berkus_ventures_300ppi copy

Berkonomics

Create stakeholder loyalty when times are good.

          There are several times when stakeholder loyalty is tested to the limit.  For employees, a late or missed payroll is the ultimate test of corporate loyalty, divorced even from an employee’s ability to make do without a paycheck.  For investors, a subsequent down round at a lower valuation than the last, or an exit opportunity at a loss are all opportunities for the affected stakeholder to show a side that can sometimes shock an entrepreneur or CEO.  Managers almost always believe that stakeholders understand the pressures of the business and the circumstance of the present. 

          The truth is that many employees merely make a simple pact: timely pay for time in service.  If there is no closer connection to the corporation, when times are tough for any reason, it is these employees that make it tough for management to gain understanding and consent for actions that must be made such as missing payrolls, making layoffs, or abandoning pre-announced plans.  And it is that disconnected employee, usually one or more of the better performers, that starts looking for a job when times look bad for a company.

[Email readers…continue here]   Sometimes a secondary fund-raising effort leads to a lower valuation than the last.  Although the investment documents from the previous round call for each investor group to vote as a class for or against new rounds of funding, in a contentious environment even a company in desperate need of new funding may find itself warring with its investors.  I have seen investors allow a company to die, rather than suffer the massive dilution of an offer by a new investor.

          And I have seen good offers from buyers of a company blocked by investors whose vote is needed to enable any such transaction, usually because these later investors would have a less-than-stellar exit with the sale, even if the founders would make out extremely well.  That one hurts early investors and founders more than perhaps any other action by investors.

          The message here is simple.  By keeping stakeholders close with constant information as to the progress and even stressful setbacks, and by never withholding bad news, stakeholders will be in a much better position to understand necessary actions by senior management, and accede to decisions made in the best interest of the company, even at the expense of self.  This kind of loyalty is never created during the bad times when everyone is thinking only of protecting self.  Take advantage of the good times to build such loyalty.

  • One of the tests of leadership may be the power to recognize a difficulty before it is deemed an emergency.
    Have a look at growth, have a look at the time people invest in the internet and look at all of the things that they’re doing. To make sure really good, therefore i am actually encouraged with the fundamentals that underlie usage growth on the internet.

  • Dave,

    Great advice. It’s all too easy to forget that outsiders, particularly investors, have no sense of the day to day struggles at a company.

    Often, communication is sabotaged by a sincere desire to do it “perfectly”. Frequent, simpler communication with both employees and investors is the solution.

    Steve

  • Tom Bnag

    Dave,

    WOW! Been there done that. Ha! As always sage advise. Communicate…always.

    Tom

Leave a Reply

Your email address will not be published. Required fields are marked *

Share

Sign up for
Dave's weekly emails

Most Recent Posts

Category