“Whatever you do, never, ever lie,” I said to the large group of startup CEOs I was talking to. Then, I continued and said, “It’s much better to say, ‘I don’t know the answer. I’ll get back to you,’ then to lie.”
I was explaining to the group how to raise money for their startups. And I was helping them understand the momentum you gain by answering investors questions on the spot, when you have a captive audience.
However, I was worried that some of the startup CEOs would take the wrong meaning from what I was saying. In their zeal to answer every question potential investors had, they might assume they should just make up an answer.
That why I told them to never, ever lie.
Strong business relationships are built on trust.
The second you lie to your investors, you’re damaging, to say it nicely, the trust between you and your potential investors. If you get found out, no matter how innocent the lie might appear, you’re done.
Let me give you an example.
About one month after joining my fledgling startup, my second VP Engineering, “Julius,” quit. He said his heart wasn’t in it.
I asked him to stick around for the next few weeks and think about whether he truly wanted to leave. Julius agreed.
At the same time, we were in the middle of raising our initial funding, and we were getting interest from many of the VC funds we were presenting to.
A partner at one of the funds that was interested in investing in us asked me to have lunch with him at Bucks in Woodside. Personally, I hate Bucks because it’s loud and the food sucks, but a lot of VCs love Bucks because it’s close to Sand Hill Road, so there we were having lunch at Bucks.
Halfway through lunch, the VC asked me, “Is Julius still part of your company?”
Right there, I had a choice. I could be brutally honest and tell him that Julius was thinking of leaving, or I could tell him that Julius was still part of the company.
I choose to tell him that Julius was still part of the company. And that was the last I ever heard from that VC.
Now, I don’t know if his fund would have invested if I had been brutally honest and told him Julius was thinking of leaving. I do know that he had learned in his quick checking on me and my team, at a minimum, that Julius was at least thinking of leaving.
The trust had been broken, and I had failed the test.
Once you break the trust between you and your investors, it is over.
It was a stupid move on my part. It was my chance to build trust between me and my potential investor.
The worst thing he could say to me was, “I really like you and your company, but you need a VP Engineering before we invest. Keep me posted on your progress and come back when you find Julius’ replacement.
About five months later we were pitching another fund, and the investor, Jack, loved us. But, he said to me, “I’m somewhat comfortable with you being the VP Engineering, but I think I’ll wait to invest until you hire a VP Engineering.”
I appreciated Jack’s honesty. And a few weeks later, fortunately, I had come to an agreement with Jeroen to join us as our VP Engineering.
I sent Jack Jeroen’s resume, and I let him know that Jeroen had joined us as VP Engineering. Jack immediately wrote back that he would like to meet Jeroen.
A week later we had a term sheet from Jack.
Once you break the trust between you and your customers, it is over too.
You’re going to have problems when you start shipping your products, whatever it might be, to your customers. Just take this as a given.
The key will be how will you communicate these problems with your customers?
I learned a great lesson on customer communications early in my career from Bill Levin. Bill was a Vice President at Maxim Integrated Products, and, at the time, Maxim was suffering through missing customer deliveries. And when you miss customer deliveries, customers can’t manufacture their boxes, leading to irate customers.
Bill’s philosophy was what he called being “open kimono”. He never sugar coated anything.
In fact, Bill would do just the opposite. He would over-communicate, be open kimono, and explain everything we were doing, in excruciating detail, about when the customer would receive their products.
Then, Bill would follow up with the customer every single day until the customer received their parts. The customers were still upset that we missed the delivery, but they appreciated the honesty.
In some cases, the damage caused us to lose a customer forever. However, I am certain Bill’s actions kept us from losing even more customers.
Once you break the trust between you and your employees, it is over.
Okay, one more story.
Years ago, I had a young employee that showed a lot of promise named Matt. He was smart, hard working, and he had an inquisitive mind.
I felt that Matt had the potential to go far. However, Matt still had a long way to go before he was ready to be promoted to the next level.
I gave Matt his review about one year after he started working for me. My review was glowing, but I didn’t promote him.
Matt was clearly disappointed, and he let me know it. I explained my reasoning to Matt, “I want you to earn this promotion, not be given this promotion.”
I know Matt didn’t like my message, but Matt understood my message. He dug in and kept improving.
Over the next several years, Matt rose through the ranks and became Executive Vice President at the company. Then, he was offered the CEO position of another public company in the same market segment. That company has quadrupled in value and is now worth over $50 billion.
I don’t know if his career would have taken the same ark if I had promoted him (Matt tells me it would have :-), but I do know I’ve been able to maintain a good relationship with him to this day by being honest.