Tag: Governance

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E2E: Scale

7 Things an Entrepreneur Should Consider Before a Sale

At Next Coast, we’ve been fortunate enough to have some portfolio companies that recently exited via acquisition and it’s given us a birds-eye view on just how important it is for entrepreneurs to prepare for such a big moment. The sale process is chaotic, unpredictable and stressful and must be managed alongside the day-to-day operations of a scaling a startup. So we reached out to the legal experts over at DLA Piper to give us the nitty-gritty details on what entrepreneurs should expect during this process – and how they can prepare for it. It’s detailed, but that’s exactly what you’d expect from a great legal team helping you cross your t’s and dot your i’s during the roller coaster of the sale process.

By Sam Zabaneh and Brent Bernell, DLA Piper

We see it every day: An entrepreneur builds an amazing business, navigates the perils of raising capital and reaches that transformational moment – the liquidity event – only to be confronted with the enormity of the process. While nothing can truly prepare an entrepreneur for their first sale of a company, we hear time and again from our clients about steps they wish they had taken earlier to make the process run more smoothly. Here are seven pieces of practical advice to help an entrepreneur prepare for this exciting moment:

1. Get organized

Entrepreneurs wear many hats, and bouncing between being head of product, vice president of sales, director of business development and chief people officer, they can sometimes forget how important it is to keep the legal side of their business in order. Entrepreneurs tell us that selling their companies made them wish that they had gotten organized sooner, and for one simple reason: due diligence. In a sale process, buyer due diligence can be a significant burden, particularly when coupled with negotiating the substantive deal points and running a business. Entrepreneurs can ease the burden by getting organized early and staying current. Entrepreneurs should create a contract log and organize all contracts, preferably into an electronic data room. This allows them to be more responsive with minimal effort when a buyer requests contracts for significant customers and vendors.

2. Understand your contracts

Entrepreneurs often tell us that they wish they had taken more time to understand the various contracts that they have already entered into as they built their businesses. As part of the sale process, the buyer and its attorneys will look through significant contracts to identify potential red flags. These can include terms that limit the company’s ability to expand its business (such as non-competition provisions), lock the company into always giving a customer its best pricing (often referred to as a “most-favored-nation” clause) or expose the company to significant potential liability (often through unlimited indemnification obligations). While the main goal should be to avoid these types of provisions, new companies must agree to them from time-to-time in order to close a big sale or secure an important relationship. Sophisticated buyers may find these red flags and make them a significant deal point that results in adjustments to the purchase price or requires special indemnities by the company in favor of the buyer. By understanding existing contracts and putting in place an organized and disciplined contracting approach (including signing authority), entrepreneurs can get ahead of these potential issues – and possibly avoid them altogether.

3. Don’t forget IP assignment agreements

Entrepreneurs are often diligent about the need for trademarks, copyrights and patents, but they often forget how important it is to make sure that the company’s intellectual property, or IP, is secured. During the sale process, a company’s intellectual property history, and how well the company has protected its assets, will be closely scrutinized by the buyer. A company will almost certainly have to prove that all employees and contractors (or at least all individuals that have generated IP) have signed an agreement to protect proprietary information and assign any intellectual property to the company.

Determining whether every employee and contractor has signed an agreement can be a burdensome task, and having gaps in the documentation can make a buyer nervous. Entrepreneurs need to be disciplined in having every employee or contractor sign an agreement and organize them in a central location. This will help entrepreneurs lock up their IP, give comfort to prospective buyers and minimize the risk that an entrepreneur has to concede value to a buyer or chase down current or former employees for IP assignments on the eve of a transaction. We provide our entrepreneurs forms of these agreements, often referred to as PIIAs or EPIAs for employees, and consulting agreements or MSAs for contractors.

4. Run your liquidation waterfall scenarios

As a company evolves, it may develop a complicated capitalization structure with different classes of stock and other convertible instruments (like warrants) that will need to be paid out in a sale transaction. The willingness of these different groups to consent to a deal will depend in large measure on what level of return they are receiving. Understanding how the money will be allocated in a sale transaction can be very complicated and can vary significantly depending on the valuation.

Building out a liquidation waterfall model and updating it for each financing round will make it easier to assess different opportunities and understand where the economic interests of their different stakeholders diverge. Although all companies will need to go through this exercise as part of the sale process, entrepreneurs that do this early will be better prepared to enter into negotiations, evaluate different proposals and manage their stakeholders to a successful closing.

5. Know your approvals

One thing that can come as a surprise to entrepreneurs is how many of their stockholders are required to consent to a sale of the company. Over the course of raising financing rounds, different classes of stock may negotiate for the right to block a sale of the company. Even if the stockholders from that class are no longer the most senior holders or actively engaged with the business, they could still hold those rights. Knowing what approvals are required in advance will help an entrepreneur manage outreach to the most important stakeholders and avoid any last-minute delays or surprises. Understanding the impact of these provisions can also allow entrepreneurs to hold the line during financing negotiations to avoid overly-complex approval processes.

6. Talk to your employees about equity

Employee equity is one of a company’s most important retention tools, and while most companies will discuss it briefly when giving out awards, they rarely provide education to employees about the awards and their terms. Entrepreneurs tell us that they wish they had been more proactive in discussing equity awards with their employees, including what happens upon a sale and how different scenarios can impact tax burdens. By doing so, they could have gotten ahead of the inevitable questions that pop up in the sale process and helped their employees maximize the value of their equity awards.

7. Build a deal team – before there is a deal

A sale opportunity can come out of the blue or it can be the result of a deliberative process, but both scenarios require entrepreneurs to have a team of trusted advisors to assist them during the process. While entrepreneurs will naturally look to their senior management team and board of directors to help them in the process – which they should – having skilled lawyers, bankers and accountants is equally important.

A company can always retain advisors after an offer comes in, BUT having someone you trust, who understands your business and can give you advice in advance of the offer, can be invaluable. Entrepreneurs often tell us that they would not have been comfortable relying on advice from even the most experienced advisors without that level of pre-existing trust.

While some of these items seem like common sense, we regularly hear from entrepreneurs that these seemingly simple actions are often overlooked as they keep their focus on building their businesses – leading to issues when sale negotiations are in the home stretch. By being proactive and planning ahead, entrepreneurs can better position themselves to get the most out of their sale transaction.

About Sam and Brent

Sam Zabaneh is a partner at DLA Piper LLP (US) in Austin, Texas and chair of DLA Piper’s Texas Corporate & Securities practice. Brent Bernell is a corporate associate in the Austin office. Together with the rest of the DLA Piper corporate team in Austin and across the globe, they help guide entrepreneurs and technology companies throughout their life cycle, from idea to public company or liquidity. You can find out more about how Sam, Brent and DLA Piper help entrepreneurs grow their businesses here.

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E2E: Scale

I Am the CEO, Why Am I Confused About How I Should Spend My Time?

How a simple 2 x 2 matrix can help you become a better entrepreneur by understanding the key differences between efficiency and effectiveness.

A recently published New York Times article talked about how our brain tricks us into doing less important tasks, shining a light on how complicated the delicate art of time management can be.

You’d think that, living in an era of technology-enabled efficiency like we do, it would be simple to manage our time. We have time management apps to handle deadlines, reminders, workflows and all the nitty gritty details of delegation. But most of these solutions are focused on EFFICIENCY (doing things right), not on EFFECTIVENESS (doing the right things).

As an entrepreneur, this problem is multiplied exponentially. How and where you spend your time is more valuable than anything you have in your control. Before you ever get to automated workflows and collaborative calendars, you first need to figure out the basics of delegation.

I struggled with this topic as a young entrepreneur and tried every trick imaginable. I found myself wasting hours on tasks someone else could do better, perhaps because I enjoyed doing them. Other tasks I mindlessly handed over to others in the spirit of delegation, even though I was uniquely qualified to complete the task myself.

Unless you are acting as a sole proprietor, the challenge of balancing time management, capital utilization and strategic priorities is a never ending tug of war. And as your business starts to grow and scale, this tug of war becomes increasingly complex. You are faced with countless things to do with limited capital, time and team members.

Michael Smerklo, Co-Founder and Managing Director of Next Coast Ventures

At some point along my entrepreneurial journey—about the time that I was about to either get fired or committed to a mental institute—one of my mentors shared with me a simple four-step process based on the Eisenhower Matrix that helped me with this never-ending dilemma of time management. In fact, this exercise became an annual obsession for me as I sought the optimal formula for entrepreneurial success – in a growth company, the CEO’s job changes almost every three to four months

Step One – Use a 2×2 matrix to figure out what you are uniquely qualified to do

First, create the following 2×2 grid, with the y-axis describing your skill (either good or bad) and the x-axis describing your passion (love or hate) and list a couple of business functions that fit in the various boxes. The key is to figure out exactly what box a particular skill should fit in.

Here are the high level definitions in a bit more detail:

  • Upper Right – I am good / I love it: What task are you, as CEO, really good at doing? Not the things you think you are good at, but rather things that you have verifiable proof that you are uniquely qualified to complete. The key here is not only to determine what you are good at, but to assess how much you enjoy this part of your job.
  • Upper Left – I am good / I hate it: What are the tasks that you are actually quite accomplished at (naturally or from prior training) but bring you no pleasure? For example, I started my career as a CPA so I was actually very good at the financial part of the business, but I dreaded the annual budgeting process. The key here is to feel okay with this box too—not one loves every aspect of the job, not even the CEO.
  • Lower Right – I suck / I love it: This is a pretty dangerous quadrant and one that is likely the hardest to have an accurate read. Do you love engaging in deep product reviews … but flunked out of CS early on in college? Do you see yourself as a natural born sales person, but have never carried a quota in your life? Look long and hard at this box — as it is really, really is an important exercise in self awareness.
  • Lower Left – I suck / I hate it: Usually this seems to be an easy box to fill out, but this quadrant can be a real trap for a lot of entrepreneurs. The key is to make sure you really do suck at the function versus just don’t enjoy it. It is really easy to confuse these two emotions (enjoyment versus proficiency). Challenge yourself to make sure you aren’t actually quite good at something you don’t enjoy or vice versa.

Step 2 – List your company’s top priorities for the next six to twelve months

This should be pretty straight forward from your budget or business plan. Think of the four to five things that if completed will really move the needle for your business. Do you need 20 paying customers in the next 12 months? Is launching the next version of your product critical to moving the business forward? Or maybe your key outcome is centered around international expansion?

As a guide, these should be the tied to key metrics that you have shared with your board or that you have decided are critical for your next round of funding. Basically, your goal here is to list the four to five things that really are “make it or break it” for your business in the next 12 months. Here is an actual list I kept on my desk as a CEO—I called them the “Things That Matter” or TTM.

Step 3 – Compare your grid with your top priorities

Next, take a quick look at your grid. Take special note of how many of the top priorities for the business fall into the upper right quadrant of your grid. Here is an image of my grid from the early days of my CEO tenure:

By reviewing this grid against your top priorities, you can quickly determine where the gaps are and make decisions as to what you will focus on personally. You can also see where some big gaps might be and these should be your immediate focus as it relates to your team.

If your top goal is to acquire 10 new customers, but you hate selling, you better have a great sales leader on your executive team. If not, get hiring ASAP! On the other hand, if “get MVP in the market” is your key goal and you just happen to have spent five years in Product Management at Google, chances are that you can drive this outcome without a big external hire.

Step 4 – Allocate your time based on the grid

One mantra I learned early on was another simple concept: It is far easier to use the skills you already possess than to acquire new ones. In short, spend your time playing to your strengths and hire a team to overcome your weaknesses. For the grid, this means spending as much of your time in the upper right quadrant (good, love) and building out a team for the other areas of the matrix.

By using this quick four step process – and comparing it to your top business priorities – you can quickly see what areas you should engage in (even temporarily) and what areas you should quickly seek help in. This is, after all, the essence of effective delegation and time management.

NOTE: This post was originally published on Richtopia.

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E2E: Scale

A Bad Board of Directors Can Ruin Your Company

Note: This article originally appeared on Entrepreneur.com on February 2, 2018. It has been republished here with the permission of its author, Neal Dempsey. You can find the original article here.

Companies live or die by the people who run them. The product is almost insignificant compared to the influence of humans, good and bad. That includes the board of directors. Founders should take great care when choosing their board members because an inexpert board of directors can bring a company down.

Not every company has choices about investor money or the board members assigned by the investors. However, think of investors and board members like a marriage. You’re going to be together for 7-10 years, so you’d better be sure it’s a good match.

While investors perform extensive due diligence on companies before giving money, founders don’t often take the time to scrutinize investors. That’s a mistake. It’s not only your right, but it’s your fiduciary duty to research your investors. Spend time with them – get to know them. Understand their strengths and weaknesses, just as they understand yours. Make sure you call other companies they’ve invested in and get a good understanding of how they work with their investments, function as a board member and interface with the CEO and management.

Neal Dempsey, Managing General Partner, Bay Partners

Just because an investor has previous successes doesn’t mean he or she is a good match for your company. Your board members need to understand how fragile companies are in the early days. They need to know how to move the company to a more secure position in the market. Maybe the board member has a big name with a big company, but that may not be what your company needs. Chances are, that person will give advice based on what a big corporation would do, and that can drain your resources and cash. Small companies need to be lean and act quickly. Big companies function on big revenues and slow, bureaucratic decision-making. If your potential investor or board member doesn’t understand the difference, he or she may not be right for you.

Early stage board members need to be more hands-on with the company. For example, one investor I know sat on the board of an early-stage company that was about to run out of cash in 30 days. Giving advice wasn’t enough. He worked with the founders to develop a tactical plan that would bring in the customers and cash they needed to survive. The founders drew a 30-day calendar on a white board. They labeled each day with a minimum new revenue number required to meet the 30-day survival plan. The investor was in the office every day during that time, helping them navigate challenges and find additional customers and revenue sources. Investors need to be big picture, strategic thinkers. But sometimes, they need to be doers and make things happen for the company. Investors and board members may not manage the company day-to-day, but in the early stages, board members are almost part of the executive team.

READ MORE E2E CONTENT ON BOARD MANAGEMENT

Choose board members with a breadth of experience that rounds out your management team. If you’re a technologist, bring on advisors who are good at sales and marketing. If the CEO is a sales expert, include a product development or technical advisor. Seek a human resources specialist to think through strategic hires. The board should complement the founders’ skill sets and bring needed expertise for growing and pivoting the company as needed.

On the other hand, the board shouldn’t run the company in place of the CEO. The CEO still needs to have the final say. One founder I know deferred to the board’s insistence on a particular hire to lead the North American office. The CEO did not think this person had a good understanding of early-stage companies, the market or his customers. The board liked this guy because he had successfully run divisions of big companies. In fact, the board all came from big corporations, so they were most comfortable with like-minded, big company people. The founder hired the person despite his apprehensions, solely on the recommendation of the board. That hire almost ended his company. The new hire spent most of the company’s investment money on all the wrong things and accomplished none of the company’s goals. The hire set the company back years because they couldn’t get a second round of funding. The board misguided the CEO because they didn’t have early-stage experience. Today, the founder says his big regret was not only choosing a board who didn’t understand his business, but blindly following their advice.

Conversely, one of the companies I invested in had a CEO who was quite skeptical about taking investor funding. She carefully interviewed each potential investor. One venture capital (VC) firm pulled what we call a “bait and switch.” They put their top leader forward while courting the company, and then when they were ready to close the funding round, assigned a younger, inexperienced associate to sit on this company’s board. The VC firm thought they had the deal locked in, but the CEO did not respect the inexperienced board member and as a result declined the funding deal. Stunned by her decision to leave them out, the VC firm begged to repair the relationship. The founder only let the investors join the funding round once she noted in the contract that the young associate would not be allowed to sit on her board or advise her company, and the most senior partners would be the only ones to interact with her. That was a brave decision, but she knew over time, that board member would be fatal to her company. A lesser funding round might make things harder in the short-term, but avoiding a toxic board member was the right long-term decision. In the end, by standing up to the investors, she got everything she wanted.

Be as selective with your investors and board as you are when choosing a spouse. Find investors with experience in your market and early-stage companies. Don’t worry about getting the flashiest name you can get. Make sure advisors truly understands your vision, business and bring real value. Get reference checks from their portfolio companies, customers and employees. Learn what they’re like in the heat of battle when things are tough, because there will inevitably be hard times. How do they solve problems? How do they mentor founders through the difficult trials? Turn down a bad investor or board member if necessary. Most importantly, be the driver of your company, even after you’ve selected your board. Follow your gut. Chances are your instincts are right.

About Neal

Neal Dempsey is the managing general partner at Bay Partners. He joined Bay Partners in 1989 and focuses on SaaS, software, enterprise, Internet and eCommerce companies. He created the Dempsey Foundation and founded the Center for Innovation and Entrepreneurship at the University of Washington Foster School of Business. He had 3 IPOs in 2012 with Eloqua (which was acquired in 2012 by Oracle for $871 million), Enphase Energy ($242 million) and Guidewire Software (market cap: $2.09 billion). Dempsey is an adventurer who has climbed six of the seven tallest summits in the world. He says of his propensity for risk: “My philosophy is to always do something that scares you, which includes investing sometimes. But that’s when I feel most alive.”

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E2E: Scale

Know Thyself, Know Thy Leader: Steps To Hiring A Successful Sales Leader

Michael Smerklo

Many parts of scaling a business are about the basics, the time-honored fundamentals that CEOs have used time and time again to grow a company. These pillars of running a successful business rarely warrant exceptions, but there are some business functions that require a leader to develop their own formula for success — unique to their product and unique to their company culture.

This is especially true when it comes to picking a sales leader.

Take it from a former CEO that has lived the pain of this personally: Sales excellence and hiring great sales leadership is the most important determinant of success for a high-growth company looking to scale.

Unlike like other business initiatives — such as choosing a CRM system or designing the company’s web site — hiring a sales leader does not allow for a generic, one-size-fits-all formula. Rather, it is a unique learning process, one that each CEO must sit down and take an introspective look at to develop — and then learn to repeat. When approaching a complex business problem like this, the key is to peel back the layers to get to ‘first principles.’ From there, you can build a great business with the right leader for your specific sales process at the helm.

Along my entrepreneurial journey, I made a ton of mistakes with this challenge before finally nailing down the formula that led to a successful, scalable solution for finding my head of sales. Let me save you from making the same mistakes by sharing those growing pains.

At first, I did what most first-time CEOs do with sales hiring — I assumed that the only thing I needed to do was “hire the right Head of Sales”.

I was convinced that scaling the sales function was entirely dependant on making a great leadership hire so that is what i focused all of my energy on. And because I never hired a Head of Sales before, I relegated my interview process to time honored sales attributes — chronological resume review and basic questions about historical results and quota obtainment. This formula led me to fall in love with candidates that fit into a quintessential salesperson mold. Alas, I was dumbfounded when these great-on-paper hires failed at selling our software.

A prime example of this was the very first vice president of sales I hired — let’s call him Fred. Fred was one of the best interviewees I had ever met. He had long track record of sales success, extolled wisdoms about sale processes and swore up and down that he would hire an amazing team of ‘his guys’ that would drive us to sales greatness.

Well, Fred failed to sell anything, and his sales team of Fred carbon copies failed to sell anything either. So I fired him and found that not only had my business not scaled from a year earlier, I had actually gone backwards. So what went wrong?

It turns out I didn’t really understand my own customers’ buying process at all. Don’t get me wrong, I was deeply involved with our customers and understood our value proposition cold. But Fred never stood a chance because I hadn’t done my own objective research on what it would take to build a repeatable, scalable sales process of our unique ‘buyer’s journey’ for the organization.

How was a sales leader supposed to optimize the sales process when we didn’t even understand what our sales process was — and what it wasn’t?

This realization brings me to the first step of this process. And step one, like most business challenges for young CEOs, starts with stepping back and reflecting. Reflecting on what is truly unique about your business and the needs of your customers.

Start with simply determining how you are winning at sales. You do that by looking at the very end — the closing of the sale — and working your way backward. Ask yourself some basic questions about your product, who closes the sale, and how they got there. If you, as CEO, are heavily involved in sales, what do you specifically do in the process to help close the sale? Are you selling a transactional, high volume solution or a large, complex enterprise product? What attributes of your solution matter most: ease of implementation, financial benefits or cutting-edge technology?

Essentially: think about what makes the ultimate buyer say ‘yes,’ and painstakingly map out every step of the process from there.

An integral part of guiding this mapping exercise entails looking at your very best sales leaders and spending time understanding what they do to be successful. Is the sales leader enlisting a team with scrappy, cold-calling tactics or is it interconnected industry veterans that are networking their way into a sale? Is depth of product or industry knowledge key to sales success, or is it more important to build compelling financial models to win the day? Nailing down these sales leaders’ strategies is when your unique formula starts to take shape.

The next step gives your formula its teeth, it does this by taking the proven sales process and mapping out what attributes are needed in a head salesperson for them to be successful — and to a lead a team that will be equally as successful.

Identify the repeatable techniques and personality traits of the sales representatives that allows them to win at selling your product. Only then can you begin building a recruiting, hiring and training program that is tailored specifically to test for these attributes in a sales leader. This is crucial, because many CEOs try and clone the first principles that the sales process and your company culture rely on. However, it is cloning the attributes and techniquesthat nourish those first principles that allow your sales leadership thrive with your specific process.

For instance, looking back at my mistake at hiring Fred, it was clear I didn’t really know why and how we were winning sales with our product. I hadn’t mapped out the attributes necessary to make our sales leader successful in our particular brand of sales. So how in the heck was good-on-paper Fred supposed to come in and champion a sales process we didn’t even understand?

When analyzing what your optimal ‘Fred’ is like, it can be just as important to know which attributes you don’t want as it is to know which attributes you do want in a sales leader. There are many ways to vet these potential executives to see if they have the personality, techniques and experience to succeed in your particular formula for proven-sales glory. We liked a case-method of interviewing, but there are others like personality assessments or role playing sales scenarios that can force interviewees out of their classic salesman routines and into your specific buying process.

Once you have decided on an interview process and appointed a successful leader, be sure to track your sales leader and their team’s success over a six, twelve and eighteen-month period. Make sure that the formula you invested so much time, energy and hard work into is still getting it right. As market conditions shift, you may need to develop a formula 2.0, but as long as you are committed to understanding the unique ways the sales team works with your product, there is no reason you can’t consistently have a thriving sales leader at the helm.

Don’t cut corners with this seemingly tedious and elongated plan — and don’t assume that scaling sales is all about making one great hire.

Getting sales right is the key to taking your idea, dream or emerging growth to the next level. Only by knowing thy self will you be able to know thy sales leader when you see them.

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E2E: Scale

The 3 Mistakes I Made Learning To Manage Time

This post originally appeared on Forbes.com on January 4, 2018 where Michael Smerklo is a regular contributor.

As a CEO, smart time management is critical to success. Let me tell you a dirty little secret: It doesn’t always come naturally, especially to entrepreneurs that become executives.

When I was just starting out as an executive, I found myself struggling with a seemingly infinite to-do list and not enough hours in the day to get everything done. I was determined to break the cycle. With practice, self-awareness and a few strategic adaptations, I learned how to correct what used to be my biggest time management mistakes:

Mike Smerklo, co-founder and managing director of Next Coast Ventures

1. Wanting to spend time doing what I’m good at, when I should have been delegating.

By definition, CEOs are doers. We are committed to our company’s core purpose and are ready to work hard to advance our goals. It excites us, it invigorates us and it imbues us with a hero’s mentality: the idea that we are the only one that can bring the necessary experience and the perspective to successfully complete a task. And we’re willing to work ourselves ragged to do it.

For example, when it came to going on sales calls, I always found myself ready to jump on a plane to fly across the country to attend a sales meeting. I liked them, I was energized by them, and I felt like I was adding value to the company. After some reflection, though, I realized that just because I have that skill doesn’t mean that others don’t. I was spending a ton of time doing something that in most cases, I could have delegated to a trusted, qualified employee. My own time could be better spent elsewhere.

Now, I focus on tasks that I am uniquely qualified to do. When my instinct is to say yes to yet another commitment, I stop and question myself to determine whether it is simply something I enjoy, or whether there is someone else who is equally skilled for the job. It also means knowing when to say no, even when you may disappoint someone – or yourself.

2. Staying busy instead of staying effective.

It is easy to fall into ‘the busy trap,’ as described by Tim Kreider in his article for the New York Times. It’s where we run around talking about how busy we are, but not really putting a lot of thought into where all of our time is going and why. The temptation here is clear: as long as we’re always doing something, no matter what that something may be, we can tell ourselves that we are productive. We find comfort that we can pat ourselves on the back for ticking boxes off of our seemingly never-ending checklist.

Photo courtesy of Steve Buissinne, Pixabay.

But what if we’re ticking off the wrong boxes? Staying busy doesn’t necessarily make us productive, and it certainly doesn’t mean we’re being effective. It usually just drives us to chase tasks that are easily within reach instead of the ones that are most important.

I often used to find myself seeking that rush of instant gratification, so I’d send yet another e-mail or even decide to fly and visit some small customer just to feel like I was getting something done, even if it wasn’t necessarily the most important priority.

Lately, I’ve been able to overcome that urge for immediacy by starting my day meditating for 20 minutes. This practice allows me to clarify my thoughts and helps me to take a step back away from the hustle and bustle. After meditating, while I’m still in a clear state of mind, I write down the two or three most important things that I want to get accomplished for the day. This helps to hold me accountable, making sure that I don’t trick my mind into believing I’m productive when I’m really just busy.

READ MORE OF OUR E2E CONTENT ON TIME MANAGEMENT

3. Using procrastination to avoid tasks I didn’t like.

Even after I started sticking to my carefully crafted list of the most critical tasks to accomplish, I found that the task that I was most dreading somehow always made its way to the bottom. I’d start with the easiest or most comfortable task, and save the most uncomfortable one for last.

Sometimes, it was something I was good at, but didn’t particularly enjoy. Like budgeting, for instance. Other times, it was something that I didn’t want to face, like firing an employee who I liked, but who wasn’t producing. Either way, I realized that there’s a thin line between sensibly putting something off and procrastinating, and that I was often guilty of the latter.

I discovered a two-step process to help me overcome my own delaying tactics. First, I began to rank-order my list in terms of priority and made myself tackle the tasks in order. If something was at the top, I had to suck it up and get it done. I wouldn’t let myself make excuses. If for some reason I decided that it wasn’t suitable for me to be the one to execute one of the tasks at hand – see mistake number one – I could then make the decision to delegate. Either way, my habit now revolves around not letting myself move on without addressing the task at hand.

Time is money, and so much more

There’s an overused saying in business that ‘time is money.’

But it’s more than that. It’s sanity. It’s self-satisfaction. It’s freedom. A better, more mindful approach to time management helps us get our priorities straight, leaving us more fulfilled both in the workplace – and in life itself.

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E2E: Scale

Good Governance: Six Proven Principles with Joe Mandato

Note: This post was written by Joe Mandato and was originally published on his Medium page on October 13, 2017 – as an investor in Next Coast Ventures, he agreed to let his work be republished on E2E. Joe is the Managing Director at De Novo Ventures & Senior Advisor to Mainsail Partners. You can read more E2E content on board management here.

Innovators are consumed with crossing the chasm, but when they take other people’s money they also need to practice good governance — here are six governance principles they can rely on.

I served on the board of a company that was nearly destroyed by poor governance. The co-founder and CEO resisted the input of board members, avoided recruiting an experienced world-class board member, allowed the board to be stacked with rubber-stamp investors, and spent many millions of dollars on a failed strategy. Only after three years of this did the board terminate him.

Innovators, you can easily take early action to avoid such a fate. But you’re often so consumed with the winner-take-all mantra of the tech industry that you dismiss the simple practices of good governance. In an attempt to reverse this culture-run-amuck, I want to offer up six nuts-and-bolts principles that I believe constitute strong board governance.

Joe Mandato, Managing Director at De Novo Ventures

1. Know the board’s duty.

Venture-funded companies often operate under Delaware corporation law. Under this law, directors must exercise their “duty of care,” which is defined as the degree of care an ordinary person would use when making key decisions and to obtain all reasonably available materials and inputs before making such decisions. Directors also must exercise their “duty of loyalty,” which requires them to act in good faith and in the best interest of the company and all shareholders. Innovators who are taking other people’s money must a priori understand that the board has a fiduciary obligation to take actions that will not only create shareholder value but also maintain the health and viability of the enterprise. This applies from day one of the creation of a board.

2. Recruit directors who add specific skills to the company

Investors expect board seats at the time of their cash investment. Knowing this, entrepreneurs should ensure the remainder of the board, beyond investors, is diverse and consists of people with the skills, expertise, and contacts for company success. What are the biggest opportunities the company should pursue and the biggest challenges the company needs to overcome? What skill gaps exist at the board level for addressing these opportunities and challenges? Fill gaps accordingly. It’s straightforward, but companies rarely approach it that way. Take Theranos, for example — two of its early board members, George Shultz and Henry Kissinger are long on pedigree but short on relevant experience. Less pedigree and more experience would have helped co-founder Elizabeth Holmes as she navigated growth challenges.

3. Structure the board for sustained growth

At a minimum, an early stage company should have a lead director who can strongly balance the founder and CEO, but I prefer full separation of the CEO and chairperson roles. Also, put in place a committee structure that includes compensation, audit, and governance committees, each chaired by a director with relevant experience and interest. Create ad hoc committees to deal with specific issues such as financings, IPOs, and acquisitions. I recall that as a director of and investor in Avedro, a company that markets a device to treat eye diseases, I was duly impressed when its CEO, Dr. Reza Zadno, early in his tenure recruited a world-class, former public company CFO to head up the board audit committee.

READ MORE E2E ON BOARD MANAGEMENT

4. Ensure the board chair sets the board agenda.

The board chair sets the agenda for each meeting and should start with a review of the company’s performance against goals. Explain shortfalls and surpluses and the implications for the future. One tech entrepreneur I know, Pervinder Johar of Steelwedge Software, where I was an investor, began board meetings with this context:

  • · The State of the Company
  • · What went well this quarter
  • · It would have been even better if . . .
  • · Company Risks and Market Dynamics

After you offer introductory comments such as the above, cover sales and marketing, key performance indicators, cash and capital needs, people, and product development. End with an executive session to discuss the CEO, items management must address at the next board meeting, the meeting itself, and the board itself, including gaps that need filling. I’ve seen some CEOs stick to an agenda template so rigidly that they don’t leave time to discuss critical issues facing the company. “Critical Issues” should be an agenda item for all board meetings. Lead discussion and debate on these issues, even if it requires going past time or scheduling a special meeting.

5. Manage the board

Boards of young companies need to meet more than quarterly because big decisions come frequently; the board should convene every two months (or possibly quarterly with mid-quarter conference calls). Also, hold committee meetings pre-board meeting and as often as necessary. Karen Zaderej, CEO of AxoGen (AXGN), always put the eve of board meetings to productive use by hosting a board dinner that included her executive team. These working dinners, which addressed a single company topic in depth, enabled executives and directors to get to know each other, while going deep on a single issue. I was always impressed that the selected topic received ample board attention and input (I was a director until 2016, and I remain an investor).

Karen also engaged the board with specific projects and paired board members with executives on functional teams to jointly provide input on the company’s strategic plan. She put the quality and experience of directors to excellent use. In managing the board, it’s also very important that the chair hold directors to their responsibility of evaluating management and leadership, including the board itself.

6. Establish a truthful, trusting, and transparent board culture

The board chair or lead director sets the tone. A board’s words and deeds need to demonstrate commitment to being an ethical board and operating in an environment of truth, trust, and transparency, even and especially in the midst of driving results. Period. Uber is a counter example of this. Founder-CEO Travis Kalanick hardly established a culture of truth, trust, or transparency, and the board let him get away with this, only eventually dismissing him, but far too late.

Those are six principles that in my experience form the nuts and bolts of venture-backed company governance. They counterbalance the mandate to develop a technology quickly and own the market.

I want to end on a high note, an example of great governance. In 2011, Sid Satish founded Gauss Surgical, a developer of a software platform for transfusion management in a hospital setting. (I was an early investor in the company.) Satish wanted the company to have a positive impact in a large market, and he made his personal standing a secondary consideration. He recognized his skill gaps and formed a sophisticated board; recruited Jay Watkins, a medical device entrepreneur and investor to act as a coach and independent director; and worked with Dr. Milt McColl, a former Boston Scientific executive, as his chairman and CEO. Satish and McColl formed a team that raised capital and released the product to the market on time and on budget. Satish accepted McColl’s leadership, coaching, and when the time was right, Satish took over as CEO. Gauss today is in the market, enjoys revenues and significant usage and is on its way to becoming a leader in transfusion management.

My thirty years of experience has shown me that innovators like Satish, who lead early and often regarding the six governance principles, are far more likely to grow successful companies than those like Kalanick, Holmes, and others, who flout them.

About Joe

Joe is the Managing Director of De Novo Ventures in the Bay Area. Prior to joining De Novo, Joe served as Chairman of Confer Software, a developer of software. He also served as President/CEO of Origin Medsystems, and co-founded and served as CEO of Gynecare, which was acquired by Johnson & Johnson. Earlier in his career, he was CEO of Ioptex Research. He began his career in healthcare as a Captain in the U.S. Army Medical Service Corps.

Joe received his Doctor of Management from Case Western Reserve University, and serves on its Board of Trustees. He also sits on the boards of Axogen, Endogastric Solutions, Facet Solutions,Hansen Medical (NASDAQ: HNSN), InSound Medical, M2 Medical, Tear Science, Inc. and WaveTec Vision Systems.

Categories
E2E: 20/20

Utilizing Your Board with Richard Lebovitz

Richard Lebovitz is the founder and CEO of LeanDNA, an Austin-based AI platform and Next Coast portfolio company. As part of our E2E: 20/20 series with our portfolio CEOs, we spoke with Richard about utilizing your board’s expertise. Read more of our E2E content on governance here.

What has been the biggest benefit of working closely with your board?

For me, the board has always been helpful because when you’re an entrepreneur, you get wrapped up in the day-to-day grind. Anybody who says it’s easy is wrong, it’s not, you have so many roadblocks. But at the board level, you have people working with a lot of different companies and it’s great because they provide a birds-eye view on what doesn’t work with other businesses. I’m a bit more conservative than other entrepreneurs and I like to get things a little more perfected before I turn up the gas and go faster. However, with a board, I’m more comfortable going faster because they’ll help us avoid bad mistakes. Without the board, we only could have learned these lessons through trial and error.

Richard Lebovitz
CEO of LeanDNA

How can you make sure board meetings are as productive as possible?

The number one thing is to make it easy for the board to give you productive advice. It’s my job to make their job easier, so before each meeting I always ask myself: How do I present things in a way that allows them to give us good advice? These guys are busy and jumping around between 10 to 15 companies, so that means not a lot of PowerPoint slides or hiding any information, because who does that help? You want to get as much useful information as you can from them so it’s up to you be transparent, know what the issues are and ask for help where you need it. Think through those questions in advance and ask for targeted advice. Specifically, I like to pick a particular theme for each board meeting and drill down with the board to really talk about how to solve that issue.

READ MORE E2E GOVERNANCE CONTENT HERE

What was something you struggled with building your business that your board eventually helped solve?

Changing the sales process was a critical step that we wouldn’t have been able to do without our board. We started out with these 25-page sales proposals with details about the complexity of our product and how it compared to competitors, etc. We would cite case studies and customer reviews because when you’re pitching a new product, your instinct is to give as much information as possible to help them make a decision. And yet we were struggling with exciting clients on our new product. Then one of our board members who came from a totally different industry with a lot of experience in marketing recommended that we change our sales pitch to a quick and simple approach. Since our best edge is our product, he recommended we skip right to that. So we went from a 25-page proposal to a simple one-pager and essentially going straight into a demo during the pitch. You wouldn’t think it would make such a big difference, but it really did. Once clients realized how easy it was to use and implement the product, they were significantly more likely to purchase it.

How did your board recommend you maintain this positive change in the sale process?

We started mapping out “a day in the life” of somebody that uses our product. We looked at the challenges they faced after purchasing our technology and then instituted a very tight relationship between our sales and customer service teams. When the salespeople got to see the product through its implementation phase, and the issues our clients experienced when expanding its use, they had a lot more ammunition when they went back to cold calling and trying to close new customers. The board is great at making sure we have the right processes like these in the place to be successful. A lot of startups typically aren’t great about making sure these measurements are being monitored once you close a deal. What happens after the customer signs? A board can be great at helping pick which aspects of your business to monitor and track in order to ensure success.

About Richard

Richard is the founder and CEO of LeanDNA, an Austin-based lean technology company that focuses on the manufacturing and industrial sectors. He was previously the founder and CEO of Austin-based Factory Logic, Inc. (acquired by SAP), which he started in 1997. He is also a board member for the Association for Manufacturing Excellence (AME), and is an Entrepreneur-In-Residence and Instructor for The University of Texas at Austin.

Categories
E2E: Scale

My Board Meeting Is Over. Why Do I Feel So Bad?

The board meeting is over. The directors have gone back to their busy VC world. And you, as the entrepreneur, are heading to an email inbox that now, is even more overloaded than it was four hours ago.

As you scan through Slack, sift through Gmail or gaze at your 15 unanswered text messages, you might be left with some unsettling thoughts. Did I get what I wanted out of that board meeting? If so, why do I still feel bad

It’s a valid question for entrepreneurs to consider… Just how should I feel after a board meeting?

The above scenario happened to me so many times I lost count. As an entrepreneur, I’d walk out of most board meetings with no clue how the meeting went. If, as the CEO, I did my job in the board meeting, why then did I feel so overwhelmed, frustrated and in desperate need of a drink?

After years of experience as the co-founder and managing director of Next Coast Ventures and as the CEO of ServiceSource (SREV), I have finally realized this whirlpool of feelings is typical.

If you are an entrepreneur and you walk out of your board meeting feeling slightly unsatisfied, you are probably doing it right.

Even the most accomplished business leaders walk out of board meetings with doubts—part of the purpose of a successful board meeting is to challenge and question your ideas and to take you out of your comfort zone. Like a good workout with a personal trainer that pushes you to the limit, you should leave a board meeting feeling a mixture of exhaustion and frustration with a healthy dose of skepticism. When taken in stride, entrepreneurs can turn the following potentially toxic emotions into catalysts for next steps:

1. Mental Exhaustion

Board meetings are important and entrepreneurs need to remain fully present and focused in order to defend their recent decisions and fight for their future ideas while driving the agenda of the meeting forward—and ultimately, the business. A board meeting should be the culmination of weeks of preparation and practice in order to hone your narrative. This extreme channeling of intellectual energy can be draining, so take it as a good sign if you feel tired after you leave. This is a sign that you have put in the necessary time and effort—and you lead a constructive meeting.

2. More Than Slightly Frustrated

A good board meeting will challenge and frustrate you. At every turn, your opinions will be debated and questioned under a microscope and you may feel like you are placed in the spotlight to defend an unpopular idea. Keep focused and use the opportunity to truly consider other points of view. Remember that the board isn’t trying to give you a hard time for the fun of it or without reason, they simply are doing due diligence in ensuring that all factors are being considered. Rather than getting defensive or dismissive, which can be counterproductive, look at the situation with a positive perspective and take this time to solicit honest feedback from a group of individuals clearly vested in your success.

3. A Bout of Skepticism

Leading a board meeting is all about presenting your ideas with confidence. However, when push back comes or you are unprepared for a line of questioning, it is normal to feel skeptical about the topic at hand. In my experience, there comes an exact moment when you realize that a decision made, hire completed or strategic direction communicated might be completely wrong. That is okay. Just take a deep breath and commit to no immediate action in the moment until you have had time to examine what happened and how you can move beyond.

And Yet, It Shouldn’t Be Torture.

While every entrepreneur should expect to encounter hurdles during a board meeting, there are several signs to watch out for that may indicate larger problems are afoot. Any of the above emotions, have the ability to become toxic or demotivating. An effective board should ask hardball questions and be straightforward about their concerns—while never directly criticizing or belittling an entrepreneur, even about disappointing results or decisions they disagree with.

The boardroom should be strictly professional and drama-free; it shouldn’t be fun, but it also shouldn’t be torture. If, as an entrepreneur, you consistently feel disrespected and dismissed by your board, it may reveal an underlying chemistry problem. If your negative emotions go beyond the standards detailed above, the makeup of your board may need to be evaluated.

At the end of the day, a board meeting should help provide perspective on recent performances and practical advice concerning future challenges. CEOs should leave a meeting exhausted, frustrated and skeptical—but also enthused, accomplished and eager to get to work.

Ultimately, you are all on the same team, and the role of the board is to support you. Just like that of a personal trainer who challenges you to perform more when you think you have nothing left in the tank, keep in mind that your board really does have your—and your company’s—best interests at heart.

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Note this blog post was originally published via Real Leaders on May 22nd 2017.

Categories
E2E: Scale

Should the customer success function report to the head of sales or the CEO?

For any recurring revenue business, there are seven key reasons why the Customer Success function should report directly to the CEO and NOT the Head of Sales.

Customer success has (finally) started to become an established function within SaaS companies. As a startup begins to scale and move from ideation/product creation phase into revenue generation, it quickly becomes clear that resources are needed to help manage customer relationships AFTER the initial sale.

I have been an advocate of Customer Success and the importance of both the function and mindset within SaaS/Recurring Revenue companies since dinosaurs roamed the Silicon Valley…

As recurring revenue business models have become the standard for technology companies, it has become clear that Customer Success is critical for sustaining growth, profitability and customer reference-ability. In short, if you don’t get Customer Success right, nothing else matters.

As a result of this increased importance, it has been refreshing to see most emerging-growth companies building out functions that focus on all aspects of Customer Success – from onboarding and adoption to support and eventual renewal of the subscription agreement. This function can also take on responsibility for upselling and/or cross selling of additional seats or subscriptions.

In short, this is a critical function for any SaaS/Recurring Revenue business.

But here is the question I get asked more often than not about this function – should this function report directly to the CEO?  My quick answer – why wouldn’t it?

The normal response from CEOs that I work with goes in one of two directions:

  • Well, revenue is involved (cross sell, up sell, renewal) so my Head of Sales is arguing that it should report to her.
  • I already have so many direct reports (sales, CFO, product management, engineering, HR, marketing) that I can’t imagine adding another direct report.

My response is pretty simple and direct (before making sure, of course, that I remind EVERYONE that I was once a CEO so whatever I say must be 100% accurate)….What is the ONE THING that will make or break the success of your business? Hard to answer with anything here EXCEPT Customer Success!

Here are THE seven KEY reasons why Customer Success should report to the CEO:

  1. VISIBILITY: It lets you see exactly what is happening with your most important asset besides your employees: your customers.
  2. CLARITY: Having Customer Success separate from Sales gives the organization visibility into what is really happening after a prospect becomes a customer – and takes away a lot of the typical finger pointing between sales, product management / engineering and professional services.
  3. METRICS: When the Customer Success function reports directly to the CEO, an organization can develop specific metrics that really determine the health of the customer BESIDES how much money they are spending (i.e., sales).
  4. BALANCE OF POWER: In most emerging-growth SaaS businesses, the power within the organization typically sits first with product/engineering (“we need to build something that works”) and then shifts to sales (“we are screwed if we don’t sell something”). By having Customer Success sit OUTSIDE of either of these functions, a CEO can avoid a lot of the natural power plays that happen (resource gathering, budget disputes, etc.) and stay focused on the customer.
  5. SALES FOCUS: If Customer Success reports to the Sales function, there is too much potential for either the customer getting ignored (“I have to make the quarter”) OR the customer’s needs becoming a distraction (“We missed our f#cking quarter because of these customers”). The sales team’s job is to sell – keep it that way.
  6. FEEDBACK LOOP: As a CEO, one of the hardest things to do is to get clarity on what is really happening inside and outside the business. The ultimate is to get insight into what is happening in the magic loop – Plan and Build (product management and engineering) vs. Demand and Sales (Marketing and Sales) vs. Customer Experience (Customer Success).
  7. SIGNALING: By having this function report to the CEO, it tells the world (internal and external) that the organization really does care about the customer. It’s pretty hard to say “the customer is king” when the function isn’t sitting in the Monday morning Executive Staff meeting.

The advent of the Customer Success function is refreshing to see for technology companies, and the industry has come along way from the early days of “sell now, beg for forgiveness later” mindset.

By making the Customer Success function a direct report to the CEO, the long-term health and wellbeing of a business is significantly enhanced.

And it also takes one more excuse away from those Sales Executives when they miss the F#cking quarter – that fact alone might make it all worthwhile.

Categories
E2E: Scale

On Board Management: Wise words from 4 Silicon Valley legends

What I learned from Bruce Dunlevie, Bill Campbell, Marc Andreessen and Al Davis about creating, building and managing a world-class board of directors.

ON BOARD-OM AND MALAISE

As an entrepreneur, how do you view your board and the importance (or lack thereof) as it relates to your business?

Throughout my entrepreneurial journey, I learned a lot, made some mistakes, and eventually developed an approach that transformed my board into a strategic weapon.

But it didn’t come naturally or happen overnight – I made some silly missteps and had to modify my mindset when it came to board management quite a bit as I went.

If you’re anything like me, you struggle with the best way to assemble, manage and interact with your board, especially given all the other things you have on your plate while scaling your business.

I expect that you are always trying to figure out how much time to devote to the board in general and why, other than their presence as a necessary evil, you should even spend time thinking about this topic. A board can really help you and even might be the difference between success and failure in your journey – so I encourage you to avoid the temptation to de-prioritize your board in lieu of other initiatives.

Rather, by learning from my three key lessons, I hope you will see your board (or the benefits of having a strong board) in a new light. And with a new perspective, you will be able to use your board as one more arrow in your quiver that will help you build an amazing business.

Here are the mistakes I made, the teachers who helped me modify my approach, and the benefits I derived from these learnings.

OF BOARD MEMBERS AND MUSHROOMS

There is an old joke about this board Management that is a good place to start for this lesson:

What do board members and mushrooms have in common? They BOTH should be treated the same – kept in the dark and covered with shit.

For the first few years I was running my company, I didn’t really engage my board in a strategic manner and kept most of the meetings high level – making sure that I had every questions answered BEFORE I walked into the board room.

Or I would fill board decks with pages and pages of details – making sure that we spent so much time in the meeting going through the materials that the opportunity for free form discussion or dialogue never materialized.

Of note, I wasn’t doing this on purpose or to hide anything – rather I just didn’t know how to get much from my board. As a result, I was either giving them too much or too little information, so by default the meetings were never really that constructive.

And while I would get through the meetings just fine, I NEVER realized I was “keeping my board in the dark and covered in shit.” AND yet I found myself feeling more and more frustrated after every meeting. I wanted more insights from the people who were most likely to help me look around the corners I hadn’t seen before. But I just didn’t know how to get what I needed from my board. 

And while I understand (FULLY!) how painful it can be to deal with annoying, boastful, arrogant, know-everything board members (I better stop now), I did ultimately learn how to get the best out of my board without wasting huge cycles to do so.

For this lesson I owe a debt of gratitude to one of my best board members, Bruce Dunlevie,  founding partner of Benchmark Capital, the preeminent Venture Capital firm in Silicon Valley. When Bruce first joined my board, I was consistently making the “too much information” mistake I described above – frankly giving my board too many details and hoping they would – from the same minutiae I had scoured – divine some nugget of information that I had not yet gleaned myself.

After one particularly frustrating board meeting, Bruce called me to give me some incredibly sage advice.

Bruce could see what was happening from a mile away – because HE HAD seen so many other Entrepreneurs fall into this trap – and he could emphasize with me and my effort to deal with a powerful board. And, like any good board member is apt to do, Bruce asked me a couple of simple questions that changed my perspective completely:

“Mike, does anyone on the board know as much as you do about your business? Seriously – how big is the gap between what you know about the operations versus what the board even understands about the business. Have you taken this gap into consideration when building the board agenda and supporting materials?”

As I reflected on this question, I quickly reminded myself that I spent close to 80 hours (at least) A WEEK thinking about my business – while my average board member thinks about the same topic for 40 hours A YEAR (at best).

This is a huge discrepancy, and noticing this delta is probably the most important realization for any entrepreneur when thinking about how to manage a board, set an appropriate agenda, or build a compelling board deck. Simply put: don’t attempt to get your board up to the same level of understanding as yours. Rather, use this gap to your advantage.

WHAT BRUCE DUNLEVIE TAUGHT ME: MIND THE GAP

The first step here is a mindset shift. Once you have made this shift and stop trying to get your board to the same level of understanding that you have about your business, you will change both the context and content you use in your board communication. By setting the right agenda and developing a board package that is good mix of key operational updates AND open-ended strategic discussion, you’ll be amazed at how much more you can get from your board in very short order.

WHAT BILL CAMPBELL TAUGHT ME: THE BOARD AIN’T YOUR BOSS

Another mistake I made along my journey was giving my board too much input on the operations of the business. This is a pretty common mistake and is more prevalent with first-time entrepreneurs, especially those who have raised institutional capital from a PE or VC firm where the relationship between capital provider and entrepreneur is still being cemented.

The mistake here is to give your board too much credit – assuming the members know more than you do – or assuming that their suggestions must be followed to a fault.

One of my early mentors was the legendary Bill Campbell. He was on the board at Loudcloud / Opsware, and I was fortunate to stay in contact with him and get his input from time to time during my journey.

Bill is simply the best in the business and has forgotten more about leadership and entrepreneurship that most of us will ever know. I was speaking to him about this very topic and he quickly noticed my attitude of giving the board “too much credit” and how this approach was causing me to miss a real opportunity. To help educate me, he asked me one simple question:

“Mike, how do you see your job, as CEO, as it relates to the board?”

After we talked openly about this question, I came to the following key realization about my role versus that of the board and it helped me immensely.

My responsibility as CEO / entrepreneur was to make decisions and give the board insight into both my decision-making process and the direction I was taking the business. The board’s job was to give me feedback that I could choose to use to inform my decision.

The bulk of my communication – say 98% – with the board was really about seeking input, with the remaining 2-ish% being major corporate decision-making that required board approval. As such, I needed to make sure my mindset and material reflected this – specifically that the lion’s share of my board interaction was really about seeking input to help me with MY decision-making.

As Bill said to me at the time (in a gruff way that is classic Bill Campbell):

“You are running the f-ing business. You are making the decisions. If you get enough right, you keep your job. If you mess too many up, then the board should fire you. It is really that damn simple.”

SO, ARE YOU IN OR ARE YOU OUT?

I then realized that the board’s job was to determine if I was making more good decisions than bad. And if my decision-making success rate dropped below an acceptable level, the board then would need to make a decision about my ability to do my job. Once I accepted this relationship, I felt more empowered as a leader and saw my relationship with my board become much more productive.

As part of this, Bill also taught me a GREAT phrase that summarized this relationship – I used it at least once a board meeting whenever a board member wanted to give really me specific advice on a problem I was trying to solve:

“That is super input. I really appreciate your point of view on X (insert detailed operating issue here). I will take your input into consideration, and if need be I might follow up with you to get more of your perspective here.”

Try it the next time a board member is espousing some action that she is certain will work for you. Trust me, you will start to use this more and more and will savor the lack of response it generates!

WHAT MARC ANDREESSEN TAUGHT ME: USE THE BOARD AS A STRATEGIC WEAPON

During the early days at Loudcloud (which became Opsware), I was fortunate to get to travel a great deal with one of the four founders of the business, the legendary and prolific Marc Andreessen. On one of these trips, in early 2000, I was asking Marc about how he was assembling the board for Loudcloud and why he had recently recruited Michael Ovitz to the board.

Of course I knew of Michael Ovitz, the legendary Hollywood super-agent and founder of CAA – but I wasn’t sure how this background was relevant to the technology company we were building. Marc’s response to my question was fast and clear to (and a bit dismissive, but Marc responded to most of my questions that way):

“I want every advantage I can get to build this business. And that includes the board. Michael is a great entrepreneur – he knows how to build a service business and can help us increase our profile, talent-acquisition model, and approach to client relationships. Plus, he is outside of The Valley and brings a fresh perspective that we can’t get anywhere else.”

Now Marc is a special talent and has for a long period of time played at the highest level of power and influence in the technology industry, so his ability to attract talent to his board – even back in 1999 – falls into the category of outlier.

But my point here is that Marc was both clear about what he was looking for and how it could help him build a business. And then he went out and recruited board members that fit this profile. (See a great interview between Marc and Michael here)

BOARD? GO SHOPPING

If you think about this perspective and ask yourself a few questions, I expect you will think a bit differently about who is on your board and how each member can do more to help you win in your business.

  1. Are you getting the right level of feedback from your board around key strategic issues?
  2. If you think about the 2–3 top strategic issues the business is facing, do you have expertise on your board to help you address these issues?
  3. If not, do you have a plan to develop your board in a logical, thoughtful way to change the composition for better alignment between #1 and #2?

When I was running ServiceSource, I took this learning to heart and consistently looked at my board to see if I had the best talent in the room to help the business grow and succeed.  And with each important milestone that we were looking to achieve, I would try to find a board member to help the company get there.

This helped me get board members with experience in international expansion, sales and marketing, cloud application and even financial expertise when we were getting ready to go public.

And I shared this mindset with the board openly and regularly, so they became part of the process and understood exactly where I wanted to take the board.

WHAT AL DAVIS TAUGHT ME: JUST WIN.

As an entrepreneur, you have a really, really hard job, and rarely do you have a lot free time to devote to things that are not going to help you compete and win in the marketplace.  I know firsthand just how hard it can be to deal with a board – and I can understand why a lot of entrepreneurs see little or no value in dealing with the board.

But if you think about your board – both management and composition – a bit differently, you find you’re missing a key trick.

Al Davis, the late, great and notoriously fiery owner of the Oakland Raiders was fond of summarizing his management philosophy with his head coaches in very simple terms:

As the entrepreneur, you are the head coach and your job is to win. It really is that simple.  So if you want to win, it is pretty important to think about how you can get more from your board to help you make this happen.

  • DON’T treat your board like a mushroom. It might be easier to run the business in the short term with this approach, but it isn’t sustainable and, more importantly, you are missing a real opportunity to get their input on the RIGHT issues.
  • DON’T treat your board like they are running the company. That is your job, and you have the responsibility and perspective that no one else really can understand. So keep your board in the loop, seek their input, and engage them openly. But remember my magic phrase (trust me, you will use it more than you think), and know the difference between running the show and board governance.
  • DO assemble a board that can be a strategic weapon. You need *every* advantage you can get in your fight, so think about how the right board member can help you get leg over the competition. Be clear about what needs you have and how a particular skill set on the board can help your business grow – and then aggressively recruit for a top talent to fill this spot on your board. You will be surprised by how much this can help you on the journey.

Think of your board like any weapon in your arsenal, then just win, baby. Just win!