Radical transparency has its limits when it comes to a startup’s bad news

Real transparency or pseudo transparency?
Real transparency or pseudo transparency?
Image: Buffer
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Buffer is a pioneer in the ”radical transparency” movement. The social media management startup makes internal data—including salaries and real-time revenue—readily available to the public. It frequently posts about company metrics and organizational inner workings. The approach has sparked a broader conversation around transparency and other companies have followed suit. But when Buffer announced that it laid off 11% of its 94-person staff earlier this month, the news seemed to come out of nowhere. Transparency has its limits, apparently.

“I don’t feel that we fully lived up to our value of transparency, specifically to share early in order to avoid a big revelation later,” Buffer CEO Joel Gascoigne wrote in his announcement about the layoffs.

Just over a month ago Buffer’s PR strategist pitched Quartz about how the team had hit $10 million in annual recurring revenue. The employee noted a few other milestones: 3 million customers; 50,000 paying subscribers; 90 employees; over 600 million posts Buffered.

Taken out of context these are vanity metrics. While the company’s revenue continued to grow, its expenses were rising, too (Gascoigne points to salaries as making up 80% of the operating expenses).

According to the Buffer co-founders, the missing piece was that they didn’t know what their burn rate should be—that is, how much money they could burn through in a month before they needed to be concerned.

Many Silicon Valley startups have gotten by for a while with high burn rates and business models that don’t show a clear path to profitability because the fundraising environment has been so favorable. However, that’s changing. Buffer indicated that it wanted to avoid raising more money right now, which would otherwise be a solution to at least temporarily fix the problem and avoid layoffs.

Gascoigne noted that in the last few weeks he and the rest of the executive team debated whether to go through with the layoffs over several 5-hour meetings. They were closed-door conversations that led to “feelings of guilt, sadness and fear” all throughout the company.

Transparency is fundamentally a good thing. Keeping people in the loop can make them feel more connected to the company. It can also give recruiting a boost (after Buffer released its salaries, it was inundated with resumes), and attract useful feedback that can improve the business.

But for all of its aspirations, radical transparency is nearly impossible—there are legal reasons to keep some information closed, and knowing when to share sensitive data is a grey area. Buffer co-founder Leo Widrich shared with Quartz that the company has improved its financial model to predict the company’s health, which all team members have access to. They also didn’t ask their departing employees to sign blanket non-disclosure agreements concerning the cash-flow crisis.

Before the company grew exponentially, Buffer experimented with a version of Holacracy, a tool designed to move companies into self-organization. The company eliminated managers, and employees were given more freedom and ownership. Ultimately, Buffer decided that the amount of freedom and lack of guidance was too overwhelming.

Buffer’s management experiments offer a lens into human nature. Most of us gravitate toward hierarchy and crave some degree of privacy. We’re also inclined to show our best side to the world, and hide our struggles. Buffer maintains that its strategy around transparency is about pushing the company and others to operate with more integrity.

However, many of the startups that have joined the transparency movement are only embracing pseudo-transparency—that is, pushing their product and services under the guise of being open and honest. Authentic transparency is being transparent when things aren’t going the way you want them to. Otherwise, it’s just PR.