Boards That Rock

I help high tech companies with strategy day-in and day-out.  Strategy can appear in many forms, including:

• Business plans prepared for investors, acquirers, and employees.
• Presentations and white papers intended for customers, partners, and industry analysts.
• Messaging on a web site or in collateral.
• In presentations and position papers written for the Board of Directors.

In most growing tech companies, the Board of Directors approves the strategy and monitors the strategy and operations over time through periodic board meetings, committee meetings related to finance, strategy, and operations, and the delivery of monthly reports by management to the board.  This system has worked well for many companies; however, as a growth company CEO, you should ask yourself one fundamental question:

Are your outside Board Members paying attention?

You would think that answer would always be, "Yes, absolutely."  In fact, frequently, this isn't the case.  Here's why.  Time management issues and competing priorities get in the way.

Growth company boards typically have five or seven members that are divided like this:

• Two inside directors - usually the CEO and another senior executive, like the President, CTO, or CFO.  Obviously, the inside directors are very busy running the business; however, they also have the responsibility for dealing with the Board - both during and between meetings. 
• One or two outside investors, who frequently sit on many outside boards.  I know some investors who sit on 10 or more boards - each of which meets at least once per quarter.  It's a guarantee that at least one of these companies will be experiencing a "big time crisis or opportunity" that will suck up an inordinate amount of time.  Plus, your investors also have to look for and evaluate new investments.  Therefore, they are time management challenged.
• One to three independent directors, who typically have many other corporate responsibilities.

Given these constraints, here are my tips for operating a successful Board of Directors:

• Dealing with investors.  Generally, you won't be able to pick which investors sit on your board.  You will, however, want to establish a strong working relationship early.  Schedule regular communication through conference calls or lunches (if the investor lives in town).  Tell your investors about your successes and challenges between board meetings and ask for advice.  Script your conversations before your make them, but don't hold back material information.  Like in the operation of your business, casual communication is when the most information exchange and work gets done.
• Independent Directors.  You probably will have a say on who your independent directors are - either because you picked them before an investment was made or your consent was required as part of the investment.  Independent directors want to be helpful, and, operationally, they usually bring a ton to the table.  You should look for independent directors who can shadow the key functions in your business and who understand multiple business models - not just the business model that made them successful. For young startups and growth companies, there are three types of independent directors that are particularly valuable:
• Go-to-Market Monsters love selling and marketing and who can give you advice on how to organize and measure a sales force, generate demand, and position against the competition.
• Product and Technology Beasts know how to build and deliver things that businesses or consumers will buy. They understand technology, product management, and product roadmaps.  If you're lucky, they've launched successful products in multiple markets.
• Operations & Scaling Machines are valuable when your company starts to "cook with gas."  It turns cash flow positive, revenues double in a year, and you are hiring people faster than you can meet them.  If you thought the start up phase was hard, wait until you get here. The way you do almost everything from selling to customers to building products and providing aftermarket support will need to change.  You don't need this type of board member out of the gate, but, when you hit your stride, Scalers help you manage the Big Leap to a sustainable growth company.
• Your Management Team & the Board.  So why did I suggest those three types of independent directors?  It's pretty simple. The right directors can help you get to the next level in unexpected ways.  Certainly, your investors will be stewards of their investment, and they will push you to build your company so that you can sell or IPO at the right price down the road.  Your independent directors can serve an equally important purpose; they can work with you and your management team on key issues to avoid problems or seize on opportunities.  Here are some areas where independent directors can be valuable:
• Establishing the right incentive structures for salespeople.
• Working through competitive issues.
• Prioritizing product requirements.
• Resolving HR issues.

Let me just say that you shouldn't be bat phoning your Directors with every little question known to man.  You should organize your information concisely, get the right people in the room, and talk through issues efficiently.  Two hours is a long time for this type of conversation.  Getting to the point is the name of the game.

This approach has several advantages:

• Your directors get to know and appreciate your team.
• Your directors get to understand your business much better than if they were just coming to your board and committee meetings.
• Based on their advice, you can make progress much more quickly on key issues.
• You can identify unexpected issues early and deal with them.

Finally, there are some things you should avoid at all costs when dealing with your board:

• Avoiding Bad News.  Don't withhold bad news or try to spin it to make it look good.  Bad news is bad news.  You need to be straightforward and factual about it and have a plan for dealing with it.  If you need advice remediating a problem, make sure your board members weigh in.
• Behind the Scenes Gossip. It's a simple fact that board members talk to each other when you're not around.  When a company isn't doing well, these conversations happen more often.  You want to make sure that every board member has the same set of facts at roughly the same time and, whenever possible, you are involved in debates over company strategy.
• Star Directors that won't put in the time.  You might get the opportunity to attract a "star" director that would raise the profile of your company and attract investor, customer, and partner interest.  Beware of shiny objects in the form of directors.  The star still has to be willing to work - providing operations advice, coming to board meetings, and opening doors, when needed.  If your star is there to add a halo to your company and nothing more, you should probably think twice about the addition.

In closing, let me discuss something that can inevitable.  Your board might decide that your services as CEO are no longer needed.  Many CEOs are shocked when this happens, but, assuming that you're aren't grossly incompetent, you should just chalk this up to the vagaries of business cycle. There are CEOs that are great at starting, scaling, and driving exits for companies.  It's pretty rare that the same CEO fits in all three categories.  Recently, I came across a couple of statistics that really tell this story in spades:

• On average, newly IPOed companies were on their third CEO.
• On a $100 million exit (either sale or IPO), the founding CEO typically made $6 million.  On a $1 billion exit, the founding CEO also makes $6 million.  Partly, this is because the founding CEO was diluted over time, but, mostly, it's because, by the time a company achieves a $1 billion exit, the founding CEO is on to the next, big thing.