Sharing concerns with the board – don’t scare your non-execs unnecessarily

Bad news and emerging concerns over key aspects of the business are facts of life at startups. It’s right and proper that these are shared with the board, but there’s a good way to do that and a bad way. I’ve seen both over recent months and thought I’d share my reflections on what works.

Bad news doesn’t keep and should always be communicated to the Board at the next appropriate opportunity. Usually you will do that at your next board meeting. It’s best to present the unvarnished facts, followed by an assessment of what that means for the business and a description of actions being taken as a result. If the news is that you’ve lost a major client, the statement of fact should include detail of why they went and lost revenues, the assessment of what it means for the business might be an update of forecast revenues for the year, and the actions might be to check in with other key customers to make sure they don’t have the same issue.

In the hopefully rare situation that the bad news threatens the existence of the business (e.g. the major client represented 50% of revenues and the company now expects to run out of cash imminently) then the news should be communicated within a day or two.

Varnishing the facts or dismissing the news as insignificant without sharing details can leave the Board wondering if the seriousness of the situation has been understood and whether the company is reacting appropriately. That’s when difficult questions start coming thick and fast and trust can disappear. Nobody wants that.

That said, remember not to unnecessarily scare your Board. It’s easy to take bad news to heart and erroneously feel that bouncing back will be hard, or to over-estimate the chances of a downward spiral. Take a little time to make an objective assessment of the impact on the business. As a non-exec you want to see that the gravity of the situation is understood, but not that the company is over-reacting.

When a series of small unwanted developments are leading you to question a key element of your strategy it’s important to tread particularly carefully. Remember that one of the key jobs of the Board is to agree strategy, and individual directors are often personally invested in the status quo. This is especially likely to be true of investor directors who have told their partners that the previously agreed strategic direction is likely to generate significant success. It’s still important to have the discussion, but in this case it’s hard to describe the facts themselves and their impact is often somewhat nebulous. That makes it hard to frame the debate in writing in a board pack, and it’s often best to pick up the phone or talk through the issues in person before putting them on paper.