Public companies report to shareholders every year, and many of them open the annual report with a letter from the top. Most of those letters are forgettable. A few are not. Berkshire Hathaway, for example, keeps its shareholder letters posted going back to 1977, and people still read the old ones because they explain how the business was thought about, not just what it earned.
Private companies rarely do this. There is no one demanding it, and an owner already knows the numbers. Why write them down in paragraphs?
I have come to think that is exactly the reason to do it. The letter is not mainly for a reader. It is for the writer.
Writing exposes what reports hide
Financial statements tell you what happened. They do not tell you why, and they do not tell you what you believe about it.
When you sit down to explain a year in plain sentences, you discover quickly which parts you understand and which parts you have been avoiding. It is easy to look at a margin that declined and move on. It is much harder to write a paragraph explaining why it declined and what you are doing about it, without the paragraph sounding like an excuse.
That discomfort is the value. A dashboard lets you skim. A letter makes you commit.
What to include
The format does not need to be elaborate. A few pages, written the way you would explain the business to a smart friend who does not work in it.
What the business is for. One or two sentences. If this is hard to write, that is worth knowing.
What happened this year. The real story, not the highlight reel. Where it grew, where it struggled, and the reasons for both.
The decisions that mattered. The few choices that shaped the year, including the ones that turned out badly. Writing honestly about a bad decision is uncomfortable. It is also how you avoid making the same one again.
What we got wrong in last year's letter. This only works from the second year on, and it is the most valuable section. Reading your own predictions from twelve months ago is humbling, and useful.
What we expect next year, and what would change our mind. Not a forecast so much as a set of beliefs, along with the evidence that would prove them wrong.
The people. Who carried the business this year. Not as a thank-you paragraph, but as an honest account of where the strength is and where it is thin.
Write one for each company
In a portfolio, I think each company deserves its own letter, written or at least drafted by the person running it.
That changes the exercise. A leader who has to explain their year in writing, to the person who allocates capital across the portfolio, thinks differently about the year while it is happening. It also gives me something better than a slide deck to understand the business: their own account of it, in their own words, including what they chose to emphasize and what they left out.
What gets left out is often the most informative part.
Who else might read it
Even if the main audience is the writer, others can benefit.
The leadership team. A shared, honest account of the year aligns people better than a kickoff meeting full of goals.
Partners and lenders. A bank or a long-term partner who receives a thoughtful letter every year learns how you think. That builds trust before you need it.
Future you. Five years of letters is a record of how your thinking has changed. It is also a remedy for the selective memory every founder develops about the past.
Not everything belongs in a version others will see. Keep a private version if you need to. The important thing is that an honest version exists.
Why year-end is the right time
November and December are already full of planning, budgets, and holiday schedules. Adding a writing project can feel like one more thing.
But the letter makes the planning better. It is much easier to set priorities for next year after you have written down what actually happened this year. Without it, planning tends to start from where you wish you were rather than where you are.
I would suggest a simple schedule. Draft it in early December, before the holidays. Let it sit for a week. Reread it in January with fresh eyes, and fix anything that reads like spin.
Make it plain
The temptation is to sound impressive. Resist it. The best annual letters are written in ordinary language, admit what went wrong, and explain the thinking behind decisions.
If you cannot explain your business plainly, you probably do not understand it as well as you think. If you can, you have a document that will be worth more every year you keep writing it.