Wednesday, July 20, 2016
One of the first decisions an entrepreneur needs to make once she has raised money for her great new idea is to build a board.
This is a conscious act. Yes, your investors probably have board seats, at least the lead investor will. If your investors are angels maybe 2 or 3 of them have demanded to be on your board. But beyond this crew you owe it to yourself to step back and think about who do you want on your board to help you build your company.
It is entirely reasonable for you to put one outside director on your board, and it's an unusual set of investors that will not allow you to bring one new director on. And when you do, you want to bring on a current/former CEO.
Why a CEO? Why not a technologist, or a family friend, or your cofounder? Fundamentally, a current/former CEO is going to have seen your movie before and will bring a wealth of unexpected advantages to your board and your company.
Your board has a duty to represent all your shareholders, but more than that they have a responsibility to care for the company first. For your employees, your reputation, your probability of success. Having a board member who is truly independent of the investors can help bring a broader perspective to the board discussions. I have seen investors who are so focused on their own issues they lose sight of what's best for the company. An independent director can take her role - as the one person who is not worried about the timing and size of liquidity but is instead worried about the long term success of the company - very seriously.
I met with a big time PE partner (let's call him Adam - not his name) recently, who is sitting on a private technology board. As we talked he told me the CEO was dealing with the issue that he, and the other big time PE firm on the board have different agendas. One is a long term investor, one is interested in liquidity sooner, and the difference is a strategy problem for the CEO. The investors are balanced in ownership and the CEO is caught in the middle. I asked Adam "Why is this the CEO's problem? Surely the CEO's responsibility is to grow a great company and create the greatest value he can, not worry about negotiating between the two of you on the timing of an exit. It's a ridiculous waste of his time". Adam (figuratively) took a step back and agreed. I'm not on this board, but I can still make the case for the CEO not being distracted!
You're going to need advice as you build your company, great advice. Yes your investors may know a few people, but you want to be referred to people who are not looking to your investors for future referrals, again who are truly independent. You'll need lawyers (you want a pit bull in your corner unless you have truly world-class VCs), recruiters, marketing consultants etc. etc. And when you hire them you want to know they are loyal to you, not back channeling to your investors. An independent CEO should have a quality network for you to tap into.
Working for you
There will be times when you need to get something done but you are out of time and need some sleep. You can use your CEO/director to give you capacity. Maybe you need her to build a model for you, maybe you don't know how to present an issue to your board and your director can build a sample presentation for you to help you frame the issue. At a minimum your director can do deep reviews for you of your own presentations, legal agreements, offer letters, compensation plans... with the eye of someone who has done it before.
A high quality former CEO will bring experience of what the job really entails. What are you truly responsible for vs what decisions your board can make (which is very few in reality)? What does it take to build a world class team? What does it take to close your first few big deals? How to focus. Only someone who has done the job for many years really knows what it takes, and there are many investors out there who like to give you advice, but have never been in the role. Your director can be a sounding board for you in the role of CEO.
Being the bad guy
Your CEO director is not your friend, and sometimes she may feel like your enemy, but because her only reason to be there is to help the company, you can trust her even when you hate her. I've always had a former CEO on my boards, and sometimes it's been absolutely maddening.
For example, the time my director attacked me in a board meeting and took me to pieces for a plan I proposed. Afterwards I asked him what the hell was he thinking coming after me in a board meeting? He humbled me by telling me he could see my main investor was winding up to attack and so he decided to attack me first so I did not get into a fight with my investor. He knew me well enough to know that if attacked I would attack back, and hard, and that could damage my relationship with my investor.
And for example, the time my director had a one-on-one with me and decimated my forecast. Destroyed my faith in every deal. Ripped every one of my sales campaigns to shreds. His motivation? To wring every piece of optimism out of my forecast so I knew the worst case and could then focus on what needed to be done to bring the probability up on each campaign.
There are times when things go well, and then there are times which are rough. Raising money can be one of those times. Having someone you can call every day to review how things are going is so very helpful, and you cannot be calling your investors. You need a safe place to call. Someone who has no other agenda but to help you and the company succeed. And someone who has been there. That is a current/former CEO.
You may be thinking "well that's self-serving of her given she's a former CEO who sits on boards". Yes, probably right, but right now I am meeting with many, many interesting entrepreneurs, only one of whose boards I have joined so far (www.savonix.com) and I am hearing too many worrying stories of entrepreneurs who need better board advice and support.
Photo from Buzzfeed