How to Get a Good Board
There's this chilling moment that comes shortly after you've made an investment in a company; I often referred to it as the "Oh, @*$#!" moment and it usually happens at the first board meeting.
A few years back, one early January morning, I had an "Oh, @*$#!" moment. It was about 7:30 in the morning and I was attending the first board meeting of company in which I'd just invested $6 million on behalf of my firm. The coffee was still being poured and the muffins distributed when the first bad news hit; our number one customer (for intents and purposes our only customer) was threatening to return the product and demand their money back, the CEO - who prior to the investment had agreed to step down in favor of someone with more experience - announced his intention to stay on. The CFO, it turns out, had done such a terrible job during the financing that it was clear he had to be fired. The chief technical officer was quitting. The head of sales needed to be fired.
Oh, and the product didn't work. And that was all in the first 15 minutes.
I'd had these moments before, unfortunately. More important, though, so did most of the board members. No one panicked. We asked the CEO to leave the room and, over the next three hours, we got to work fixing the issues. No finger-pointing. No yelling. No threats of lawsuits. We went to work.
Four months later we had stabilized the customer, hired a new CEO, a new CFO, a new CTO and a new head of sales - and we kept the old CEO, finding a new, ideal role for him within the company.
One year later, we were the hottest company in the market and we bought our number one competitor.
The lesson here is that boards can face a moment of reckoning, and either they handle it well and the company moves forward, or, as in many, many cases, the board blinks. From then on the company is doomed.
Another company I knew had that moment. From day one, there was in-fighting and back-biting and finger-pointing. The company never recovered. A year later, we bought them for a fraction of what they'd been worth.
All companies, large and small, young and old, should have boards. I knew plenty of entrepreneurs who see little value in boards. Indeed, the independent streak so common to so many, leads them to think they don't need a group of people questioning their judgment. "After all," many of them reason, "that's why I left my corporate job in the first place."
Wrong. One of the biggest mistakes a first time entrepreneur can make is to not surround themselves with people who are smarter and more experienced than they.
Moreover, boards are an invaluable part of any financing strategy. Obviously, many boards consist of people who've invested in your company. More important, though, those boards should be helpful in future capitalizations; not only might they lead you to new investors, but venture capitalists will often place a premium on companies with high-powered board members---especially those with strong industry connections.
So how do you go about building a board of directors?
First, pick your board as if you had had the chance to pick your family. Imagine if, when growing up, you could choose your siblings? Or your parents? Well here's your chance; as CEO you get to pick the people who will be your boss. So choose wisely.
Remember that when the bad stuff inevitably hits the fan, you want someone across the table from you who will not panic, know what to do, and be willing to work.
Second, build your board as you would any other "team." Choose people for their skills, their experience, and their personality. Don't stack the board with sluggers and no pitchers. And don't ever, ever pick people whom you know will "yes" you.
One of the worst mistakes I've seen is falling for what I call "The Myth of the World-Class [Blank]." Many times, people are dazzled by resumes or the celebrity status of the name and fail to consider whether or not the potential board member will actually work.
Third, build a board that's ready to play grown-up. It's tempting, when starting a small business, to pick friends (or even relatives) and then have board meetings at home, over dinner, with a bottle of wine. Wrong. If you want to grow your business into something substantial, then you'd better be prepared to start acting like a real business. That means having formal minutes, a formal agenda, during business hours with no alcohol.
I joined one board a few years back and, because each of our meetings were held at night, over dinner and wine, we never decided anything. Every meeting would meander and end with no clear resolutions. What a waste of time.
Lastly, one piece of advice...I've never, ever seen a board---even world-class boards---guarantee the success of a company. But I sure as hell have seen crappy boards guarantee its failure. Great boards are not a substitute for great management. Management usually gets that; it's the board members who need reminding.