December 8, 2005
Counter Cliche: How Much Paranoia is Too Much Paranoia?
Fred’s VC cliche of the week this week, Opening the Kimono, is a good one. He talks about how much entrepreneurs should and should not disclose when talking to VCs and big partners — companies like Microsoft or Google, for example.
In response to another of Fred’s weekly cliche postings back in April, I addressed the issue of opening the kimono with VCs in this posting entitled Promiscuity. But today’s topic is the opposite of promiscuity, it’s paranoia.
I was talking with a friend a few months back who’s a friend and fellow CEO of a high profile, larger company in a similar space to Return Path. He was obsessing about the secrecy surrounding the size of his business and wouldn’t tell me (a friend) how much revenue his company had, even within a $20mm band.
He pursued this secrecy pretty far. He never shared financials with his employees. He never told anyone the metrics, not even his close friends and family. He even withdrew his company from consideration for a high-profile award for growth companies which it had entered into and won in prior years since someone might be able to string together enough years of data to compute their size.
Why? Because he didn’t want any venture capitalists to figure out how big they had gotten and decide to throw money at upstart competitors. Talk about a closed kimono!
I’m much more open book than that with Return Path, but I have a tremendous amount of respect for this guy, so I gave the matter some thought. There are certainly some situations which call for discretion, but I couldn’t come up with too many that would drive my guiding principle to be secrecy.
1. Being “open book” with employees is essential. Your people need to know where the business stands and how their efforts are contributing to the whole. More important, they need to know that you trust them.
2. Using some key metrics to promote your company can be very helpful. I challenge you to show me a marketing person who doesn’t want to brag about how big you are, how many customers you have, what market share you have.
3. There’s no reason to worry about Venture Capitalists. Sure, they can fund a competitor, but they’ll do that without knowing exactly how much revenue you have, how quickly. The good ones are good at sniffing out market opporunities ahead of time. The bad ones, you care about less anyway.
4. All that said, you can never be paranoid enough about the competition. Assume they’re all out to get you at every turn, that they’re smarter, richer, quicker, and better looking than you are. Live in fear of them eating your lunch.
Paranoia is healthy (just ask Andy Grove), but it does have its limits around the basics of your business, and around how you treat employees.