Private Means Private or How To Avoid Dropping Trou

Private means PrivateOne of the few advantages you have as a small company is that you can keep your cards close to your vest. A major disadvantage of a public Big Dumb Company (“BDC”), as well as one that works closely with governmental agencies, is the degree to which they are forced to publicly disclose otherwise confidential information.

I hope that you are not thinking, “But J., you have told us that one of the most important aspect of a startup is the ability to effectively sell (see “Be Like Sam”). How can I sell if I cannot share information?”

If this question is in your head, please do all of us a favor, close this page and head over to Craig’s List. I am sure there are lots of good jobs available at Big Dumb Companies…

OK, now that it is just us entrepreneurs, let’s carry on.

Although it can be challenging, you can still ‘sell the smell’ without ‘dropping trou’ - defined as the process of pulling down your pants at the request of a BDC for all the world to see the goods, friends and foes alike.

Let’s face it. Many Big Dumb Companies request gratuitous information. For instance, they may request ‘your financials’, ostensibly to assess your financial wherewithal. However, the actual use of such data is often so they can file it away, only to retrieve it in the event they need to cover their derriere. Remember that every time you send confidential information to a BDC, you run the risk that the data could find its way into the hands of a competitor that is in a position to put a hurting on you.

Confidential information tends to grow legs, and you simply cannot afford to take a chance that your financial information will slip into enemy hands. Sensitive data, especially in electronic form, can make its way around the Internet in seconds. The more sensitive and potentially damaging the data is to your company, the more ‘valuable’, and thus the more likely it will end up in the hands of someone who can use it against you.

Request For Proposals (“RFP”) are notorious sources of data leakage. Although the BDC initiating the proposal request will usually indicate that all submissions will be kept confidential, it is appalling how often such information is shared with the winners of the RFP. Entrepreneurs on The Fringe avoid RFPs at all cost because they realize that they cannot afford to expend the time and resources required to participate in a regimented and lengthy RFP process. Data leakage to potential competitors is another great reason to run hard and fast whenever you are asked to complete an RFP.

Once you serve up any confidential financial data, your ability to paint an appealing picture of the future may be hampered. It is hard to Sell the Smell of the steak when the other party can see that the smell is actually emanating from a shriveled hot dog (see “Making Stone Soup”).

As such, draw a line in the sand and simply refuse any and all requests for confidential information (especially financial data) from prospective customers, partners, suppliers, etc. Once you provide confidential information to ONE such entity, it is a slippery slope. Thus, by never giving it out, you can stand tall and explain, “Look, it is not personal. We simply do not disclose that information outside our organization.” BDC employees generally appreciate arbitrary and bureaucratic rules, so this approach if often an effective means of dealing with any objections they may raise.

Dealing With The Real Objections

In the event you are unable to avoid requests for confidential information, probe and listen in order to understand the real objective behind the information request. In nearly all cases, you will be able to address the other party’s concerns without serving up your confidential crown jewels.

For instance, if the other party is concerned about your financial viability, the most important determinant is not the amount of cash you have in the bank. On the contrary, the question the BDC should ask is, “Does your startup have a sustainable business that will afford you access to additional capitalization and ultimately self-sustaining profitability”. However, do not expect to hear this question very often - they earned the name Big Dumb Company for good reason.

Chances are the BDC guy on the other end of the phone has never run a business and the probability that he will realize what he really needs to know are slight. Thus, you have to deferentially educate him in order to be sure he feels good about his entrepreneurial schooling.

You can validate your startup’s long-term prospects by introducing the BDC to satisfied customers, members of your Board, members of your Core Team, and one or more of your investors (assuming they have deep pockets and are willing to speak positively about your business). Third party validation regarding your personal credibility and the viability of your adVenture’s business model are worth more than a Balance Sheet that will likely circulate within the BDC in a vacuum.

You should also explain your business model to the BDC and provide tangible proof points regarding your ability to execute on your Action Plan. BDC does not need to know how much money you have in the bank to be satisfied that you are running a viable business with a bright future.

Go To The Meeting – But Do Not Take The Materials

I make it a practice to limit even the information contained in a PowerPoint presentation. You can effectively do so by utilizing an online meeting product, such as Citrix’s GoToMeeting . This allows you to share ‘some’ data, without it leaving your building in electronic form. If the other party asks you to send them your slides, find out why they need them. If it is to inform others in their organization, then set up a subsequent meeting in which you present the slides and lead the discussion. No one can tell your story better than you. Retain the role of storyteller and you will avoid your story being diluted by someone at the BDC who cannot do it justice.

If you are speaking to prospective investors, you have to be even more careful. Many of them will not sign a Non Disclosure Agreement (“NDA”), which makes your data free game. Without NDA protection, your information is classified as ‘market research’, and you should assume it will be shared with any company in the Venture Capitalist’s portfolio that might benefit from it. Alternatively, the Venture Capitalist firm might have an Executive In Residence who is looking for his next gig with whom they might share your idea. Then again, there is the possibility that the Venture Capitalist firm will have a portfolio company that needs a good idea upon which to refocus their efforts. It is not that Venture Capitalists are in the business of stealing ideas. However, whenever you share proprietary information, you should take reasonable steps to minimize the ease with which such data can be shared and distributed – such as posting PDFs on a website and precluding the electronic duplication of such documents.

If you feel compelled to send confidential materials to a third-party without the protection of a NDA, be sure to eliminate anything that could give a competitor insight into your ‘secret sauce’(e.g., any technical data, financials, specific company sizing data, etc.). In addition, convert the confidential materials to a PDF that can only be accessed online to further reduce their ‘mobility’ of the data.

Corporate Beyotch

Another positive outcome of holding your cards close to your vest is that you will engender respect from the other party. Most big companies are used to getting whatever they want from a small company, even when their informational requests are out of line. Be the one company that tells them “No”. It may shock them at first, but if you handle the communication in a professional manner and explain why you are refusing to provide the requested information, you will ensure that the ongoing tenor of your relationship is one based on equality and not one in which you are the big company’s Corporate Beyotch.

Shocking HP

Several years ago, I was pitching a software license to a middle level executive at HP, within their Printer Group, via GoToMeeting. It was clear that he was a corporate zero and was simply sleepwalking through the process. At the end of the call, he requested that we “send him the slides and a proposal”.

I shocked him (and my salesperson who was also on the call) by telling the HP Zombie, “No, we are not going to send you the slides and we are not going to pull together a proposal that is just going to be filed away. If you are ready to move forward, then we are prepared to apply one-hundred percent of our resources to make you successful. However, if you just want something to throw in a file so you can later document that you spoke with us, we are not interested.”

After a long pause, the HP guy came out of his corporate coma and acknowledged our position. He agreed that simply sending over a proposal at this point probably was not the most impactful next step. We continued our dialog over the next several months, and we eventually closed a significant, multi-year deal with HP. Chalk one up for the Smart Little Company.

There are so many disadvantages to being a small company that you must use your private status to your advantage any time you can. One way to do so is to keep your pants firmly in place and respectfully, firmly and frequently say, “No”.

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John Greathouse is a Partner at Rincon Venture Partners, a venture capital firm investing in early stage, web-based businesses. Previously, John co-founded RevUpNet, a performance-based online marketing agency sold to Coull. During the prior twenty years, he held senior executive positions with several successful startups, spearheading transactions that generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara's Faculty where he teaches several entrepreneurial courses.

Note: All of my advice in this blog is that of a layman. I am not a lawyer and I never played one on TV. You should always assess the veracity of any third-party advice that might have far-reaching implications (be it legal, accounting, personnel, tax or otherwise) with your trusted professional of choice.

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