Lead from The Front

You’re reading an excerpt of Great Founders Write, by Ben Putano, writer, entrepreneur, and book publisher. He’s the founder of Damn Gravity Media, a publishing house that inspires and educates tomorrow’s great founders. Purchase now for lifetime access to the book and on-demand video course.

How to Deliver Bad News, Take a Stand, and Do the Right Thing During Crisis

Over ten hours had passed when Robinhood CEO Vlad Tenev finally broke his silence. By then he had become the most hated man on Wall Street. Maybe in all of America.

The irony is that Tenev built Robinhood with a mission to democratize finance for all.

Earlier that day, on January 28, 2021, Tenev and his executive team made the decision to freeze the buying of Gamestop stock ($GME), along with several other stocks that were targets of a historic short squeeze.

Unlike past short squeezes, which were weapons of the financial elite, this one was orchestrated and led by regular people. Retail investors met and rallied through a Reddit forum called WallStreetBets (WSB). Soon, the entire world was in on the action, from nurses in L.A. to Elon Musk. In just a matter of months, $GME rose from $5 per share to almost $500. The frenzy pushed hedge fund shorters to the edge of bankruptcy, costing them billions of dollars in the process.

This was exactly the type of revolution you’d think Robinhood would welcome. Yet at the peak of the $GME’s rise, when it looked like nothing could slow the stock down, the investment platform halted trading. It was a death blow to the WSB short-squeezers.

In hindsight, Robinhood’s action were completely justified. But their poor communication during the chaos turned them into villains. Alex Lieberman, Founder and CEO of Morning Brew, summed up the destruction best on Twitter*

Robinhood is officially a case study in the fragility of brand. It took them 7 years to build up confidence in their platform. It took them 1 day to switch from “by the people” to “against the people.”

Courage—or the lack thereof—is revealed in crisis.

Robinhood was put in an impossible position. But the real damage was self-inflicted. Tenev and his team showed no courage when addressing their customers, destroying all the goodwill they had worked so hard to build up. They may never fully recover from the fallout of January 28, 2021.

When people are turning to you for answers, how will you respond? We can look at Robinhood as an example of what not to do when courageous leadership—and writing—is required.

Writing with courage can be distilled into 7 principles:

1. Be visible

2. Be direct

3. Be honest

4. Be helpful

5. Be accountable

6. Be human

7. Share next steps

Robinhood broke them all.

Let’s look at each one and see what we can learn.

1. Be Visible

Tenev’s first mistake was simply not showing up when people needed him. The ten hours it took for him to address Robinhood’s decision to freeze $GME trading is inexcusable. In that time, wild conspiracy theories raged all over the internet.

An internet sleuth discovered that one of Robinhood’s largest investors, D1 Capital, held a large short position against Gamestop. The fund had lost 20% of its value in a matter of weeks. Was this why Robinhood delisted Gamestop?

Later, an even more damning fact surfaced: Robinhood’s largest enterprise customer, Citadel Securities, had recently invested in a hedge fund who was on the verge of bankruptcy from the Gamestop short squeeze. Just a coincidence? Or was Robinhood forced to take action by a powerful institution?

The truth was much more boring. Robinhood faced a compliance issue that threatened to shut down the entire platform. While trading on Robinhood appears instant, transactions take up to two days to officially process. A rule called T-2 requires Robinhood to keep cash on hand to cover those trades until they’re completed. The Gamestop frenzy pushed Robinhood’s cash requirements to a hundred times their normal levels. On January 28, they had just five hours to either come up with the cash or get shut down by the government. By freezing $GME and other rallying stocks, they were able to lower their cash requirements and keep the platform afloat.

But no one knew this until Tenev posted a Twitter thread about it—ten hours after the freeze occurred. Instead of being up front with customers, Tenev disappeared, which is suspicious in itself. The void of information was filled by a public desperate for answers.

The first rule of communication during a crisis: Be visible. Vlad Tenev was not.

2. Be Direct

During moments of crisis, be direct. Skip the formalities and business-speak. Give people the information they need.

Vlad Tenev should have been on the front lines communicating with customers during the Gamestop crisis. Instead, he directed his comms team to release an anemic blog post titled, “Keeping Customers Informed Through Market Volatility.”

The first problem with the article is the title. It’s as generic and bureaucratic as you can get. Using the phrase “market volatility” on the day of the largest short squeeze in history isn’t just an understatement—it’s misleading. Customers seeking answers on Robinhood’s blog overlooked the post because it didn’t directly address Gamestop.

The blog post’s problems continued in the first paragraph. Instead of addressing the $GME freeze outright, Robinhood led with their mission statement. Then they said how proud they were of themselves:

Our mission at Robinhood is to democratize finance for all. We’re proud to have created a platform that has helped everyday people, from all backgrounds, shape their financial futures and invest for the long term.

In a moment when users have tens of thousands of dollars or more at stake, no one cares about your mission statement or your past success. They only care about one thing: their money.

When Robinhood did finally address the short squeeze, they still refused to be direct with customers:

In light of recent volatility, we restricted transactions for certain securities to position closing only. You can see the latest here[Link to blog]. We also raised margin requirements for certain securities.

(Emphasis mine)

Not once did Robinhood mention the Gamestop by name in the post. Users had to visit a different blog post to see the list of restricted stocks. At that point, a concerned customer could only assume Robinhood was being opaque on purpose.

3. Be Honest

During a crisis, any whiff of dishonesty will shatter your trust with customers.

Robinhood never outright lied during the Gamestop short squeeze, but they withheld crucial information from the public for an entire trading day— specifically, the reason why they froze $GME. This lack of transparency was dishonest in its own way.

Tenev should have immediately shared everything he knew with the public using a tried-and-true phrase from the history of crisis communication, “Here’s what we know.” There was no benefit of withholding information if they had nothing to hide.

As a leader, you won’t have all the answers during a crisis, but that’s no excuse for not sharing what you know. Customers don’t need perfect information, but they need something.

Tenev’s integrity was called into question because it took so long for him to respond. The longer it takes to tell the truth, the less likely people are to believe you.

4. Be Helpful

The “fog of war” is a military term that describes the confusion and chaos that covers a battlefield. It can be blinding and disorienting. During times of crisis, when the fog of war is thick, leaders need to help their people reach the other side in one piece.

Robinhood again failed this test in spectacular fashion. Not only did they fail to provide a helpful explanation for freezing $GME, but they sent readers on a wild goose chase to find their own answers.

Here’s a paragraph from Robinhood’s blog post on January 28:

Amid significant market volatility, it’s important as ever that we help customers stay informed. That’s why we’re committed to providing people with educational resources. We recently revamped and expanded Robinhood Learn to help people take advantage of the hundreds of financial resources we offer and educate themselves, including how to make sense of a volatile market.

(Emphasis added)

When you click the link to go to Robinhood Learn, it doesn’t go to a specific article, but straight to the resource center homepage. The first post is titled, “Investing 101.”

Insulting.

In this case, Robinhood was less than helpful. They were condescending. They might as well have said, “You clearly don’t understand how the stock market works. Let us enlighten you.”

The next day, on January 29, the comms team published another blog post, this one about the financial mechanics behind trading. Again, they failed to provide a helpful explanation for the $GME freeze. Buried three-quarters down the page, in the back half of an unassuming paragraph, was this jargon-filled statement:

This week alone, our clearinghouse-mandated deposit requirements related to equities increased ten-fold. And that’s what led us to put temporary buying restrictions in place on a small number of securities that the clearinghouses had raised their deposit requirements on.

(Note: During a crisis, it’s critical to write using the inverted business pyramid we discussed earlier in this book)

It wasn’t until three full days later, on February 1, that Robinhood finally provided a simple, clear explanation for their actions:

Simply put, Robinhood limited buying in volatile securities to ensure it complied with deposit regulations.

But by that point, the Robinhood’s reputation was destroyed. The opportunity to help their users through the crisis had long passed.

5. Be Accountable

Robinhood’s decision to freeze $GME turned a chaotic situation into a crisis. Yet the company never took responsibility for their role.

Without Robinhood’s zero-commission trading tool, the short squeeze would have never been possible. Did they ever consider something like this could happen? It’s not like they didn’t have warning signs—GME trade volume rose rapidly throughout the month of January, which meant Robinhood needed more and more cash on hand to cover deposits. In hindsight, couldn’t they have been more prepared?

Worst of all, Robinhood never took responsibility for fixing the situation. After announcing the stock freeze, they made no indication they were working to unfreeze them. Instead, they seemed to blame their customers for the freeze:

We’re determined to provide new and experienced investors with the tools and resources to help them invest responsibly for their long-term financial futures.

(Emphasis mine)

They might as well have said, “You’ll get your stocks back when you’re responsible enough to trade them.”

As a founder, the buck stops with you. It’s your responsibility to foresee and avoid a crisis. When that’s not possible, it’s your job to fix it.

Be accountable.

6. Be Human

All of Robinhood’s missteps were exacerbated by communication that sounded like it was written by legal. (It probably was.) Here’s one of the more obtuse statements from Tenev’s Twitter thread on January 28:

As a brokerage firm, Robinhood has many financial requirements, including SEC net capital obligations and clearinghouse deposits. Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment.

Using legal-approved jargon like “volatility” and “current environment” raised more questions than answers for Robinhood users. Tenev’s worst offense was refusing to mention the stock at the heart of the entire crisis, Gamestop, as if uttering the name would open them up to legal action.

As a platform for the people, Robinhood failed to communicate like a real person. Instead they opted to hide behind corporate jargon and legal-washed messaging.

7. Provide Next Steps

Desperate Robinhood customers needed answers about their $GME stock. When would the freeze be lifted? What would happen next?

Ten hours after the freeze, Tenev offered some painfully vague next steps in his Twitter thread. He said Robinhood would open up limited sales of $GME and other stocks the next day. But what did “limited” mean, exactly? And could Robinhood freeze the stock again?

Robinhood failed to give any more direction to their customers or the public. This led anxious users to seek out new leaders—folks like Dave Portnoy, the founder of Barstool Sports, who called for the imprisonment of Tenev and his hedge fund overlords on social media. His position may have been extreme, but at least he gave his followers hope for a resolution.

At the end of his Twitter thread, Vlad Tenev offered an “apology” of sorts:

We cannot control … the lightning-fast spread of information and misinformation that takes place on social media, and for that I am incredibly sorry to our customers and staff for this.

(Emphasis mine)

That statement is a perfect summary of everything that Robinhood did wrong on January 28.

Tenev and his team lacked urgency to help their customers manage the crisis. They failed to share visible, direct, honest, and helpful information that the public desperately craved. After ten hours of silence, when conspiracy theories filled the void, they blamed “the lightning-fast spread of information” and said it was out of their control.

Robinhood failed to lead—and write—with courage.

Could things have been different?

What Courageous Communication Looks Like

We know what Robinhood did wrong, but how should they have responded instead? Luckily, we don’t need to hypothesize.

Public.com is a commission-free trading platform, just like Robinhood. On January 28, they were also forced to freeze $GME and other stocks during the squeeze. But their response to the crisis couldn’t have been more different.

From their very first message, Public.com’s response to the Gamestop freeze was the exact opposite of Robinhood’s.

In short, it was courageous.

Here’s Public.com’s Tweet announcing the freezing of GME and other stocks:

Our clearing firm, Apex Holdings, has decided to halt the buying of $KOSS, $GME, and $AMC. We are in close contact with the firm and will make sure to keep our members informed as soon as we get updates.

We disagree with this decision and are working hard for our members to resolve the issue. We’ll provide updates here as they happen.

This one Tweet alone nails every rule of good crisis communication.

• Be visible—This message was sent immediately upon freezing the stocks. Public.com’s Twitter account was active throughout the day.

• Be direct—Public.com listed the affected stocks in their Tweet, unlike Robinhood, who refused to mention $GME outright.

• Be honest—Public.com shared everything they knew about the situation with their customers, including the fact it was their clearing firm that forced them to halt trading.

• Be helpful—Public.com promised to keep their members informed.

• Be accountable—It wasn’t Public.com’s fault that trading was halted, but they took responsibility for resolving the issue as quickly as possible.

• Be human—Public.com publicly disagreed with the decision to halt stocks, a decision that actively hurt their customers. You can sense their urgency in this Tweet. They didn’t just recite their mission statement—they were living it.

• Provide next steps—Public.com said they were working closely with their clearing firm and promised updates to their customers.

But here’s the most amazing part of Public.com’s response on January 28:

Less than ten hours after freezing the stocks—and a full forty-five minutes before Vlad Tenev’s Twitter thread explanation—Public.com resolved the issue with their clearing firm and unfroze the stocks.

Courageous writing leads to courageous action.

Public.com turned the Gamestop crisis into a golden opportunity. In February 2021, the company raised $220M in venture capital to become the real trading platform for the people. In the year that followed the Gamestop debacle, Public’s user base grew 700%.

Robinhood, meanwhile, has struggled to rebuild trust in their platform. The company went public in July 2021, but their stock has since fallen more than 80 percent. With little brand loyalty to buoy them, they are now a prime target for a corporate takeover.

Great founders say what needs to be said, even when it’s hard. They choose to be visible, direct, honest, accountable, helpful, and human in their communications. They don’t let a crisis overtake them. They step up and lead.

The Gamestop short squeeze gave us two excellent case studies to learn from. One was an industry leader whose lack of courage may still cost them everything. The other was a contender who turned the crisis into a massive win by putting their customers first.

The choice is yours. Will you lead from the front?