“Brett, I want to share with you what the CEO of ‘Company X’ (a well known public company) said at the investor conference I went to,” Jack Gifford, Maxim’s CEO said to me. Then he barked at me, “Take some notes.”
Company X was the main competitor of the division I was running for Maxim at the time, so I was really interested in what Gifford was going to share with me. Jack started telling me the information he heard. “The CEO says their products are in optical modules made by Lucent, Nortel, Alcatel…”
I interrupted Gifford and said, “Jack, that’s not right. We’re getting all of these companies business. We’ve never run across Company X at any of these customers. Are you sure?”
Gifford gave me one of his patented looks of displeasure. Even though he was short in stature, Gifford could be quite intimidating and this was one of those times. Then he said, “Look. This is the kind of stuff you go to jail for if you lie!”
You may not go to jail if you lie to your investors, but your lifespan as CEO will likely be very short.
I knew I was right about Company X because we had extremely good relationships with all our major customers. And when you’re tight with your customers, you know what’s going on even if it’s not what you want to hear.
At the time, Company X was a darling of Wall Street, and their stock was trading at a crazy multiple. I wondered if Jack simply misunderstood what the CEO was saying. But he was adamant that we were likely losing business.
Fortunately, as was Gifford’s style, he never asked me about Company X again. That was good because we never could find evidence that they were stealing any of our business.
Then, about 18 months later, Company X’s stock dropped by 35% after a disappointing earnings call. A few months later Company X’s CEO was forced to resign.
When you’re a startup CEO, you never want to surprise or mislead your investors or board of directors.
Years later, I was meeting with my friend and mentor Dave. I had just started my company, and I was preparing for my first board meeting.
Dave said to me, “Never surprise your board.” I nodded my head because Dave’s advice sounded sage. Then, I asked Dave, “What do you mean?”
Dave smiled and said, “Never spring bad news that your board is unaware of in a board meeting. Instead, you should meet with each board member one on one and let them know in a private setting.”
I remembered the incident with the CEO of Company X, so I told Dave the story. I said, “So what you’re saying is that at all costs you don’t ever want to lose credibility with your board like Company X’s CEO did.”
Dave smiled and said, “Exactly!” Then he paused, drank some of his coffee and said, “You’re going to make mistakes. That’s a given. And, trust me, your board is expecting you to make mistakes.
“But you will lose their trust and you’ll never get it back if you mislead them.”
Your credibility isn’t a switch you can turn on and off.
A few years ago, I was working with a CEO named “James.” We were going through our bi-weekly review of his company. The revenue was growing, and the company should have been cash flow positive.
In fact, cash from operations was growing, so it didn’t make any sense why James’ net cash position was dropping. Then James gave me the answer. “My wife wants me to repay the second mortgage on our home.”
“But there’s no loan on the books,” I said. “You can’t just take money out of the company. You have shareholders.”
‘You don’t understand. We have to pay off that mortgage.”
“I understand what you want to do, but you can’t do it that way. You’re embezzling money from your company.”
Just like that James had lost all his credibility with me. It didn’t matter what he said or did after that because I could no longer trust him.
It doesn’t matter how much pressure you are under. It doesn’t matter how much you rationalize to yourself that you’ll make things right eventually. Your investors will eventually find out you’re lying to them. And you will not be CEO any more when they do find out.
For more, read: 7 Survival Tips For Startup CEOs