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

#1

Post by sf_angular_dude » Mon, Jun 01, 2015, 12:34 PM UTC

Last Friday I was told I wouldn'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'll also have to take my word for it, that it wasn't for performance reasons).

I know that some startups practice openness / transparency with regards to their financial situation and metrics (I don't know them personally, but Buffer seems to be a great example of this).

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).

Perhaps I'm naive (and I know that there are reasons not to be transparent: competition, fear that your customer/employees will jump ship), but I really would've loved to have had the benefit of transparency, and I've always been respectful to my employers (I once stayed on two extra months until we could find my replacement at a prior position).

I guess I'm just curious why more startup founders don't emulate (perhaps not to the same degree) the Buffer model?

Note: I'm a software programmer, and the recruiting market isn't bad, so I hopefully won't be out of the game too long.

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

#2

Post by onion2k » Mon, Jun 01, 2015, 12:53 PM UTC

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.

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

#3

Post by zippy786 » Mon, Jun 01, 2015, 1:02 PM UTC

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.

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

#4

Post by davismwfl » Mon, Jun 01, 2015, 1:06 PM UTC

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).

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

#5

Post by mswen » Mon, Jun 01, 2015, 1:14 PM UTC

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.

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

#6

Post by a3n » Mon, Jun 01, 2015, 1:19 PM UTC

Bidness is bidness, no matter how small.

I hope you had a nice weekend. :)

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

#7

Post by davismwfl » Mon, Jun 01, 2015, 1:41 PM UTC

onion2k wrote: post #2

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…

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.

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

#8

Post by onion2k » Mon, Jun 01, 2015, 2:35 PM UTC

davismwfl wrote: post #7

onion2k wrote: post #2

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…

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. Fund…

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.

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

#9

Post by Spoom » Mon, Jun 01, 2015, 2:40 PM UTC

mswen wrote: post #5

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…

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.

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

#10

Post by dangrossman » Mon, Jun 01, 2015, 2:47 PM UTC

Spoom wrote: post #9

mswen wrote: post #5

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…

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.

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.