This is a guest blog from Damian Kimmelman. Damian is founder of DueDil, a London-based technology business that is the largest source of private company information in the UK and Ireland. DueDil was included in Wired magazine’s ten hottest startups in London in October 2013.
The global financial crisis was, says the American forecaster and author of The Signal and the Noise Nate Silver, “a catastrophic failure of prediction”. Governments, ratings agencies, investors all possessed the information that could have triggered safety checks and policy changes. They failed, however, to apply judgment to the data. All assumed that the information was trustworthy or were, to borrow Margaret Heffernan’s iconic phrase, “wilfully blind” to the evidence that it wasn’t.
As we enter a post-crisis era, a new generation of entrepreneurs is re-examining assumptions around transparency and trust. They’re putting openness at the centre of strategy; they’re bringing the power of relationship back into business; they’re providing the full information that enables proper risk-pricing. They are – potentially – ushering in an age of true predictability.
For Joel Gascoigne, founder of the social media-sharing start-up Buffer, transparency is his “default” position. Anything that can be shared in the business, is shared. “We have complete compensation transparency and every team member knows each others’ salary and equity stake through stock options,” says Joel. “We go all the way - we share whether we’re fundraising, we share when we have acquisition interest.” The firm even opens up its bank balances and latest revenue numbers.
Over at the mobile payments firm Stripe, founder Greg Brockman is pioneering an “open email” culture. Initially, “the motivation for having all email be internally public and searchable was simply to make us more efficient. If everyone automatically knew what was happening, we needed fewer meetings, and our coordination was more fluid and more painless if we could all keep up with the stream.” And as Stripe has grown, the experiment has moved on. Today, says Brockman, it’s “about both efficiency and philosophy.”
He’s right: transparency is much more than a start-up gimmick. Really strong business cultures are transparent. Where there’s transparency, there’s trust. And, most important, there’s predictability. Counter-parties can take safer, more calculated decisions. Market inefficiencies reduce. On a wider scale, open information creates markets and builds prosperity.
Withholding information, on the other hand, prevents markets from developing. Just look at the lack of transparency in the financial services sector to see what damage opacity can wreak. Humans are built for sharing. In the natural kingdom, it’s our competitive advantage. By sharing and communicating, we build communities and prosperity.
Before the Industrial Revolution, towns and villages were self-sustaining ecosystems. With the arrival of roads and canals, talent started to flow between them. With this came information, insight and industry. In 1989, Tim Berners Lee, frustrated by scientists’ inability to transfer knowledge easily between one another, proposed an open protocol for communicating between computers. This became the information superhighway.
Companies such as Google, Facebook and LinkedIn were born to share the ever-greater volumes of information that flowed through it. It was living proof of Jean Jacques Rousseau’s theory: when we share, we are - collectively and individually - the better for it. These giants of the internet age debunked a common myth: that somehow by withholding information we gain an edge over others. Wrong, wrong, wrong.
Right now, only public companies truly benefit from the open exchange of information. As a result, the UK has an efficient, liquid Stock Exchange that’s the envy of the world. By giving the same transparency and, thus, visibility to privately owned small and medium-sized companies, we could unlock significant economic potential.
According to the disruptive SME finance business Asset Match, the 10,000 private UK companies with £20m-plus revenues have an embedded (ie, illiquid and undiscovered) shareholder value of £300bn. If they had something of the openness and findability of our quoted companies, we’re in serious national uplift territory. “Unlocking 10% of that figure,” Asset Match’s co-founder Ian Baillie has said, “is the equivalent of a small quantitative easing”.
In my view, Britain should aspire to be the world’s most transparent economy. And we should start by opening the data about our privately owned businesses. After all, “private” companies were never meant to be anonymous companies.