In Our Thoughts

What happens when a startup board director gets stressed?

“We need more financial visibility.”

“We need more customers.”

No shit.

How is this kind of commentary from a board helpful to the first-time CEO who might be renting out his flat on Airbnb to save money since he isn’t taking a salary? Worried Directors make for worried CEOs. And, trust me, CEOs are worried enough.

Some Directors are appointed due to their network, stature, or their ability to write a check — none of which fundamentally equips them for the startup boardroom. One doesn’t need a Stanford MBA to see what’s wrong or not working in a startup.

The key is to help the team figure it out. And every project is its own Rubik’s Cube. How do you solve it?

1. First Things First: Value Creation

In this 2X seed world, it’s important to establish value-creation milestones. John Doerr once shared with me that products and channels create all value.

So, let start there (and only seasoned directors do). It is key to understand the product or service from the customer’s perspective and compare it to the vision of the designer or engineer. Some say a match here is an MVP.

This is not an easy task as a board director; it involves a willingness to dig deep to understand what is being said. Is the product additive or a replacement, how much time/effort does it take, etc.?

2. Get Dirty

To really help, you need to get dirty. Ask yourself: How do customers buy, when do they buy, from whom did they buy, did they do research, did they look at reviews, who did they buy for, what will they pay, who did they pay? Often this is like a petri dish: put the early customers in the lab and examine EVERYTHING. This may not determine conclusions, but will gather insights.

And smart directors and experienced investors know that insights like these can lead to some kind of pattern recognition. From here, true value can be established.

3. Establish H.O.P.E

Often, a problem or challenge can resemble another that a Director has seen, and they can relay that war story or history to the startup team. This is a way of de-personalizing the feedback and is easier to digest to a first time CEO. Sharing the lessons learned or nuggets as a former CEO has said, establishes H.O.P.E. — Hearing Others People’s Experiences.

Quickly from here the solution process begins, and the effective Director knows that simple, straightforward assignments and goals are best. The more quantified then the better. (Quantifications are hard. But once a simple dashboard is created, it creates an “it is what it is” mentality and the process of solving something becomes more in-focus, versus wondering how did we get here, what went wrong, who’s to blame, etc.)

In these projects only three things matter:

1. Where Are We?

2. Where Are We Going?

3. How Do We Get There?

Remember, all reporting is a statement of past events.

4. Focus on Action

The important thing is to create agreed-upon action plans moving forward. While this sounds simple, often this can be confrontational, as inexperienced directors may not be on sure footing about what to do. As a result, a smart CEO, even if inexperienced, will let the lead director carry this part of the conversation.

Comforting phrases that might work include:

  • “In my experience, I would…”
  • “Based on a similar challenges, we did….”
  • Or a question like, “What do we know now that we didn’t 30 days ago?”

5. Don’t be the Worried Director

The Worried Director is consumed with forecasts and their attainment, both with revenue and cash burn. However, the reality is that very few companies hit the forecast given to investors for funding purposes.

Last year, I asked Mike Simon, founding CEO of LogMeIn (now a successful public company), if they met the forecast they used for fundraising. He said they weren’t even close to the hockey stick eye-candy used to raise funds. So, once a board is assembled, it is best to create a forecast from the ground up, discuss how many units or products of features, the when and where and how of the business, etc., to preempt the creation of a Worried Director.

And at the early stage of company formation, potential market sizes or TAMs are misleading. Every market has a gorilla, some chimps, and a bunch of monkeys. The folly of only thinking big markets matter for startups is that it is brutal to get a leadership edge (unless you are creating a new category e.g. Dropbox, Uber). Getting leadership position in a small market can lead to cross-over benefits. (Didn’t Amazon start with books?)

Additionally, the Worried Director might look at cash burn as the end-all and be-all. Surely, it’s important, but only in the context of AP.

6. Understand that CEOs move in waves

Understanding CEOs is a challenge. They move in waves of momentum, obvious or not, but often self-programmed. It’s impossible to get a CEO to change their current wave; the challenge is to get to them to the next wave. Their internal programing creates this — it’s not a covert thing. It could involve the co-founder, culture, product status, tech or anything. It takes a keen ear to figure out exactly where the CEO is parked at the time. The Worried Director has time to worry. The consumed seed CEO lives a 24/7 life, and if the BOD experiences are negative, they will spend less time caring what the BOD says or thinks.

Manic Directors create manic CEOs. And anxious directors create anxious CEOs. (Note: The difference between anxiety and fear is that at least with fear, you know what you are afraid of.) It’s fine to worry and obsess about specific business problems. On the other hand, since CEOs need to be optimistic, they can adhere to the mushroom style of BOD management (which ironically, pleases the worried Director). They talk about the great & wonderful things going on with product, company, etc. The way to counteract this is to get the CEO to segment their thoughts into three buckets:

1. What’s working?

2. What’s not working?

3. What’s on the edge?

The Worried Director can flip out at this, but just hope the content of each slide changes as time goes on, given there is never a time, in any company, where everything is working.

7. Leave on a High Note

It’s tough enough for management to execute, but a beating from the BOD doesn’t help (although it is a rarely used tool in the toolbox). There is no straight path to success and if the worried Director can learn a few lessons than the odds to a successful outcome is increased.

It’s not like Normandy or Apple didn’t have issues too.

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