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Cloud-based e-commerce platform Shopify joins the crisis club after its chief executive, Tobi Lutke, dismissed claims about the veracity of its growth rate by short-seller Citron Research. The company’s stock price fell after the CEO’s comments.

In a call with analysts, Mr. Lutke defended his company’s business model, saying it is designed to let smaller companies more easily tap into online sales. “Not everyone can wrap their heads around this new retail and distribution model,” said Mr. Lutke. He also responded to claims by Citron that Shopify doesn’t adhere to  Federal Trade Commission rules and that the company’s share price is overvalued, saying: “I honestly believe that the best companies do not engage in short-term stock price, sort of ’management’, if you will, and neither do we.”

The experts break down how well Shopify has handled this crisis from a communications standpoint.

Carreen Winters, chairman of reputation and chief strategy officer, MWWPR: “When it comes to short sellers and their contrarian narratives, the question for any management team is always: to respond or not to respond? Shopify’s decision not to respond for nearly 30 days left the short seller’s narrative unchecked at a time when investors needed transparency and certainty.

“When management did ultimately respond to the questions about the validity of the business model and the company’s perspectives about both growth and risk, it failed to really address the heart of those issues, simply saying the shorts ‘don’t get it.’ While this approach may be effective for an iconic tech leader with a long track record of proving naysayers wrong, in this case it further emboldened the short-sellers and raised questions about why management was dodging the issues.

“Regardless of whether a misunderstanding about the company’s model and strategy exists, dismissal of the questions without explanation is rarely an effective remedy. Changing the narrative takes a combination of transparency and performance over time. The company would be well-served to take a more education-oriented approach–welcoming questions about the business and helping to educate investors and potential investors while carefully establishing interim benchmarks of success to build support for their strategy.

“Intangibles such as strength of management are significant contributors to Wall Street perceptions—and, ultimately, to valuation. In the face of short-selling activity, companies have the opportunity to demonstrate the strength of management in their response by being available and transparent. Shopify’s approach gave the impression it was either dodging questions, dismissing concerns or both. There is a fine line between confident support of your company’s vision and over-confident dismissal of questions and insulting of the questioners in the process.”

Harvey Hudes, founder and CEO, Caliber Corporate Advisers: “The relationship between companies and research firms, especially around earnings season, can be a fine line for any chief executive to walk, especially today as an increasing number of activist investors, analysts and research firms are looking for mistakes or red flags in any corporate communications.

“Following Citron’s comments about Shopify’s business model and share-price valuation, Mr. Lutke did well to address in his call with analysts the key concerns Citron cited. When stock price concerns crop up for publicly-traded companies, it is critical that senior spokespeople address each concern in a timely and fact-based manner, rather than the company issuing a blanket statement with no name attached.

“When Mr. Lutke stated that Shopify’s business model was not something everyone ‘can wrap their head around,’ he could have elaborated on how the model is meant to be successful. If Shopify is hearing this concern from one research firm, it’s [possible] others, including current and potential investors, may also not have a depth of understanding of the company’s business model. It would be advisable for Mr. Lutke to cite data or commentary from a third-party expert specifically addressing Citron’s FTC concern, allowing the company to quash any concerns with facts from an outside expert.”

Jolie Balido-Hart, president, Roar Media: “If Shopify Chief Executive Tobi Lutke believes a few dismissive remarks are sufficient to allay concerns about the company’s true growth rate, he would be well-advised to shop around for a more effective approach. Addressing questions raised by Citron Research, Mr. Lutke’s statement ‘not everybody can wrap their heads’ around the Shopify model suggests, perhaps inadvertently, that industry analysts may be intellectually deficient and comes off as an evasion.

“A further statement regarding how ‘the best companies do not engage in short-term stock price management,’ is rather dismissive, lacking supporting evidence to show his company is in fact not overvalued. Importantly, the tone underlying both statements can be construed as somewhat condescending, further fanning negative public opinion. Mr. Lutke missed a prime opportunity to enlighten and inspire investors with his vision as an industry disruptor who is seeking to transform the retail and distribution model. Instead, he reinforced the perception Shopify is not being collaborative with key stakeholders.

“Effectively managing crisis situations involves being prepared, transparent and, wherever possible, building bridges. In this situation, Mr. Lutke lacked facts to substantiate his statements, which were also light on believability and could serve to alienate, rather than win over, naysayers and investors. The need for Mr. Lutke to develop stronger messaging is confirmed by the drop in the stock price. Going forward, the CEO must communicate in a visionary manner that builds engagement, credibility and trust, and which is at the heart of being an innovator.”