If you read the first and second installments in this series, you understand 1) the board’s role and when a startup should consider assembling one and 2) the profile/backgrounds of individuals you want on your board. An effective and engaged board can be the difference between success and failure. Bad boards have destroyed countless companies. Next to family and/or significant others, no other relationship is likely to have as big an impact on the management team’s quality of life as the one with the company’s board.
Having both served on and reported to multiple boards, here are a few insights I wish I had known when leading my first startup.
The foundation of every relationship is trust. Trust is developed over time and requires consistent and honest communication. To borrow from Ben Horowitz’s “The Hard Thing about Hard Things,” (mandatory reading for all startup CEOs and founders), the need to communicate is inversely proportional to the level of trust. If you are a first-time or less experienced CEO, you have not earned the board’s trust. Therefore, a consistent cadence of open communication is mandatory. This typically includes written updates using a flash-style template between board meetings describing highlights and lowlights, financial metrics, burn rate, cash on hand, budget variances, hires and fires, customer metrics, churn rate, etc. A clean crisp summary reflects well on you and your team.
If you are in the midst of a major dilemma or strategic discussion, more frequent interim communication is advisable. Additionally, sending written quarterly updates to all your investors is simply a good business practice. And I mean ALL investors. Aunt Mary placed a lot of faith in you when she wrote the pre-seed check for what may seem like a small amount relative to your total capital raise, but was likely significant to her. She deserves updates on your progress and her investment.
Managing bad news
Major setbacks are inherent to startup life. Few startups succeed without a few near-death experiences. A very bad day is always just one phone call away and bad news does not age well. The appearance of covering up bad news or minimizing the damage will hurt your credibility. That said, resist the temptation to approach your board when still in the “What the hell just happened?” phase. Let the dust clear and the emotions settle. In the words of Colin Powell: “It ain’t as bad as you think. It will look better in the morning.”
Of course you must approach the board promptly after a setback, but only once you can articulate a clear understanding of the hows and whys along with a cohesive defendable plan for moving forward. In general, you are asking for feedback on your plan — never “OMG, what should we do?” Your leadership team’s ability will be revealed by the way crises are managed. If assistance in developing the plan is needed, approach board members on an individual basis who bring the most relevant operational expertise.
The Golden Rule
“He who has the gold makes the rules.” Your lead institutional investor effectively controls the company even if they don’t own more than 50 percent. While all board members may have a single vote, all board members are not created equal. You must have the lead’s buy-in for all major decisions. During my tenure as CEO of a health tech startup, I was at complete loggerheads with the lead investor regarding the company’s go-to-market plan. Ultimately, I had to make one of the toughest decisions of my career – to step down from a company that I co-founded and poured my soul into rather than go to war with the lead investor. If your biggest investor does not believe in your plan and the relationship becomes contentious, numerous issues will arise. Raising your next round will be nearly impossible.
Teach your board how to treat you
A great board is an invaluable asset. As mentioned in a previous article, many entrepreneurs don’t appreciate the impact of a strong board. Pattern recognition and insightful guidance by a board accelerates progress and avoids missteps. Seasoned, successful executives that dedicate time and effort toward your success are to be highly valued. That said, young CEOs sometimes “fangirl” renowned board members or simply view them as their boss and as a result, are too deferential. The job of the CEO is not to make the board happy–it is to make the company succeed. Success is the only form of job security.
One of my mentors was fond of saying, “You teach people how to treat you.” Same goes for your board. If the board says “jump,” and you keep asking “how high,” this creates a subordinate relationship. This includes not following up on each item in the inevitable list of well-intentioned but ill informed suggestions, also known as WGC’s (Wild Goose Chases). I have been on boards where, if one of the board members suggested the management team run naked through Times Square, the CEO would ask for input on the date and time.
While CEOs are keenly aware of the need to manage their team, many don’t realize that proactively managing the board is essential. Having to manage up does not stop when you become CEO. In fact, it becomes more crucial. Your skill and style will develop over time, but following a few of the basic tenants outlined above will bypass a steep section of the learning curve.
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