“A Leader Struggles to Sell Software Meant to Aid Sales,” read the August 2014 New York Times headline about Matthew Bellows, founder and CEO of Yesware, Inc., a company that makes email tools for salespeople.

Revealing his struggles to a reporter was a moment of vulnerability for Bellows. But such openness is part and parcel of his management approach, which prizes extreme transparency as a way to encourage a thriving company culture.

“One of the reasons for The Times piece was to demonstrate to the rest of the company that it’s okay to be open and share issues,” he said in a subsequent interview with First Round Review. “And the response was extraordinary — it opened so many productive conversations with the team and with our customers.”

The Power of Transparency

The reasons for cultivating transparency go beyond feel-good openness — it can be a matter of life and death for startups. A central reason for the onset of the dreaded cultural chasm that gives the majority of startups problems in years three and four is lack of transparency.

According to a study about the cultural chasm, employees’ perception of the transparency of their company’s leadership is strongly correlated with their feelings about the quality of company culture. To put a fine point on it: poor transparency = poor culture.

Prioritizing transparency means taking employees seriously. The study’s authors emphasize that it is the employees of an organization who define what transparency looks like. The employees of one company they surveyed identified the company as non-transparent, much to the leadership’s surprise. After those leaders did an answer-every-question Ask Me Anything (AMA) session — providing real transparency about questions as sensitive as compensation — their employees changed their opinions, ranking the employer among the most transparent in the survey.

“The best companies in the world aren’t the ones without problems. They’re the ones who find creative ways to solve them.”

Great Managers Needed

Transparency is increasingly seen as a hallmark of innovative, forward-thinking startups. The startups that are thinking hard about how to be both pioneering and sustainable are those that embrace transparency as core to their purpose, whatever their business may be.

Stuart Levinson, CEO and co-founder of Carrot, sees the future of transparency in business going beyond employer-employee relationships and extending out to a company’s relationship with its customers and the general public. “Exceptional founders continue to explore new ways to be transparent — some more ambitious than others — making business information public for anyone to see,” he writes in this post.

Incorporating transparency into a company’s way of working is a strategic management decision. Managers must take initiative to understand their employees’ perceptions of the company’s transparency or lack thereof, and then take responsibility for what they learn.

“The best companies in the world aren’t the ones without problems,” says Bellows. “They’re the ones who find creative ways to solve them.”

His “creative ways” to ensure his employees feel that Yesware is transparent include holding three-hour AMA sessions every six weeks, allowing employees to vote on which initiatives to prioritize in quarterly planning, and regularly sharing detailed information about financials.

“The main lesson I’ve learned,” he says in a follow-up article, “is you can have the best technology in the world, but you need great managers as well.”