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On the Line

Road to Recovery: How Startup Founders Overcame Disasters

Jordon Dyrdahl-Roberts
Journalist

As a startup, your reputation is everything. Sometimes, despite your best efforts, something goes very wrong. Whether it’s a data breach, major product failure, or a board member’s insensitive tweet, it can damage your brand. A 2019 survey showed that how a company responds to negative publicity is vital to recovery, with 97% of prospective clients reading a business’ response, or lack thereof, to negative reviews, for example.

Once your reputation is damaged, how do you begin to repair it? What do you need to do to keep your customers from taking their business to a competitor? How do you reassure investors and employees that your company still has a future?

In her 2018 Ted Talk, professor of technology and operations management at the Harvard Business School, and Uber’s former ​​SVP of leadership and strategy, Frances Frei, laid out three key elements for building and rebuilding trust.

“If you sense that I am being authentic, you are much more likely to trust me. If you sense that I have real rigor in my logic, you are far more likely to trust me. And if you believe that my empathy is directed toward you, you are far more likely to trust me.”

She explains that when all three of these things work together, you build trust in your audience. After a crisis, business leaders need to be honest, to be able to explain what went wrong, and to understand and empathize with those who have been affected by the crisis.

Who To Address

In the wake of a crisis, Chris Lukach, Senior Counselor, Special Situations at Greentarget, warns:

“At the risk of generalizing, in the immediate aftermath of a crisis, founders and company leadership do tend to focus too much on preparing for media interest and not enough time thinking about the audiences most directly impacted."

He says,

Crisis communications matters in as much as the audiences we value most—customers, prospects, referral sources, capital partners, industry partners, and the like—may lose trust or confidence in us.

It makes sense that your employees are also going to have concerns in the aftermath of a crisis. Deanna Baumgardner, President at Employers Advantage LLC, says, “Acknowledge what happened but then address what’s going to happen next. There needs to be ongoing and continual communication with the employees to let them know what steps are being taken.”

You will also have to manage the emotional response to the crisis, and not just that of the employees. Assistant General Counsel and Human Resources Consultant for Engage PEO, Jennifer Henry, says, “In difficult situations, take a moment to assess and handle your own feelings before approaching employees. You are also allowed to be disappointed, stressed out, and upset. But being aware of your own emotions in advance will allow you to focus on the employee and their needs during a difficult conversation. For one example—don’t tell an employee how hard it is for you to lay them off!” If there must be layoffs, Henry also suggests, “Come prepared with anything you can offer.”

Toast, a point of sale management tool for restaurants, faced COVID-related layoffs as restaurant revenue shrank due to closures and reduced capacity to maintain social distancing. But they offered those they laid off “severance package(s), benefits coverage, mental health support, and an extended window during which [employees] can purchase vested stock options,” as well as developed a program to help their former employees find new jobs. Now the company is preparing for an IPO.

Proper Messaging

There will be times when the answers the public and your employees need won’t be readily available. While quick communication is vital, accurate information is also essential. “If you’re still doing the investigation, you need to say, we’re still doing the investigation,” Adam Calli, Founder and Principal Consultant at Arc Human Capital, LLC, explains. This is particularly true if you’ve received negative press regarding the actions of a senior leader or chairperson at your company. You don’t want to jump to conclusions and, “mete out a punishment that may not be deserved because that’s wrong in its own way. But you only have so much time. At some point, the investigation needs to be concluded, and you’ll need to change the message.” Optimally, that change in messaging centers around fixing the problem and ensuring it doesn’t happen again.

Calli also notes that internal and external messaging needs to match as much as possible. Should an internal memo be leaked (and you should always write them as though that is a possibility), you do not want to leave the public thinking, “They told the media this, and the employees that, so where’s the truth?”

Accountability goes hand in hand with honesty. Jeremy Knauff, Founder of Spartan Media, explains, “Let’s say someone made a really racist comment. You want to correct that employee and say, as the leader, you’re going to take full responsibility. Regardless of who did it, you’re responsible for everything that takes place in your organization.” Knauff also says you can’t hedge apologies for things like this. “Not this ‘I’m sorry if you were offended’ nonsense.” A disingenuous apology will only extend the duration of bad publicity.

Developing strong relationships with the press and shaping your brand’s message from the beginning is a crucial part of crisis management preparedness. Not only is this a good idea all on its own, but it helps foster goodwill toward your startup should something go wrong down the road. To accomplish this, Lukach advises,

Those organizations that recognize that goodwill is essential to business operations involve their communicators at the highest level of business strategy.

He adds, "Those that feel communicators are simply mouthpieces relegate them to second-tier roles in which they simply execute strategy.”

Investors Are More Than Just Capital

When communicating with investors after a crisis, Jason Yeh, the founder of Adamant Ventures and host of the Funded podcast, has unique insights. He’s been both a founder and an investor.

“I’ve been through failures. I know not succeeding is not fun, but I think some of my biggest growth happened after those situations.” He advises “choosing investors who are your real partners.” Leaders can’t be perfect. Anyone investing in a business should understand the risks involved. “Remember that investors are supposed to be your partners, and they want to see you through these things as well.” The right investor is someone you can turn to during these challenges. It’s a relationship you have to cultivate, but at its best, your investors are a resource for more than just capital.

The number one principle of crisis response is honesty. Mistakes and mishaps already harm your brand. Attempts to deceive stakeholders will only make things worse. If you have prepared yourself with a proper crisis response plan, invested in developing relationships with the press beforehand, and cultivated relationships with your employees and investors, you’ve significantly increased your chances of turning things around and continuing to operate a competitive business.


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