Disclosing Your Finances

Should you publicly publish your finances?

This article was published on January 06, 2010.
Do you want to leave a comment?

Prominent startups such as Balsamiq and others like Squarespace and 37signals (to some extent) have been open about disclosing their revenue — and in Balsamiq's case also their profit. I'm not sure whether that's such a good long-term strategy and I'll argue why below. You've got to be careful that you're in the right position to share these confidential numbers, and I think that for anyone else the disadvantages outweigh the advantages.

Disclosing Your Finances

What's the Advantage?

The obvious advantage for anyone is that as long as your numbers are large enough to talk about then you're going to generate buzz when you release them. You'll in fact get a lot of good press and praise for being so open. On Sunday, January 2nd Peldi Guilizzoni (Founder of Balsamiq) posted his company's 2009 revenue ($1.6 million), profits ($1.1 million), number of transactions per month, average revenue per transaction, and cash flow. You can't get more detailed than that. In under 24 hours his blog post received over 200 re-tweets, there were over 140 comments spanned across his blog and Hacker News, and over 250 up votes on Hacker News. That's a lot of attention.

Balsamiq isn't the only startup to share their finances. Squarespace shocked people when they released their figures earlier this year in Inc Magazine, reporting revenue of $269,545 in 2005 and $2.2 million in 2008 — a 723.3% increase. Nobody knew the jump was so big, and now it's known that they are running away with their market. Even 37signals, who as far as I know had never disclosed their revenue, mentioned kind of nonchalantly in their third podcast what they were generating with their new Haystack service (now known as Sortfolio).

But who are the people who care about this information? Only two sorts of people really care about these figures: (1) other entrepreneurs who want an inspiring story to motivate them, and (2) potential acquirers whom you could interest by other means. Who doesn't care? Most of your customers or potential customers, who don't fall into either of those categories.

Suffice it to say that I don't think that the press you're going to receive outside the entrepreneurial community is enough to justify exposing your finances to the public. There are just too many disadvantages in doing so. I don't think it's going to significantly move your bottom line. I'd actually like to see how many referrals Peldi Guilizzoni generated from his post. I doubt too many.

What are the Disadvantages?

What do these three companies have in common? They're all self-funded startups that are all leading their respective markets with no immediate competitive threats. There's no better small business software company than 37signals, Balsamiq is clearly leading the wire-framing and mockups business, and Squarespace has a chokehold on providing managed website building tools. They have nothing to lose. But suppose they had major competition?

One disadvantage of disclosing assets would be if you're a startup hoping to raise money; even bootstrapped startups consider fund-raising after they get their feet wet. I can assure you that openly talking about your revenue if it's not mind-blowing is going to turn off investors. If you show that your company did $100,000 a year in revenue last year and increased to $150,000 this year, then fewer investors are going to be interested in chatting with you. That's just not enough growth. As soon as you publicly reveal your finances you're looked at differently than you were before.

Jason Fried and many others have argued that many startups don't try to generate revenue from the beginning because that prejudices their valuation when they do try to raise money. The investor can look at your numbers when the time comes and get a true valuation of the company rather than making up ballpark figures based on speculation and spreadsheets. I completely agree.

Another disadvantage is that your competitors know exactly how much you're making. If I know that one of my competitors is making $2.5 mil a year I can work out a lot of information from those figures. In Balsamiq's case they included everything but the kitchen sink, so I can see nearly everything I need to know.

You might say: "Well, how is that information going to help you surpass them?" For one thing, you may be seen as less as of a threat if your competitor doesn't know how much revenue you're generating. I'd bet that most companies undervalue their competition, so they may not try as hard in certain areas to combat them. Why give them the motivation of knowing how much you make? Additionally, it may spawn new competitors who see how well you're doing.

The third disadvantage is that it may be off-putting to your customers. In the case of Carbonmade specifically, our customers are mainly creative people who don't make a lot of money (for the most part), and shoving our finances in their face isn't the most neighborly act. It can also make you seem impersonal and corporate — which is why so many bank ads say they're small and user-friendly. Yes, publishing our revenue could show that we're a healthy and thriving company that's not going away any time soon, but I think there are more subtle ways to express this.

Don't Do it

I am all for being open about your business. You only have to read through my essays to see that. Carbonmade even boldly shares our user count on our homepage (many won't even do this), but I don't think the advantages outweigh the disadvantages when it comes to sharing financial information.

If you do decide to publish your revenue, only do it if you're well established and far beyond the startup stage, like Balsamiq, 37signals and Squarespace. Don't do it if you're hoping to raise money or if you're not (or not certain that you are) the leader in your market. These three companies are the exception to the rule.

Comments

comments powered by Disqus