EF Staff

October 26, 2015

Several years ago, Joe and I ran our company very differently. We approached business from a secretive “don’t feed your competitors” approach. We kept everything – from our business processes, to our clients and salaries – close to the vest because we thought it gave us a competitive advantage.

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As it turns out, we actually lost out on a lot of opportunities with this approach. After making the swap to a more transparent business model, we have significantly expanded our horizons, and are now getting opportunities that we never thought possible.

So when did this transparency movement begin?

Why does it matter and how can you benefit from it?

When It All Began

For decades now, many companies have been internally transparent. Information like salaries and quarterly profits are openly available to employees. In fact, Whole Foods was the first to introduce an internal transparency policy. Their Co-CEO, John Mackey, launched their open salary policy in 1986, just six years after the company was founded.

Why?

Because he wanted his employees to understand what sort of actions and achievements deserved (and received) a higher salary. The result was a more motivated and trusted community of workers.

While it may have taken years for companies to take action, the conversation surrounding external transparency started long before that.

Customers and consumers began setting the bar higher and questioning the products they were paying for. Not only did they want to know what was in the product, but they began asking how it was made, who was making it, and how you were treating your employees and contractors.

They were demanding full disclosure.

At some point, it seems businesses realized the conversation was going to continue until they delivered the information. Around 2013, we began seeing more companies and businesses picking up on the transparent business model, most notably Buffer, Groove, and Baremetrics.

These companies began sharing everything from traffic and finances, to salaries, open-source coding, and even the books their employees were reading.

Internal transparency clearly made a positive impact on Whole Foods’ business, so why did it take several more years for companies to adopt this principle and become more externally transparent?

Why It Matters

Back in the day, it seemed like building a profitable brand (though not necessarily a successful or long-lived one) used to only require advertising — a controlled message and an overwhelming representation of the stakeholder, not the consumer. In other words, it required hype. And plenty of it.

The problem with hype is that it doesn’t expose the staggering 90% failure rate that new startups experience. From the startup’s perspective, it doesn’t project the reality of what a new business looks like; and for consumers, it leaves them investing in a potentially failing business.

The abrupt pausing of Zirtual’s business operations comes to mind.

Zirtual’s CEO, Maren Kate Donovan, withheld the fact that their burn rate was consuming funds faster than they could create profit. The result was 400 employees finding out they lost their jobs via email one Monday morning, and their entire client base was left in a lurch.

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Perhaps the most disturbing fact in this case is that Donovan was featured on the podcast This Week In Startups that weekend, and didn’t say a peep about the company shutting down.

In this case and many others, transparency could have been eye opening in many aspects. It could have prevented new clients from paying for a service that would be closed down in days. It would have shown that their current business model was not sustainable and required re-jigging. It also could have allowed employees to secure their future, even if that meant finding a new position.

Ultimately, transparency — for both customer and company — creates accountability and confidence. Something we could all benefit from.

The Risks

Plenty of potential risks exist when adopting the transparency model — most notably, scrutiny.

By allowing the public to see your numbers, you risk losing out on potential customers. If you are experiencing a high burn rate (as was the case with Zirtual), this will make your numbers look bad. What potential customers may not see are the changes you are making to the business to decrease the burn rate and increase profitability.

The most common risk factor many businesses fear is an increase in competition. They worry competitors will steal their ideas and processes and then become more successful. While this could be true, if you are genuine and true to your customers, you can prevail.

The Benefits

Risks aside, this new business model definitely has the potential to create a positive impact on your business, like it has ours.

As I mentioned earlier, the more open and transparent Empire Flippers becomes, the better our business does.

We’ve been sharing our monthly business reports for years now and have opened up about our struggles and successes in blog postsand podcasts. That has allowed us to build  a large amount of trust in an industry where trust is critical.

Aside from Empire Flippers, we’ve seen benefits to other businesses applying this transparent model as well.

The honesty in opening up Baremetrics’ dashboard bred confidence in their product. Groove’s openness surrounding their journey to a $100k business and Buffer’s Open Blog rewarded both businesses with plenty of attention in the press and allowed them to engage their customers in a new and profitable manner.

The biggest takeaway is that transparency opens the door to new opportunities and can help you build a loyal customer base.

So tell me: Do you still believe that leveraging secrecy will lead to your business or company’s success, or do you believe in the power of transparency?


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Discussion
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  1. Damian says:

    IT WILL NEVER WORK. No one really makes money on the Interwebz!

    ;)

    Great article mate, I dig the approach. I think you can be transparent without income reports or sharing EVERY single detail of your business (expenses for example, etc.)

    But as an approach to be honest, trustworthy, and open is the way to go.

    • Justin Cooke says:

      Thanks, man!

      Yeah, who are these online, money-making jokers. :-)

      We normally hold back when we’re in the MIDDLE of a crisis or issue, but typically report on it after-the-fact, heh.

  2. Great post — transparency is something we are working on implementing at every level in our company as well.

    One of the biggest motivators for us was watching the documentary The Naked Brand together. (It’s on Hulu for free, here’s a link: http://www.hulu.com/watch/476247)

    Also, the director and entrepreneur behind that team has a great conversation with Hubspot’s CEO on their podcast The Growth Show.

    Thanks for continuing to push towards Transparency!

  3. Kae Kohl says:

    This is a scary concept, but an important one. Zirtual’s act of leaving so many employees and customers in the lurch is just unconscionable. Even their announcement was wrong (its, not it’s, people!) Heh.

    I’m definitely going to check out The Naked Brand. Thanks, Alex! Are there any more resources that people recommend to help in this journey toward transparency?

    In other news, we missed EF at Rhodium! Maybe next year?

    Best, Kae

    • Justin Cooke says:

      Hey Kae!

      Totally agree regarding Zirtual. I was watching as that went down – I went back and listened to that TWIST episode – crazy stuff. I know someone who was burned by them, has a large audience, and ranted about it a bit online. I know they were recently bought – will be interesting to see how that plays out.

      Bummed about Rhodium this year, but just couldn’t make it. Had a BLAST hanging out with you last year. We were in TEARS in the car back – Justin Gilchrist was cracking us up, hehe.

  4. Pedro Paiva says:

    Hi,

    What about your income reports from July to September, in transparency’s sake? ;)

    • Justin Cooke says:

      Ah, Pedro. I try to be transparent, but didn’t say I don’t struggle with procrastination!

      Nothing nefarious there – I had a 2-month report started and then delayed, put it off, etc. Will get a 3 month report out. (Soon, I hope!) Have some pretty awesome numbers to report, actually.

  5. andreea says:

    it is hard to totally be transparent without being afraid that the competition will copy your processes and ideas.
    I think being transparent on a certain level can help gain trust, but choosing carefully what to be transparent about is crucial

    • Justin Cooke says:

      Hey Andreea,

      That’s the fear talking! :-)

      Seriously, though, the fear of competition following/copying you is a nagging concern. Still, if you weigh the benefits vs. that potential downside I think transparency wins hands-down.

      We have competition (and they do follow/copy us), but it’s of lesser concern. We’re all making the pie bigger – more for everyone.

  6. […] I read this article on business transparency. The guys at Empire Flippers make a living, connecting buyers and […]

  7. Johnny says:

    “the more open and transparent Empire Flippers becomes, the better our business does.”

    It’s such a crazy world we live in nowadays right! I always enjoy seeing how others are doing and think it’s awesome you guys have been sharing your monthly income reports.

    Just curious is it just because it’s a lot of accounting to do or do you wait until everything from the month clears before you post your new reports as I notice the last one up is June: https://empireflippers.com/category/income-reports/

    I know it personally takes me 7+ hours to write my income reports every month and I’m just one guy with a bunch of small businesses so I can imagine how big of a task it is for ya’ll.

    • Justin Cooke says:

      Hey Johnny,

      It was much, much easier when we were just starting out, honestly. We now have our bookeeper sending me the numbers – usually by the middle of the following month. I can then take the financial numbers and get screenshots, match up all non-financial numbers, double-check everything, etc.

      It probably takes me 3-4 hours of prep and another 5-7 hours of writing and getting it together.

      I’ve just been slacking on our monthly reports, honestly. I started the one for Jul/Aug and then never published. Then DSL + DCBKK + more excuses, hehe. I think I’ll publish a quarterly report this time for Jul/Aug/Sep coming soon.

      I honestly need to hire a Content Manager that can help with these + managing our content, guest posts, etc. Another post I need to get out!

  8. […] all wish, but at least we’re not hiding behind a veil or BS’ing about success. Empire Flippers recently blogged about how being a transparent business is a great move, and I couldn’t agree […]

  9. Dom Wells says:

    It’s funny, as you know, I’ve been a fan of the transparent/honest approach for a couple of years just like you guys have, and almost daily I get an email from someone saying how they love my honesty, and how refreshing it is to see this online, and I think “Isn’t everybody like this? They’re really missing out”.

  10. […] Whether you choose to start from scratch or buy your business, plenty of time, energy, and money will end up going into it. Businesses take nurturing to grow, so as long as you walk into it knowing this and are ready to dig in your heels, you stand a really good chance of running a successful business. […]

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