition to some high-level operating figures within a 10-K. Startups like Buffer, Homebrew, and 37signals have absolutely zero obligation to divulge any information to the public. So it’s nothing short of remarkable that they willingly share data and practices that provide an intimate window into their ongoing businesses.

Post-Mortem Transparency

Perhaps equally furthering the transparency shift are companies that fail, then share their lessons learned in a “founders-tell-all” style. A few examples of these companies and the insights they shared:

• Plancast: Mark Hendrickson outlined the “fundamental flaws” inherent in the events space (specifically, low sharing frequency and limited consumption, few incentives to share attendance, privacy concerns, among others).
• DrawQuest: Chris Poole shared details about engagement (1.4M downloads and 400K MAUs), but confessed that he couldn’t quite crack monetization.
• Outbox: Will Davis and Evan Baehr announced earlier this month that Outbox’s mail service was shutting down. In their tell-all post, they shared their audacious plans to revolutionize mail, but also the unexpected challenges along the way (e.g., $50 cost-per-lead vs. $20 CPL projection, increased delivery costs, and high regulatory hurdles).

The common thread throughout these examples is the founders’ willingness to admit the key challenges they faced. There is no doubt the next companies that enter these markets will benefit from this shared knowledge.

The Democratization of Information

The Transparency Trend benefits both the open companies themselves and the public. Transparent companies generally are more open internally, leading to a more effective team culture. Leo Widrich, co-founder and COO of Buffer, told me that “being transparent removes uncertainty within the team?—?there’s no question of what we can share.” Furthermore, when a company is transparent, it enables others to provide counsel on how they have tackled similar issues. Transparency can also improve recruiting?—?when Buffer announced their open salaries in December, applications more than doubled over the previous month, with higher quality candidates to boot. Finally, time will tell, but I believe transparency would correlate strongly with integrity. A company that openly and willingly shares information seems much less likely to be swayed by temptations to “massage the message” or misrepresent themselves.

The general public benefits from the transparent companies, too. While first-hand experience is generally the best education, wisdom shared by a failed startup could perhaps prevent some headache for other founders. Understanding operating metrics of peer companies could help with bench-marking and discovering best practices. This increased awareness can lead to better decision-making for other founders and employees alike. Transparent companies are pushing the envelope, helping advance the accessibility of information to all.

What’s Next for The Transparency Trend

Similar to LinkedIn ten years ago, the Transparency Trend is still in early days. Longer-term, I believe the trend’s fate may strongly tie to the success of the visionary companies that are currently leading the way. If they fail, critics may be quick to point out any potential role transparency may have played in their demise. As Semil Shah of Haywire noted, there could be risk in freely sharing operating stats, including having so-called experts (potentially incorrectly) dissect the figures to find any kind of fault. I agree no one likes to brag about mediocre performance figures, so maybe sharing doesn’t make sense for startups still looking for product-market fit. But that still leaves a large number of growing firms that could reasonably be more transparent.

If the visionary companies thrive, though, they will be the business school case studies of how a company can be both transparent and successful. Even more importantly, these companies may catalyze a revolution in how firms think about openness and transparency. Companies like Mattermark or AngelList may become troves of startup data, willingly shared by the companies themselves. The knowledge exchanged may shorten lead time to market and dramatically reduce failure rates. Much longer term, regulators may loosen requirements for publicly-traded companies to stay silent during key periods, in order to further democratize information. Time will tell, but I know I will be rooting for the companies leading the Transparency Trend.

Thanks to Hunter Walk, Zal Bilimoria, Leo Widrich, and Mary Lemmer for reviewing drafts.

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