"What can I expect from my board of directors? That is a question I am often asked by first time entrepreneurs.
This week I'll comment on that topic and give you help anticipating and managing your board.
When you understand how the power works on your board of directors, you can operate with more realism and effectiveness.
Here is how power works in real startup boards of directors:
- Investors expect to dominate. They have more startup and managerial success than the founder (usually). That is how they became successful venture investors. They are on your board for one purpose: to make the value of the new enterprise rise as fast as possible to as large a number as possible. They are very eager to do that with your company. If you hinder that, you will feel the heat of their wrath.
- Serial entrepreneurs overcome with results. Veterans of startup boards of directors know the CEO will thrive as long as results are delivered. That is the ace power card the CEO has to use with the board. Results bring power to the CEO. Explanations of why things did not come out well lead to the exit door for the CEO.
- Investors do not want to run your startup. Time is the enemy of VCs. They cannot buy it or make it. Managing a startup is a huge use of their time. They want the CEO to run the business. Yes, they may get critical and they may step over the line (start to micromanage), but they do not want to get sucked into the black hole and get the reins turned over to them to manage the startup.
- Your ability to think more creatively overcomes strong suggestions. Better ideas win in power struggles. VC icons like Don Valentine founder of Sequoia Capital, tell each CEO they fund to expect a lot of ideas from the Valentine -- and that he expects the CEO to produce better ones. This pressure is part of the creative process of managing a startup and is expected at every meeting.
- You win power struggles as long as the employees are supporting you. Great morale in your workers -- especially your core management team -- is a powerful asset to use in power struggles. As long as the employees believe you can lead them to success, you have a very strong card to play when needed. They do not want to watch the board get rid of you and hire a stranger. So it takes a lot of bad decisions and rotten behavior on your part to get them to start to wish you were not there. That's one reason serial entrepreneurs are alert to the morale of their employees.
- Work outside the board meetings is how big decisions are made. The old joke is that board meetings are supposed to be boring. Why? Because everyone expects to arrive knowing how the official decisions are going to be made at the meeting. During the weeks between monthly board meetings the CEO will be discussing one on one with board members the sensitive, the important decisions that came up in the last board meeting. The choices are reviewed and the CEO works to get unanimous agreement on each before the next board meeting.
- Independent board members are expected to keep the peace. These people are the go-between person chosen to handle sensitive issues between the CEO and the board of directors. In addition to their startup and domain expertise, the independent person is typically skilled at working out practical solutions to tough people problems. This may call for spending time with the CEO and the techie founder to iron out a working relationship. Or it may be necessary to talk to one of the board members who is out of line with his criticism of the CEO. Such independents are special to startups and important to how well the board operates.
- Boards do not vote on decisions. Everyone is unanimous on every decision. No investor insists on voting his number of shares. Such thoughts are in the heads of naive people. Instead, all key decisions are made during the weeks before each board meeting. Yes, the lead investor has a lot of influence on the decisions, but still he will not vote shares at any meeting.
- Always able to raise cash is key to balancing power. CEOs learn "the man with the gold sets the rules." Without cash the company dies. If you only have board investors, you lose your balancing power. So serial entrepreneurs are always looking for viable alternative investors to the current ones. That gives the CEO confidence he can choose to accept or not accept any strong advice or command given by an existing investor. It is one reason serial entrepreneurs say that "competition (to invest in my company) is the entrepreneur's best friend."
BOTTOM LINE: As you may have realized from the above, your job calls for managing the board of directors. It does not happen for you. It is not done by investors or the independent on your board. You are the one to do it. So study your sources of power and weakness. Think about how you can do well when managing your board members. It will be one of the key elements of building your unfair competitive advantage. It is what serial entrepreneurs have learned to do so well.
I wish you The Best on your Adventure!