This post was prompted by Brad Feld’s release of the Startup Boards 2nd edition. I’ve been sharing the original since it was published 10 years ago, frequently shipping a copy to founders when I closed on a seed to Series A investment. This 2nd edition is packed with new content I find useful for not only startup founders, but also seasoned CEOs ready to do a gut check comparing their board with the book’s suggested best practices.
Learning about boards is an overlooked founder priority
For most founders, the onset of bringing on institutional investors triggers awareness of governance and responsibilities of a board. Though even at that stage, I’ve found it’s a rare early stage entrepreneur that grasps the priority of investing the necessary time and energy for learning how to build and manage a board of directors.
More typically, first time founders look to their venture investors for guidance on board composition, development and process – without realizing that the entrepreneur’s following rather than leading, is a huge missed opportunity to develop critical competency necessary to evolve as CEO through and beyond the growth stage of their company.
Once investor backed company CEOs start being held accountable to hitting growth targets, a founder’s narrowing focus to revenue and customer traction can drive attention further inward, coming at the expense of proper expectation setting and engagement at the board level. Not surprisingly, many founder departures happen when the company hits inevitable speed bumps in the growth stage, where the mix of managing both above and below is new territory for the entrepreneur CEO.
Startup Boards as a Field Guide
The book is a truly a field guide that founders may read through once, then find themselves going back for reference when board issues start rising to top of mind.
Understanding the basics of a board’s purpose, roles and functions lays the foundation for those just beginning their board journey.
A full chapter on VCs as board members demystifies several dynamics that can help immensely in forging productive VC Board member relationships.
Seeing best practices on how to recruit, interview, compensate and communicate with board members are all key, as is the understanding of why having a blend of independent directors is so critical.
With 34 years on TriNet’s board, seeing the arc of that evolution through challenging growth stages, (including rigors of the public market), gives me special appreciation for how the guidance in this book is spot on.
Buy it now and you’ll have the chance to take more control over your future by seeing the connection between good governance and successful companies.
When a startup arrives at a stage of product market fit to show steady increases in revenue, my evaluation as an investor expands to include looking for evidence that the leaders are actively engaged in working ON the business itself as the team builds towards scaling up.
Experience helps pick up pattern recognition across a variety of decisions like how to hire winners, manage cash and keep the team on a focused path by everyone working on the right stuff.
But what about first time entrepreneurs, particularly those without prior experience in managing teams?
Founder vision and passion may be there, as well as the persistence needed to stay the course through tough times, but if the business is to scale up – that also means the entrepreneur CEO has to quickly adapt to challenges that each new phase of company growth brings. For rookie CEOs that invariably means navigating through situations he or she has never seen before.
Work Myself Out of A Job
As an active startup investor, I didn’t think enough about this before now. In part due to not having put enough emphasis on how a decade of management experience before starting TriNet was a foundation for my own entrepreneurial journey.
At the outset, perspective about not being the bottleneck for decisions others on the team could make was already part of my mindset. I had seen what worked and didn’t in my prior efforts to empower others so I was tuned to the value of working myself out of a job.
Founders with the startup being their first managerial role are having to learn these basics on the fly, while also carrying the burden of startup pressures on their shoulders as they navigate through unchartered territory every day.
It’s easy to be totally consumed with top of mind priorities like finding new customers and serving existing ones, supporting team members to keep them productive and expanding the team to fill growing demand.
Those and other day to day activities involving immediate people and resource allocation decisions get in the way of putting time into things like refining strategic direction of the company, driving changes in the company’s internal business processes, culture and public identity, finding investment capital as well as developing their own leadership skills for the next stage of company growth.
Working ON the business
Micheal Gerber’s classic “The E-Myth” popularized the notion that if you looked at any truly successful entrepreneur with an enduring company you’ll find someone who committed significant energy to improving the business itself at the same time they were also navigating through significant revenue growth.
Anyone growing a company from scratch knows how consuming the revenue growth and service side can be – so how does one find the time needed to guide improving the business itself?
Scaling up Requires a Capable Management Team
Organizations are only as strong as their weakest links near the top. A high performing team is one that leads together with unifying purpose and consistency in living a company’s core values as everyone puts the overall company ahead of any single individual or department.
But if the early stage team is also new to managing others, as the volume of necessary decisions grow (resource allocation, who to hire, changes to internal processes etc.), decisions which might routinely be made by a manager in a slightly larger organization are instead discussed among the founders to build consensus.
This all happens without much recognition that the time involved to do so inevitably slows down the needed pace of change for the company to adjust to new scale and demands.
There are no rule books out there saying if you are at a certain size this is how decision making should work.
The Founder/CEO sets the tone of evolving who decides what, with the goal of pushing decisions down the hierarchy to the lowest level possible while still having the company be coordinated with the team in sync with each other.
As the business prospers, we’ll all be successful
As soon as we started scaling up at TriNet, our first managers came in at below market salaries but offset with equity upside. There was lots of risk as our industry was unknown and growth prospects uncertain.
It all worked out as that first group of managers came in with leadership experience that made it possible for us to scale up.
Some transitioned out after a few years, several others stayed on for 10 years or longer. And I’m not thinking there was much regret on the part of anyone who took part in the early leadership team as they were all successful in transitioning to other roles where their TriNet experience was valued. Those that exercised stock options and held their shares also reaped significant financial gains downstream.
CEO’s have the opportunity to articulate an inspiring vision for what individual and company success looks like, while at the same time being realistic with regards to expectations. Leaders who are credible in striking this balance attract high performers to the management team who in turn model that behavior as they become critical links for building the company to the next level.
Developing The Company Requires Commitment
Even if the Founder CEO is able to attract experienced managers to the team, the need for management development to work ON the business will be ongoing.
Throughout my TriNet CEO journey I sought out meaningful development opportunities, sometimes as part of industry or entrepreneur conferences but especially where there would be a gathering of peer CEOs who were seeking to learn more about the same issues I was struggling with.
Extra value came from opportunities where those peers then had contact outside the learning session. Building an expanding peer network requires a time investment that also carries the opportunity cost of stepping outside the business to participate.
I could get pretty charged up after hearing wisdom from a world class speaker on some aspect of company development, but then had to be thoughtful about how to bring that new knowledge back into the company.
Our approach included devoting at least one full day per quarter to strategic planning to focus working ON the business with prepared topics addressing known bottlenecks as we generated new approaches to meet higher production and sales growth we were building towards.
In some cases, we enhanced group learning with outside facilitators. We wouldn’t do it often, but as the team grew this proved to be an additional avenue to help get everyone on the same page for important themes we needed to be in sync.
Define and Work the Plan
With so many other things requiring attention in the business, the only way to mark steady progress is to incorporate company development into the operating plan and then track progress against measurable company goals.
We sought out and followed proven structures that helped us learn from what worked well for others. This helped not only on how to frame company development goals but the internal management reporting that cascade down from the overall corporate plan with operating metrics that were meaningful to the people doing the work inside each company department and work unit.
Supplementing written guidance and goals with an outside coach is another way to insure there are eyes on progress against defined management goals that go beyond financial measures and other targets the Board of Directors should be holding the CEO accountable for.
None of this is easy nor will come together with a process that stays rigid. Like most everything in growing a company, the journey begins with commitment to get it done followed by continuous iteration on the approaches used.
With an expanding team, everyone needs to be engaged in contributing to strategic development even while totally consumed with challenges of dealing with rapid growth.
But I’ll argue that unrelenting attention to working ON the business can be the key differentiator separating those who never make it past the startup stage from those who evolve to become true companies.
Fred’s insights are absolutely on point, and reading them prompted me to dig up an unfinished post of my own on this topic – one that I began writing earlier this year following the exit of TriNet’s long time controlling shareholder, General Atlantic.
For context, consider that TriNet’s annual revenue was about $50 million at the time of GA’s 2005 initial investment and have now grown to more than $2 billion.
More important than the growth capital GA invested, was the expertise and support they provided through our doing 10 acquisitions and transactions, including complex ones like our pre-IPO purchase of a much larger public company which we then took private, large debt financings that benefitted all shareholders, our successful March 2014 IPO and the smooth transition of their shares to Atairos, another large institutional holder so there was no disruption of our share price in the public market.
GA support also was instrumental helping us recruit my successor CEO Burton Goldfield, top quality board members and key executives, all while helping us with a savvy investor’s outside in looking view on important board level strategic and governance issues as we navigated through challenges at each stage of the company’s growth in that 11 year span.
It is hard for me to imagine how TriNet would have evolved to both our current marketplace position and promising path to remain an enduring company of the future had we not had the richness of GA’s contribution led by Managing Director Dave Hodgson.
So it is with some reflection now that I share a few principles on investor attributes I bring up when mentoring entrepreneurs who are in earlier stages in the journey of finding and working with institutional investors.
Companies don’t invest, people do
Institutional investors are duty bound to stay within the expectations set for the limited partners who are the source the fund’s capital. While this baseline can never be overlooked, the partnership responsible for running the fund still has latitude within the fund charter to make the key decisions leading up to when and how the fund ultimately exits the investment.
How that latitude gets exercised has a lot to do with the quality of relationship and trust between the company CEO (and board), with the key sponsor inside the fund – typically the company board member who is at managing director/general partner level in the fund.
The person who is your financial sponsor will end up being the company’s advocate inside the venture fund’s partner meetings where tough decisions are hashed out on things like:
– how the fund’s holding in your company is valued
– whether to increase the fund stake with a new round
– should the sponsor orchestrate a change in company leadership
– how would the fund’s non capital resources be deployed in supporting a company transaction or initiative
– when and how the fund’s stake in the company will be sold
As the CEO, you won’t have insight to the dynamics of those internal fund discussions, but you’ll certainly be dealing with the aftermath once the decisions are made.
So WHO the person is that you are relying on to be your advocate has everything to do with the personal qualities of your sponsor and how well aligned he or she is with the company’s view of playing for long term success vs. building to flip for near term gain when the inevitable unanticipated speed bump occurs in stalled company revenue growth.
Relationships are tested when times are tough
It’s hard to gauge the quality and strength of any relationship when things are going well. But if you’re truly scaling up a company, the truism is that is that even with the boost that might come with a big slug of new equity capital, it is never a straight line to uninterrupted periods of steady growth.
Whether due to bad planning, execution failures or external factors outside the company’s control, the time will certainly arrive when the company misses hitting critical budget goals expected to show progress in the investment.
When things go awry, whoever your financial sponsor is now has the added burden of convincing his/her partners of the fund on whether the setback is navigable or requires an investor driven change (e.g. like firing the entrepreneur CEO).
This requires the partner to have a deep enough understanding of the business and capabilities of the CEO and team, as well as the credibility and persuasiveness to advocate a difficult position that might run counter to conventional wisdom or prior experiences inside the private equity firm.
Don’t shortcut the investor diligence
The best sources to diligence someone who is a candidate to be your financial sponsor inside a fund would be founder/CEOs that sponsor has worked with in prior investments.
Here are a few areas that could be worth exploring to diligence someone lining up to be your financial sponsor:
– How well did the sponsor set expectations and deliver on them? When did he or she have to walk back expectations they previously set?
– Describe examples of where the sponsor dug into the details of the company’s business and applied that knowledge in a way that surpassed contributions of other board members?
– How persuasive was the sponsor at influencing the view of other directors on the board to get to the right outcome?
– How did the sponsor help when company results fell below budget?
– How did the sponsor affect a company outcome that might have involved responding to a company crisis or pursuing a major opportunity in a compressed time frame?
Don’t stop at just one diligence call. Speaking with CEOs from at least 3 former portfolio investments will provide a richer picture than any single source.
Viewing company success as personal success
Like most entrepreneurs who’ve been on a company journey a decade or longer, my ambition has always been about building a company to last – knowing that if the company is able to grow profitably over a sustained period of time it would be achieving what I set out to do in filling a market need and growing a team responsive enough to adapt to ever changing conditions that challenge others in the same industry.
If I was able to lay the foundation for building a company to last, I wouldn’t have to fret about where I would end up financially since the pace of growing the company’s value would far exceed dilution of my percentage ownership stake.
While it’s a straightforward financial proposition to see it’s better to own a minority slice of a huge pie than be controlling shareholder in a small company, the bigger issue many founders wrestle with is whether they can separate themselves from company leadership if that is in the company’s best interest.
Whether the founder opts to exit the leadership team or is nudged by the controlling shareholder(s), either case involves a high stakes transition where the financial sponsor is in a position to influence the outcome in a manner that all involved emerge as winners.
The long game begins with shared vision and trust
Some entrepreneurs, and investors drive towards generating a decent return over the near term by building a company likely to be sold for a profit at the earliest possible time.
If you’re in the other camp of wanting to build a company to last, continuous company growth will still provide meaningful exit opportunities where you could be in the envious position of passing today’s sale to stick with the vision of building a larger and enduring company.
That can end up with a more financially rewarding and satisfying journey, but likely to be achieved only when there is alignment with that shared vision and trust between the financial sponsor and CEO. Figuring that out before the investment is made is the first step towards what can become a long and mutually beneficial relationship.
TriNet’s IPO was the culmination of contributions from a ton of people over a very long time period.
Few outsiders were aware that our management team adopted a philosophy of being “public company ready” way back in 1994.
Over the two decades from then till going public last March, our leadership team had several themes related to readiness that served as key filters for decision making in both setting expectations and allocating resources.
Being accountable to a budget
Paramount on the list of readiness factors is defining a realistic growth budget and then delivering on the results.
While all CEOs espouse the importance of this basic principle, now that I’m an active early stage investor with an inside look into a large number of fast growth private companies, it seems only a small minority of those I see come even close to that deep commitment of learning how to deliver on budget expectations as they are scaling up revenue.
All companies going through a rapid growth phase encounter uncertainty around market adoption as well as unexpected bumps from the external environment – be it competition, market forces, technology changes and government regulation to name just a few.
And the faster the growth, the harder it is for the team to adapt as they have to evolve internal processes that affect consistency in how the company attracts, prices and services customers at higher volume – all of which ultimately drives the forecasted results.
But the public company principle is that as leader, I was never in doubt that my tenure as CEO was directly related to my ability to accurately predict the future in terms of where our revenues and profitability would be up to a year or further out from where we were at any point in time.
So developing competency in how to do that wasn’t something that I could learn in a single year or delegate to someone else, but instead had to work towards instilling commitment to setting and delivering forecasted results throughout the entire company every single quarter.
Institutionalizing Accountability Begins With CEO Direct Reports
Even if the CEO is “all in” on the importance of setting realistic targets and delivering on that, no single person can make that happen on his or her own.
If I was being measured by how accurately I could predict future quarters, it wasn’t a big stretch to say that should be the same approach in how I looked at my direct reports.
That put my focus on making sure I was getting that intense commitment from my direct reports to both setting expectations within their respective department, and that those commitments were direct linkages to support achievement of the overall budget – especially on how everyone in each department was contributing to growing revenue.
It was up to me to define the process by which we would define and track progress of goal achievement and set the example of holding my direct reports accountable by showing consequences to the reporting executive if goals were not achieved.
Consistency in doing so, as well as supporting systems to report and track goal progress both helped push this approach company wide.
Transparency with Investors and Team Members
Predictability in delivering forecasted results is closely linked to having enough detail in the assumptions driving the budget to be understood by key stakeholders.
Initially, this is the Board and management team, but we found it very high impact to expand the knowledge and transparency through the entire company.
We boiled down a set of business drivers appropriate for full team consumption internally and then constantly reported on our progress so everyone knew where we stood against a full range of operating metrics and budget assumptions.
Another aspect of transparency was our internal mantra of “no related party transactions” as we knew any hint of executives or shareholders having anything less than an arms length arrangement would be a red flag that blows management credibility with sophisticated investors.
Having a “Big 4” audit firm is a huge boost for transparency. We took that on 20 years before going public and never looked back, notwithstanding the extra layer of fees we paid even through the lean years just we could hold to that standard.
Earlier start builds competency
In TriNet’s case, our public company readiness philosophy got a big boost after taking on a large public company as our controlling shareholder in 1995.
Even though we were a small entity rolling up into a big corporation, the public company principles were very top of mind to us as we planned and executed corporate governance over the next 10 years.
Our public company readiness ended up being a significant factor in TriNet’s successful transition from the corporate controlling shareholder to General Atlantic, our financial partner and controlling shareholder since 2005.
I can look back now and see how critical these steps were to laying the foundation for managing through challenges of an evolving institutional shareholder base – the most important undertaking any CEO who wants to be around for the long haul can take on.
And while few high growth companies will find their shareholder exit in the form of an IPO, those same public company principles will insure a stronger company on every dimension that is important to success for both internal and external stakeholders.
As I mentor startup CEOs, one of the most common struggles I see is figuring out the path to develop the right systems, process and talent to drive new sales.
Depending on the nature of the startup’s business, driving new customer acquisition might be online transaction oriented which can be more about inbound marketing and UI/UX. But many others, particularly those with B2B offerings and a higher ticket price, have to rely on sales people to make and close deals.
Creating a sales force from scratch is never a slam dunk. Doing so when your product may be carving out a new market niche adds to the challenge.
CEO WHO DOESN’T KNOW HOW TO SELL
Back in my earliest days of TriNet, I struggled mightily to get our first customers. As nothing was happening, I made the rookie mistake of thinking that since I had no sales experience the solution would be to find someone with a solid sales background to bring on as VP to figure this out.
I wasn’t equipped then to know what qualities were needed for our situation plus the initial TriNet product was so unusual in the market at that time, that I can now say in retrospect the experienced sales guy I ended up hiring was set up for failure the day he arrived.
Being severely undercapitalized, his inability to generate new sales meant I couldn’t keep experimenting and he was cut loose after a few months.
Instead of bringing on a replacement, I invested in getting professional sales training that included hiring a coach who could mentor me on an ongoing basis. One of my luckiest breaks was finding Don France as that coach. He taught me the Sandler Sales methodology and mentored me through all kinds of sales transactions and challenges over the next year.
At the time, fees for that arrangement seemed high. However, it proved to be the best investment I ever made. I embarked on what was to become a transformational journey from being an “HR guy” to a “sales driven CEO” and have never looked back.
FOUNDER/CEOs HAVE A POWERFUL ADVANTAGE IN SELLING
The next five years saw me as the only sales rep for the company. Yet we grew to about 25 other people on the team who were all supported from the volume of new business I was able to bring on from my own selling efforts.
Now I’m not suggesting that in today’s faster moving world that same stretch would make sense for a new tech startup. But I am a passionate believer that if you’re selling a big ticket item the founder has a lot to gain by being out in front of that initial selling effort.
No one is better equipped than the Founder/CEO to relate to prospects with passion and can also come back and direct the service team to make necessary adjustments to the platform or offering so that it lines up with what the market feedback is saying.
LAYING THE FOUNDATION FOR SALES SYSTEMS & PROCESS
Since high ticket sales don’t close by themselves, I was under time pressure to have a tight system and process in order to maximize the number of selling hours I could get with my direct prospect contact.
The professional training and mentoring Don gave me also put me on path to develop structure around organizing that sales system and process. By the time we got to hiring reps 2, 3 and 4 we had a clearly defined system and process that that made a big difference in getting new people up to speed in selling within a reasonable period of time – even if they had no prior experience in our industry.
From those early days, TriNet’s sales systems have continuously evolved with increasing sophistication. My successor CEO Burton Goldfield and team have taken it now to levels we believe are best in class yet still consistent with several aspects of our original approach to sales process.
FIND A COACH – LEARN A SALES SYSTEM
I’ve looked for Don France but been unable to locate him – I would love to thank him for all that he did to help put me on the right track.
These days the guy who I point my startup CEOs to is Jack Daly (www.JackDaly.net). He has a pretty extensive online library but his full day sessions are worth traveling to as he packs a ton of professional sales insight to include both foundational elements of sales systems/process and selecting/managing sales talent.
I’m sure there are many others out there too. Ask a bunch of people you know who have deep sales management experience and find out who they recommend for both sales systems/process and mentoring. Someone local can be an advantage if they’re the right fit.
Readers of this post please respond with comments if you have resources you recommend.
Seems that almost every work day I’m speaking with other entrepreneurs – whether it’s people I’m collaborating with to build Upstate NY’s startup ecosystem or earlier stage entrepreneurs who I might be mentoring to help in decisions they’re making.
These interactions are very fulfilling for me so I’m always looking to add as much value as I can by helping others understand perspectives that shaped my journey in building TriNet.
As part of a keynote address for a large entrepreneur conference, I was asked to touch on what shaped some of the key decisions along the way. That got me thinking about the top 3 or 4 influencers that truly nudged me towards thinking differently.
Since I’m frequently recommending these same resources to others, I’m hoping this post will make it easier to spread the value even further.
Tag Line:Right Sales, Right Service, Right Customers, Right Cost
Impact for Me: With TriNet’s business model very much tied to amassing scale as quickly as possible, the idea of honing in on a narrow vertical market was a counter intuitive strategy at the startup stage. (In fact, for the first five years or so at our industry conferences it was totally baffling to my peers). However, those familiar with the TriNet story are aware that over our first decade we evolved to become best in class serving the very narrow niche of private equity backed emerging tech companies. Robert Hall’s presentation and book helped me figure out why that specific target was the right one for us to focus in on and then how to look at sales, service, customers and cost as integrated decisions instead of separate silos that more typically happens as a company grows.
Impact for Me: While this best seller certainly has influenced lots of leaders, the biggest takeaway that I put into action was developing the structure and process discipline around driving core values through the entire company. Even as TriNet grew far beyond the stage of me and my direct reports doing all the key people decisions (like hiring, firing and rewarding) our institutionalizing processes around driving core values through these decisions has influenced the fabric of the company long after I stepped down as CEO.
Impact for Me: The Great Game of Business (aka The Game) is more than just an inspiring story with clear principles around things like open book management and incentive rewards that build accountability- it is a philosophy of how to run a business so the entire workforce becomes engaged to both think and act as owners. Getting to know Jack Stack and executing these principles has unquestionably been the single most impactful path on the entire TriNet journey.
Tag Line:Proven Systems for Starting Fast, Growing Quickly and Surviving Hard Times
Impact for Me: Like most founder/CEO’s, my biggest personal challenge was evolving my own management style to fit the changing needs of the company. The faster the company grows, the bigger the challenge for the CEO to do things differently – what worked when you had 3 or 4 direct reports and 30 or so employees doesn’t necessarily work when you’re double or triple that size and again is totally different after 10x growth. T. J. Rogers approach to having systems and processes to build accountability was a terrific complement to what we had already started in the Great Game of Business. Some would say that since this was written before the internet age that his descriptions of systems and processes are now dated. While it’s true that today’s cloud based tools and integrated work flow are great enablers in themselves, I still highly recommend this book as a guide for CEOs going through their own development so they can wrap their head around the importance of leading the accountability journey themselves.
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