The Ultimate Board Game
Doug Mellinger knows why he has an advisory board and a board of directors: to save him from himself.
Mellinger founded his now-$24-million software company, PRT Group Inc., in 1989, when he was just two years out of college. Early on, with $4 million in revenues, he went to his advisers with a plan to open 10 offices around the United States in one year. Since he lacked the financial resources and the management to do it, they advised against his plan. Today he's grateful that he followed their advice. "Entrepreneurs are the most dangerous creatures if left to their own devices," Mellinger explains.
Experts say that to mature, build strategic alliances, and gain access to capital, growing companies need an advisory group, whether it's an informal advisory committee or a formal board with outside directors. Mellinger credits his advisers with much of his professional development and the company's success. Two advisory-board members regularly give him and other key managers reading assignments and send them to leadership seminars. "There's a lot to be said for gray hairs," says Mellinger.
So what's stopping you from forming a group of advisers? Often it's not knowing where to look for expertise and lacking the nerve to ask for help.
When Mellinger started his New York Citybased business, he didn't let fear of rejection stop him from cold-calling the top executives in America for guidance. "I was a bulldog who wouldn't go away. I was so determined to get these guys to help me," he says. Mellinger used his experience as the cofounder of an association for collegiate entrepreneurs as a starting point and then asked for advice about his start-up. "Very senior people get bombarded all day by people wanting to sell them something," he says. "They don't get hit up by people who just want advice."
Of the 40 or so executives he called, 15 agreed to meet with him for half an hour. Then he networked through seasoned executives like the chairman of a multibillion-dollar company whom he'd met briefly through his entrepreneurial group. Mellinger asked people he admired to be his mentors and sit on either his board of directors or his advisory board. His tenacity has been rewarded: PRT's boards have included the chief information officers of several Fortune 1,000 companies.
Although not everyone is as persuasive as Mellinger is, networking can pay off for anyone. Betsy Stewart recently decided she needed advisers to help guide her $3-million market-research company to the next level. So Stewart, CEO of Decision Insight, in Kansas City, Mo., started tracking down candidates through the half dozen associations, networking groups, and philanthropic organizations in which she's active. When inviting people to serve on her advisory committee, Stewart avoids picking anyone who is a pal. "I don't want them to worry about offending me," she says. Ted Cohn, coauthor of Survival and Growth: Management Strategies for the Small Firm, agrees with that strategy. "You need people who are not involved and can tell the owner they're full of baloney and not worry about the consequences," he explains.
When Steve Joyce, one of four founders at two-year-old Ganymede Software, in Morrisville, N.C., went shopping for advisory- and formal-board members, he discovered they could easily be found at neighboring technology companies. "I've been amazed at how I could pick up the phone and call someone and say, 'Do you have any ideas?" he says. "Suddenly, a busy executive spends an hour with you on the phone." Joyce discovered that many big-company executives are encouraged to join small-company boards. "It's almost considered part of their job," he says. He also approached entrepreneurs who had already made it big. "A huge percentage of people around here like mentoring the next generation," Joyce explains. It took only about a month to round up Ganymede's board members.
Let's face it: despite the advantages of having a formal or an informal board, some entrepreneurs don't want to spend time recruiting members, planning agendas, and luring advisers to meetings. An alternative: busy entrepreneurs are turning to peer advisory groups, in which local businesspeople meet regularly with a facilitator and help one another solve problems.
For the past five years Ed Bunzol, president of Metron Electrical Rebuilders, in Addison, Ill., has been a member of one such group: PRO, or President Resource Organization, in Chicago. Bunzol, whose automotive remanufacturing company has $1.5 million in sales, pays $500 a quarter to meet monthly with 11 noncompeting fellow business owners. "It's my board of directors," says Bunzol. One member, recently visited by an Occupational Safety and Health Administration inspector, shared his experience with the group. Bunzol went back and reexamined his workplace. "You never know when you're going to deal with the same issue," he says. "If OSHA walks in here tomorrow, I'm not so ignorant."
Did you know that...more and more privately held companies are opting for informal advisory boards or committees rather than putting outsiders on their boards of directors? One common reason: to avoid the legal hassle associated with formal outside directors. Unlike advisers, directors are elected and have a fiduciary duty to the shareholders and the corporation. As company insiders, directors are potential lawsuit targets and should be insured by the corporation with directors' and officers' liability insurance. Advisers don't face the same risks.
In Practice: Boardroom Confessions
Ever wondered what goes on behind closed boardroom doors? Below, CEOs share the secrets of the care--and feeding--of boards:
What if my board members think I'm an idiot? One common reservation about bringing in outside advisers is the fear of looking foolish. Ironically, that's the point of having an advisory board. "If you don't show them what your weaknesses are, they can't help you," argues Doug Mellinger of PRT Group.
Patty Dedominic, CEO of Los Angelesbased PDQ Personnel Services, remembers feeling sheepish at her first advisory-board meeting. After assembling a high-powered group of local executives to advise her staffing company, she discovered that her senior people had underprepared for the meeting. "Their reports lacked substance," she says. "It was apparent to all of us that if we had put more into the meeting, we would have gotten more out of it." Now that PDQ has $20 million in sales, Dedominic talks to her advisers monthly and sends them written company updates twice a year. At semiannual meetings, senior managers give presentations that include detailed financial information and specific details about key problems. The result? Better advice.
How should I use the time? Focus on important issues--and don't expect a cheering squad. When NetEdge Systems Inc. was in its infancy, CEO Al Bender asked his formal board of directors for possible solutions to a persistent difficulty. Then he took action, just in time for the next meeting. "I expected applause," says Bender, whose Research Triangle Park company makes telecommunications equipment. "Instead they said, 'That's great. Let's get to the next problem.' They didn't fly 3,000 miles to tell us what a great job we were doing."
If I build it, will they come? Getting high-powered execs to sign on is one thing. Getting them to show up for the meetings is another. "The problem is, you can never pay them what they're worth," says Rick Stewart, CEO of $30-million Frontier Cooperative Herbs, in Norway, Iowa, a distributor of spices and other products. So Stewart tries to make the quarterly meetings of his formal board fun. Since the five outside members have to fly in, Stewart hosts the meetings in appealing locations, like Boulder and the Bahamas--and he pays spouses' expenses, too. The night before, board members are taken out to dinner and later to, say, a comedy or blues club. To keep them happy during the rest of the year, Stewart sends them monthly shipments of Frontier products. "They should feel pampered," he says.
Stan Frankenthaler, owner and chef of two Boston-area restaurants, demonstrates his appreciation by cooking fine food for the five members of his informal advisory board. "It's always something prominent for the season," says Frankenthaler, "like soft-shell crabs."
Stephanie Gruner is a staff writer at Inc.
Looking for a valuable legal resource on forming a board of directors? Consider the American Bar Association's The Corporate Director's Guidebook (312-988-5522, 1994, $19.95). It has an overview of directors' responsibilities, explains how to set up a board, and spells out the legal consequences. For a story about a CEO's entrepreneurial journey guided by outside advisers and board members, check out the two-part article written by businesswoman Anita Brattina, which appeared in the May and June 1993 issues of Inc. You can find "The Diary of a Small-Company Owner" in Inc.'s Web site archives-- Part 1 and Part 2. Also check out David Whitford's " Taming the Beast," April 1996.
DECISION INSIGHT, Betsy Stewart, 2600 Grand Ave., Kansas City, MO 64108; 816-221-0445
STAN FRANKENTHALER, Salamander Restaurant, First and Athenaeum St., Cambridge, MA 02142; 617-225-2121
FRONTIER COOPERATIVE HERBS, Rick Stewart, P.O. Box 299, Norway, IA 52318; 319-227-7996
GANYMEDE SOFTWARE, Steve Joyce, 1100 Perimeter Park Dr., Suite 104, Morrisville, NC 27560; 919-469-0997
NETEDGE SYSTEMS, Al Bender, P.O. Box 14993, Research Triangle Park, NC 27709-4993; 919-991-9000
PDQ PERSONNEL, Patty Dedominic, 5900 Wilshire Blvd., Fourth Floor, Los Angeles, CA 90036; 213-938-3933
PRT GROUP, Doug Mellinger, 342 Madison Ave., Suite 1104, New York, NY 10173; 800-853-5627