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The Good News Or The Bad News First?

November 25, 2009

Do you want to hear the good news or the bad news first? That’s a question that is often asked in jest, however it accentuates an important message for managers of partnerships and closely held corporations.

“Get the bads news out and over with” has been the advise recently provided to large corporations and political organizations by public relations experts. It wasn’t too long ago that the “big boys” used to combat the bad with diversions in the hope that it would go away. It doesn’t.

I’ve always been a bad news man first. Problems are a part of business. The job of managing is solving problems. The only really difficult problem is the unknown. When you know the bad news, you can begin to rationally examine the alternatives and formulate plans for dealing with the situation. Problems, their causes and their solutions, can be understood.

Running a business is a continual exercise in problem solving. There are two kinds of problems, those brought on by growth and those brought on by liquidation. It’s better to have the problems brought on by growth and it’s best to know them as soon as possible so that you can begin solving them. Hiding from the problems will only cause greater difficulty in the long run. They don’t go away.

Not “getting the bad news out” is a common problem for the managers of partnerships and closely held businesses. The manager of these firms is by nature a confident, optimistic problem solver who has a high sense of responsibility to the other investors in the enterprise.

When unanticipated problems occur, which they invariably will, the management understands the cause of the problems because they are in daily touch with the business. They also can see the solution and feel a responsibility to get the problem solved. The uninformed outsider however, is unaware of the problem and continues to hold expectations that don’t include this “bad news”. When results don’t equal those expectations, confidence in management is damaged.

Let me relate an recent example where the “bad news” didn’t get out and expectations of insiders and outsiders diverged to nobody’s benefit. An experienced businessman had personally invested a substantial amount of time, effort and money into a development project that he planned on building and operating. As it became apparent to him that the project would be larger and potentially more lucrative than he had initially anticipated, he recognized the need for additional outside capital.

The developer had a successful background, had already made a significant investment in the project and he was an articulate and enthusiastic spokesman for it. He had little difficulty in attracting other investors to support the project. Together with several other experienced businessmen, a partnership was formed for the purposes of funding the project that he would continue to manage.

As with most relationships of this sort, the partnership started out on a positive note. Expectations for the project were high and a profit was anticipated during the first full year of operations. Unfortunately, those expectations were of a general nature, not supported by a detailed business plan which provided for contingencies.

As both “good news” and “bad news” unfolded during that first year, the developer proceeded undaunted as he had in the early days of the project. As the project he had founded nearly five years early began to take shape, there was a strong sense of accomplishment. As the developer communicated with his new partners during the course of this first year, he radiated his enthusiasm and reported great progress.

For the founder “making great progress” meant that after five years of effort, the project was now operational. There were problems of course, but he had encountered and surmounted numerous problems during the last five years. He could solve these too.

To the partners “making great progress” meant that the rosy expectations upon which they had invested were being met or exceeded. Surprise was an understatement for their reaction when near the end of the first year they were told there would be no profit. They greeted the forecast for year two with suspicion.

In retrospect, the unexpected problems always appear as though they should have been anticipated. . The founder stressed his accomplishments and voiced confidence in his ability to solve the problems. The partners were reluctant to proceed further without a change in management. The resulting situation benefited neither

Problems are not unexpected for any business. Don’t look for others to solve your problems, that’s your job. But because it’s your business, keep interested outsiders, particularly partners and investors, appraised of both the good news and the bad news.

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