Another quarter just ended. Whether it was one of your best or one of your worst, your investors and board are eager to hear from you. They want to know how your business is performing, what opportunities and challenges you’re currently facing, and, above all, how they can provide support. And while that’s a very reasonable expectation, given that many of your board members have invested in your business, the reality is that most early-stage companies are terrible at communicating with their investors and board members.
In my experience, less than 10% of seed-stage companies do a good job of even meeting the baseline expectation of providing a quarterly update. The truth is that most don’t communicate at all unless they’re about to raise another round of capital. Even then, what they share doesn’t tell board members what they actually need to know. While that’s problematic under any circumstances, in the current environment, it can lead to real problems down the road.
What you’re communicating by not communicating
CEOs often find different reasons to justify not updating their boards. Some might be too busy. Others might be unsure about what information to share or fearful of reporting anything less than stellar progress. No matter what the reason, a lack of communication can lead your investors to believe, rightly or wrongly, that they’re dealing with a CEO who doesn’t care, doesn’t understand key business drivers or what milestones need to be hit to get to the next round, or who lacks the necessary discipline to follow through.
Simply put, when CEOs don’t provide regular updates to their board, they’re actually conveying a lot more than they might think about their propensity to be successful leaders.
A change in the economy can reset expectations
Over the past 13-year bull run, the markets grew, money flowed, and the rising tide lifted all boats. Most seed-stage CEOs didn’t feel that they needed a board and saw it as an unnecessary appendage. They didn’t see the need to communicate effectively and probably didn’t care much about how their lack of communication was perceived. And if an investor or a board member asked for updates, it was ignored. Term sheets were soft and had no meaningful clauses, as these were generally seen as a big no-no.
In the current environment, by contrast, where the pendulum has swung back and the faucets have been shut down, companies are running out of money. Panicked founders are calling all the time.
The primary attributes of effective investor communication
While delivering quarterly reports is the absolute minimum communication, in reality, you should be emailing your board with an update at least once a month. Some CEOs we work with prefer to do so on a weekly basis because that’s what works best for them. No matter what cadence you choose, what’s important is to ensure that your updates are:
- Crisp. Everyone is busy. Readers want concise updates that convey the most important information. Take a look at this monthly summary, sent out consistently each month, without missing a beat. In it, there is no ambiguity on three key metrics: revenue, churn, and cash balance. Any investor can deduce the health of this company very quickly based on this summary.
- Timely. I’d aspire to communicate once a month, and at a minimum, once a quarter. Timely updates can get timely engagement from investors, accelerating your growth. In the above example, the CEO has been sending out his update each month, without fail, since he started the company. He never provided lame excuses and, even when the company was pre-revenue, he always shared his top three points on his customers, his product, and his company’s cash situation.
- Transparent. Many founders fear being criticized or even replaced if they share bad news. What they often fail to appreciate is that we’re all on the same team, that we’re rooting for everyone’s success, and that we can only be helpful to them when they’re open and honest. Take a look at the update below from the CEO of a six-month-old startup. It shows two things: 1) They are self-aware that the rate of customer attraction is not ideal and are comfortable enough to share as much without fear of retribution. 2) They are taking action to fix the problem. Such authenticity only endears the CEO, the team, and investors to fight for the common cause that we all agreed upon — to build a business, and to build it fast.
- Consistent. Adopting a consistent format for communicating about different areas of the business, including standardized reporting of key metrics and financials, makes it easier for board members to digest the information you share.
In addition to having these attributes, regular updates should include a few key elements. First, the company’s latest revenue and customer numbers and their performance against the plan. Always provide some narrative with these numbers to help put them in context. Next, investors will want to know how much cash you have in the bank. This isn’t a question of profitability, but rather cash flow. They want to know exactly how long you have until you run out of money. Finally, they want to know about team dynamics. How’s your culture developing? What’s your marketing or your finance team up to? Are there key hires you are looking to make that board members can help with? And what are your goals for the next quarter and the next year? This kind of information helps us get a better sense of how things are running inside the business.
To be clear, this isn’t an exhaustive list of what to include in an update. Rather, it’s meant to indicate the types of information board members are looking for. They will likely also want to hear about what you did well and what you didn’t do well, about your products, and about your customers. Ask your board members what kind of information is most helpful and to provide feedback on your communications so that you can continuously work on improving them.
Good communication makes all the difference
When CEOs who communicate well call us, we’ll drop everything to help them. They have earned our trust and respect. We often find ourselves either talking or texting with some of them every single week. In our view, that’s the high watermark for good communication. Of course, that’s not the only option. We also have CEOs in our portfolio who we only talk to once a year. While that might sound like a recipe for disaster, it actually works out just fine because they send regular high-quality updates so that we’re getting all of the information we need. Take a look at the annual letters sent by Jeff Bezos since 1997, and now from Andy Jassy since the transition. Each has their style, but they show performance, attention, and care.
On the other side of the coin, if there’s no communication or we’re constantly having to nudge CEOs for an update, there’s typically no trust or respect. We’re totally in the dark and have no idea how to help them. That undermines any board’s ability to support the CEO and help ensure the business’s success.
Let’s be honest. Everyone needs help from time to time. One of the reasons boards exist is to provide that help, but they can only do so when you keep them well-informed. So I’ll end by referring you back to the title of this post: The quarter just ended. Did you share the highlights with your stakeholders?
Mahendra Ramsinghani is the founder of Secure Octane, an early-stage venture fund based in San Francisco focused on cybersecurity. He has invested in over 50 early-stage companies in the United States, Israel, and India and has also co-authored three books, including Startup Boards: Getting the Most out of Your Board
of Directors. In this post, he explains the importance of investor and board communications.