This article was written by Elbruz Yılmaz; Investment Director, 3TS Capital Partners.
The common theme in every board meeting (or on board video conference calls to be inline with current trends) these days is the impact of coronavirus…how to deal with declining sales, reduced runway, cost optimization, re-org and cash flow sensitivity analysis. We have conducted detailed analysis on every board I am on and some clear patterns started to emerge about mitigation measures. I will not go into detail about these as I am sure most of us are acting with utmost hustle, common sense and initiating some actions to extend runway, focus on cash flow, secure new cash (investment or debt), delay hires, optimize opex where possible and even think about switching business models completely. However, I want to touch upon the difference between having a good board and a bad one.
For VC backed tech companies, a good board can make a huge difference, especially when it comes to dealing with crisis. Among many other factors such as management capabilities, financial health, operational efficiency, companies with better boards and board meeting practices will probably have a better shot at surviving and continuing their progress. Yes these are unprecedented times but if you have someone on the board who went through 2008 crisis or the Dotcom bubble burst (by the way it is the 20th anniversary this month, I was 22 years old living in the US working as an analyst at an early stage VC) and learned all the hard lessons, then you can employ some tactics and remain calm, focused and better prepared about path forward.
Most entrepreneurs do not get the best out of their boards because they don’t have the experience to utilize the board or the discipline to set up a working platform. Or because their investors do not know how to be good board members, they mix shareholder matters at board meetings and some of them are simply jerks with personality disorders. I have seen and dealt with all of the above.
If the board meetings are run well and the board constellation is balanced, it would provide an excellent platform for board members with battle scars to add value that might help the company stay afloat. As I am not travelling for board meetings anytime soon, I wanted to take this opportunity to share some key observations on what I typically see that works well at board meetings.
1) Make sure you have the right meeting and reporting rhythm for yourself, your business and set guidelines and stick to them religiously. Receiving the board decks a few days (ideally a 4–5 days) ahead helps board members prepare so the meeting does not become an update session rather provides an opportunity to discuss and decide. My preferred cycle is monthly board update emails (basic financials and executive summary by the CEO) and 6 board meetings throughout the year (2 board calls and 4 in person meetings).
2) Travel will resume. When it does, always try to have your board meetings at company HQ. This will provide predictability and a channel for board members to engage with the company, products and team better.
3) Standardize. Every board meeting deck should have the same flow. Decide on flow, content and do not try to revolutionize things every board meeting. Keep 80–90% of the flow the same and insert thematic slides that focus on a unique challenge or topic such as international expansion. Make sure you cover key financials, operational functions and KPIs. Yes look and feel is nice to have but make sure important matters are communicated clearly even if the slides are a bit boring. Same format helps board members compare past decks and connect dots overtime. Same applies to monthly updates and board calls.
4) Improve the board dynamics and constellation as needed. You usually don’t get to choose your board members as investors in most cases assign the deal lead partner to the board post investment. This person probably serves on several boards. Make sure they are physically and mentally “there” during your board meetings and dedicate 100% of their focus during the sessions. Observe the board dynamics closely and make sure nobody becomes too dominant or silent. If someone is not adding value, they are wasting your and company’s time. Make sure the board has diverse, relevant experience addressing all aspects of your business. If you are getting ready to scale and if you have an independent board seat open, try to get someone with an operator background from the industry who has scaled before, compensate/incentivize them and make sure they do the work . And if you have the unfortunate case of having several VCs on your board, make sure they are “good and experienced” board members who can be objective about key decisions from the company’s perspective and not only think about shareholder interests. Tip: you can get a feeling for the VCs board room performance with a basic due diligence before they invest by asking their portfolio founders.
5) Follow up on all action items and hold your board members accountable on deliverables they promised. Taking minutes and forwarding them right after the meeting with a short email summarizing key action items is a good practice. You probably don’t need minutes in legal format but make sure they are clear and standardized.
6) Involve other members of the management team as much as possible. Have your VP of Sales present results of the quarter. Have your CFO answer questions about cash flow. Ge your CTO to provide a product road map overview. Invite new senior management team members for a casual 30 min intro. This can help your team develop, grow and get board experience.
7) Pay attention to the clock. Usually some topics are rushed towards the end. Adequate time planning is a must. Depending on the agenda make sure you have allocated ample time for the board meeting and make sure you have some executive session time at the end. Executive sessions are good for CEOs to get some feedback from the board. 4 hours is a good target for the entire session depending on your company’s scale.
8) Nobody likes surprises. Board meetings are the last place for this. Always make sure such news (good or bad) are handled 1-on-1 before the board meeting so the board members can attend the meetings prepared with some ideas, solutions.
9) Most founders are worried about reporting challenges, they only try to provide a peachy view of the business. I prefer when founders actually present challenges first with all honesty and then the successes or good things that have happened. This way there is more time to discuss challenges.
10) Assign specific projects to your board members quarterly. Have them work in pairs or groups. It might be a project focusing on bench marking C-level compensation or hiring a new VP of Marketing. If you can be specific about it, then you can get specific support and feedback. Otherwise most board members will work at best effort and might not realize priority ranking of some of these initiatives.