Over the past few days, I’ve had a similar conversation about reporting tempo with three different people (2 CFOs and 1 CEO). In each case, we snuck up on the issue, rather than starting with it.
The fundamental question addressed what the reporting tempo to the board should be.
A number of years ago, I decided to shift to quarterly board meetings. Historically, the number of board meetings I had per company was all over the place. Some had four per year, some six, some eight, and some had twelve. This was an artifact of the last 30 years of venture capital, where VCs often would use the board meeting as the way to primarily engage with the company.
I wrote about this in my book Startup Boards: Getting the Most Out of Your Board of Directors. I’ve shifted to a cadence I call “continuous board interaction” which is gated by the desire and need of the CEO as well as the needs of the company. As such, a quarterly board meeting is plenty since I’m having continuous interaction with the CEO and board. This approach was originally stimulated by Steve Blank’s posts Why Board Meetings Suck and Reinventing the Board Meeting – Part 2 of 2 but modified to fit the more varied and flexible reality that I operate in.
This does not mean that quarterly financials work for me. When the financials are tied to the quarterly board meeting, it’s almost impossible to have continue board interaction. There’s just not enough financial context about what is going on in the business. On the other hand, with a few exceptions (hyper-growth cases or ones where you are focusing on specific metrics), daily financing reporting is not helpful either, as is it overly burdensome on the company. It also quickly turns into metric reporting, which is very distinct from financial report, and often extremely helpful, especially in a continuous board interaction approach. However, many board members can’t handle daily anything, especially if they are on ten boards, except for the companies that they need to spend daily attention on.
That’s the context for how we wandered up to the discussion in each meeting. After the second conversation, I thanked the person I was talking to (she knows who she is) for providing the content for today’s blog post. Of course, since the conversation came up again with someone else after that, it sealed the deal that this would be a blog post.
Here is how I like to do board level financial reporting for private companies I’m on the boards of. I don’t force this – if the CEO wants to do something different that’s up to her. But I encourage this, or something like this.
Quarterly board meetings: The financials are decoupled from the board meeting. There is a quarterly financial and metric review in the board meeting, but it’s not the meat of the meeting unless there is a specific set of financial issues that need to dominate, such as the 2017 budget, a big financial miss, or a significant change to the plan for some reason.
Monthly financial package: This is a full financial package distributed to the board and executive team. It includes P&L, Balance Sheet, and Cash Flow statements. It has actuals to budget for monthly, quarterly, and YTD. It also has trailing 12 months of each (P&L, BS, CF). In addition, there is a cover MD&A (hopefully written by the CFO – not a formal SEC one, but a comprehensive management discussion and analysis). I prefer this package to be distributed by the CFO and not the CEO – it then becomes part of the operating rhythm. I also like the Q&A that occurs (in email, or in a Google doc around the MD&A) to be driven by the CFO with support from the CEO.
Optional monthly financial state of the company board call: This is a call with the CEO, CFO, and the board. Ideally it is led by the CFO. It’s limited to one hour, is completely independent of the board meeting, and is optional. The CFO sends out a short (less than 10 page) presentation summarizing the key financials, key metrics, and any topics for discussion at least two days in advance of the call. While I rarely attend these, I find that the board members who don’t engage continuously can use this to keep current on the financials and in the rhythm of the company.
This rhythm works around the monthly financial close cycle. The CFO sets the schedule. An example would be (based on day of the month) that the financials are closed by day 15. The monthly financial package goes out on day 17 with the presentation for the optional monthly state of the board call. The call happens on day 20.
If you’ve got a different, or better, rhythm, I’d love to hear it.
I had lunch recently with a founder. We were talking about current and future board configuration for his company and he said “Up until this point, all my board seats were simply for sale. Whenever a new investor showed up, they wanted – and got – a board seat.”
I loved the phrase “board seat for sale.” It’s exactly the opposite of how I think about how to configure a board of directors, but I recognize that it’s a default case for many VCs and, subsequently for many entrepreneurs and companies.
It’s a bad default that needs to be reset.
I wrote about this a lot in my book Startup Boards: Getting the Most Out of Your Board of Directors.
In the past few years there have been some interesting changes. In pre-seed and seed stage companies, there’s been a trend against having board of directors. Instead, there is no formal board, or no formalism around the board, so it’s just a free for all between the collection of early investors (angels and pre-seed/seed VCs) and the founders. This can be fine, but often isn’t when there are challenging issues that involve founders, financing, execution, or conflicts. And, when things stall out, figuring out what to do is often harder for the founders because of the communication dynamics – or non-communication dynamics – that ensue.
Post seed boards tend to be founder and investor-centric. This is the norm that I’ve seen over the past 20 years. With each round, the new lead investor gets a board seat and all of the other significant investors get either a board seat or an observer seat. The board quickly ends up becoming VC heavy and the board room expands to have a bunch of investors in it since they all have observation rights. Having been in plenty of board meetings with over 20 people in the room, I can assure you that these meetings are ineffective at best and often trend toward useless.
One approach to this is the pre-board meeting, where only the board members meet with the CEO prior to the board meeting (similar to an executive session of the board.) This is an effective way to deal with part of the problem, but it then makes the board meeting, in the words of a good friend and fellow VC, kabuki theater.
I prefer dealing with reality. I have a deeply held belief that as long as I support the CEO, I work for her. Yes, I do have some formal governance responsibilities as a board member which I take seriously and am deliberate around them. But most of my activity with a company is in support of the CEO. When I find myself in a position where I don’t support the CEO, it’s my job to do something about that, which does not mean “fire the CEO.” Instead, I have to confront what is going on, first with myself, then with the CEO, and finally with the rest of the board, in an effort to get back to a good and aligned place with the CEO.
As a result, especially for early stage and high growth companies, I think the CEO and founders should be deliberate about the board configuration. I like to have outside directors on the board early as it helps the CEO and founders learn how to recruit and engage non-investor directors. The CEO can learn how to build and manage the board and get value out of board members beyond the classical dynamics around an investor board member.
Most of all, I hate the notion of board seats for sale. I get that many investors want board seats as part of their investment. I appreciate that some now have strategies of never taking board seats. But too few VCs think hard about what the right board configuration is at the point in time that a company is doing a new financing. I think that’s a miss on the part of VCs and I encourage CEOs to think harder about this.
In the comments to my post yesterday titled The Religion of Silicon Valley, Rosey commented that the choice of metaphor could be “operating system” instead of religion.
“Brad, I expected your choice of metaphor would be ‘operating system’ more than ‘religion’, as the term ‘religion’ carries a lot of baggage and generally involves some supernatural truth claims. An ‘operating system’ both defines its environment and thrives within it — and the idea of an OS seems less cluttered with other analogies, like heaven, hell, and Eden.
Can you, for example, take the SV’s operating system and drag and drop it into Boulder or Kansas City? You can — but the VC’s the operating system needs to plug into may not be fast or scalable enough — the peripherals the OS expects to interact with.
The SV OS ought to work in a Bolder or Kansas City if we can ‘install it.'”
I love the phrase “operating system” to describe things. I saw a presentation from Anil Dash a year or two ago that completely recast government and how it works into the construct of an OS (it was epic – I wish I had the slides).
Yesterday I got an email from a CEO of a late stage company I’m involved in who is modifying his “board operating system.” He has a new late stage investor and it’s time to change the board OS to incorporate this new director and how he likes to work into the mix in a way that is additive to everyone, especially the company and the CEO.
It’d be easy for the CEO to fight this and say, “Nope, this is how we do things” but he’s wiser than that and instead is spending time thinking through how to modify the OS so that it works for everyone, including all the existing investors who are very happy with the existing board OS.
Here’s a quick table of the “current” and “future” board OS. The communication is clear and the rhythm is well-defined.
In 2014, Paul Berberian, CEO of Sphero, wrote an email to his board (which I’m on) titled Orbotix Board of Directors Expectations. We use this as our board OS at Orbotix and it’s been incredibly helpful. If you are struggling with your board dynamics, it’s worth reading and contemplating creating something similar.
I’m a strong believer that a great CEO sets the expectations for how the board of a private company works. Too many CEOs of startups don’t put the energy into this and as a result boards take on default behavior that is a function of the experience, style, and temperament of individual board members. This is, at best, suboptimal, and is often a clusterfuck.
I’ve been to a gazillion board meetings. I’ve written a lot about them including a book called Startup Boards: Getting The Most Out of Your Board of Directors and piles of board meetings posts on this blog. I still do a lot of them, but I’ve definitely been on a quest the past few years to (a) figure out what works best and (b) try to organize my world around more effective board meetings based on what I’ve learned.
On Friday, I had a Mattermark board meeting. It was our second one since we invested in Q414. Danielle Morrill wrote a post in February about our first board meeting. It was a long board meeting as I’d reserved from 11am until the end of the day for it, followed by dinner together, but it was very different than the one we just had as we search for our rhythm as a board.
At the first board meeting, Danielle, Kevin, and Andy came to Boulder and spent a few days here together. In addition to the board meeting, they spent a bunch of time with founders in other Boulder-based portfolio companies of ours.
This time the Mattermark leadership team, including Sarah, BT, and Beau came to Colorado. They arrived Thursday night and drove up to my house in Keystone (about 90 minutes away). I got up early Friday morning and drove up there, getting there around 10:00am. The Mattermark gang was up, had just finished breakfast, and were doing what lots of startups do when they are hanging out waiting for an investor to show up (queue photo of people sitting around on their laptops.)
We got a little more coffee and then went downstairs into our big, comfy TV room. Last time, we worked directly in a Google Doc. This time, Danielle made a deck summarizing everything we’d been doing back and forth in via the Google Doc over the past week leading up to the board meeting. The deck looked good on our 75″ TV and we fired up Skype on a laptop at the front of the room for Lisa (who couldn’t come) and Megan (our outside counsel.)
We proceeded to spend until almost 8pm going very deep on various aspects of the business, product, product strategy, organizational dynamics, and goals for Q215. During this time, we took 90 minutes off for lunch and had a bunch of Mexican food at Fiesta Jalisco. At about 7pm we shifted into an executive session of just founders and board and then Danielle and I spent 30 minutes just doing a 1:1.
We then jumped into cars and went out to a late dinner. My favorite Sushi place Kemosabe Sushi had an hour wait so we went to Silverheels Bar and Grill next door. We were done talking business so we talked science fiction, crazy obsessive habits, fun ways everyone had met each other, and the stuff you talk about after a long day together.
They then drove back to my Keystone house to spend the rest of the weekend together. I drove home because I really wanted a weekend with Amy just hanging around and chilling out (she’s taking a nap as I write this.)
Overall, I’ve tried to shift my board meeting rhythm to once a quarter. My favorite board meetings are the ones that including the entire management team. I like to have a meal with the entire management team as part of the board meeting. I like to have social time and give the team time and space to get to know me better, and themselves better, outside the normal pressure of the day to day grind that is startup life.
I’m a very deep believer in continuous engagement with companies I’m an investor in. As a result, I do not like a monthly board meeting rhythm. I think it’s too much overhead on a leadership team and lets investor / board members off the hook for continuous engagement. More specifically, I know many investors who only really engage with companies either around the board meeting, when a transaction is going on, or when there is a crisis. While this might be useful for some people, it’s not my style nor how I like to engage.
I’ve only had a few of these “full-day retreat at my house in Keystone followed by management taking over the house” type board meetings and I really like them. I expect I’ll do more in the future and encourage any of the companies I’m on the board of to take me up on them.
When I wrote Startup Boards: Getting the Most Out of Your Board of Directors with Mahendra Ramsinghani, our goal was to help entrepreneurs understand how to create an excellent board of directors, manage it effectively, and get optimal value out of it. This was challenging to do, as the topic of boards can be boring. Based on the feedback we’ve gotten, including consistently positive reviews on Amazon, I feel like we accomplished that goal.
Last year the Kauffman Foundation, with which I’ve had a long relationship and am a big supporter of, approached me about doing a Kauffman Founders School video series on Startup Boards. We completed it early this year – the teaser follows.
There are seven modules that are each five to ten minutes long.
Each module also has suggested additional readings, beyond our book Startup Boards.
I’m proud to be part of the Kauffman Founders School, which includes some great courses such as the ones listed below by folks like Dan Pink, Steve Blank, Bill Reichert, and Meg Cadoux Hirshberg.
Do you remember your first board meeting? I do. Well, I sort of do, kind of, maybe.
Danielle Morrill of Mattermark memorialized her first board meeting on the web in her post Post Series A Life: Reflecting on Our First Board Meeting and What It’s Like Working with Brad. It’s a detailed view of her expectations leading up to the first board meeting we had along with the blow by blow from her perspective of the board meeting.
I have two simple pieces of feedback to Danielle, Kevin, and Andy about the board meeting. First, bring the rest of the leadership team the next time so we have a room full of the team for most of the meeting. Second, you did great – I love the style of board meeting we had.
We didn’t have board meetings at Feld Technologies – we didn’t really have a board. There were three owners – me, Dave Jilk, and my dad. Dave and I had a monthly offsite where we went away for a day and an overnight somewhere within driving distance of Boston. We did this eight to ten times a year and these were some of the most powerful and useful working days, and personal days, we had together. Once a year my dad would join us for a long weekend somewhere where we hung out, talked about the business, and drove around New England.
My first real board meeting was at NetGenesis. I remember the place – an MIT classroom. I remember the attendees – Rajat Bhargava, Eric Richard, Matt Cutler, Matthew Gray, and Will Herman. The chalkboard was black, the chalk was white and dusty. Will and I had each invested $25,000 for a total of 20% of the company. It was 1994. The meeting was around a wooden MIT classroom table that looked like it was from 1894. I don’t remember much of the meeting, except we wrote lots of lots of things on the chalkboard. There were no PowerPoint slides.
I remember my first board meeting for a company I joined as an outside board member. This company was SBT Accounting Systems, based in San Rafael, California. I flew to San Francisco from Boston, stayed overnight in the city, and drove over the Golden Gate Bridge. I’d only been to San Rafael once before, presumably to interview for the board position under the auspices of spending the day at the company. I was nervous because I had no idea what to expect. I showed up a little early, was ushered into the very large board room, and fed breakfast of bagels, pastries, fruit, and coffee. For some reason, I remember eating so much that I was full before the meeting started. SBT always had outstanding, freshly ground coffee filtered through Melitta cone filters which meant that I often drank way too much coffee. Unlike my NetGenesis board meetings, and the few others that I had started attending like ThinkFish’s, this one was formal. Everyone took their place at the table, with blue board books in front of them, and “the show” began. After a number of years of faithful service, I left that board, but I learned a lot and remember the time on that board as helpful to forming my view of an ideal board meeting.
My book, Startup Boards: Getting the Most Out of Your Board of Directors, covers what I’ve learned over the ensuing hundreds of first board meetings, and thousands of board meetings, I’ve participated in. While the book was hard to write, and at some points I feared that it would be excruciatingly “boring” to read, the feedback has been positive, especially from entrepreneurs and CEOs like Danielle who are having their first “real board meeting.”
Just remember – keep it real, not fake. Be yourself. And own the meeting.
I had a fun email exchange with an investor I’ve worked with for almost 20 years in response to something a CEO send out from a board we are both on. I said “fucking awesome.” He said “that’s an understatement.” I said “CEO is such a delight.” He said “CEO is negative maintenance.”
I loved this. So I’m going to use this post to think through the idea out loud and I’d love your feedback since it’s still a messy / blurry concept in my mind.
My hypothesis is that the opposite of high maintenance is not zero maintenance but rather it’s negative maintenance.
There are days that I’m high maintenance. Everyone is. But if you subscribe to my “give before you get”, or #givefirst, philosophy, you are constantly contributing more than you are consuming. I’ve talked about this often in the context of Startup Communities, but I haven’t really had the right words for this in the context of leadership, management, and employees in a fast growing company.
Suddenly I do. When I think about my role as an investor and board member, I’m often tangled up in complicated situations. I’ve often said that every day something new in my world gets fucked up somewhere. This used to be distressing to me, but after 20 years of it, if I don’t know what the new fucked up thing is by 4pm, I start to get curious about what it’s going to be.
We all know that creating companies from nothing is extremely difficult. The problems that arise come from all angles. Some are exogenous and some are directly under your control. Some are random and some are obvious. Some are compounded by other problems and mistakes, resulting in what my father taught me at a young age was the worst kind of mistake – one that was a mistake compounded on a mistake compounded on a mistake – which he called “a complicated mistake.”
Personally, when I find myself in a complicated mistake, I stop. I step back and pause and reflect. And then I try to figure out how I can change the dynamic into something positive, not continuing to build on my complicated mistake, but instead getting clarity on what the right thing is to do to get out of the ditch.
Negative maintenance people do this. I’ve seen, been involved in, and made some epic mistakes. The CEO I’m referring to above has a great company, but has also experienced some epic mistakes. How he handles them, works through them with his team, and his board, is exemplary. There is work involved by me and the other board members, but it’s not inappropriately emotional. It’s not high maintenance. It’s just work. Decisions have to be made and executed. And there are impacts from these decisions, which lead to more decisions. Ultimately this CEO is putting energy into the system as we work through the issue, which is where the negative maintenance (as opposed to high maintenance) behavior pattern arises.
I like this idea of negative maintenance people. I’m obviously trying to think it through out loud with this post, so weigh in and help me understand it better.
I have been to thousands of board meetings. Maybe tens of thousands. I’ve done them in person, on the phone, and on video conference. Most of the time I think I’m additive to the mix. Yesterday I had a board meeting (where I was remote on video) where on reflection I was a lousy participant and miserable contributor to the meeting.
I had a really nice dinner with a founder of a company that was recently acquired by a company I’m on the board of. I vented a little about the board meeting to him at the beginning of dinner and then he asked me questions about how I think a great board meeting should work. As I was talking and explaining, I realized the board meeting wasn’t crummy. Instead, I was lousy. So when I got home, I sent the following note to the CEO and the largest VC investor in on the board (who I view as the lead director for this company.)
Dear CEO, Lead Director:
Post dinner, I thought I’d drop you another note. Please feel free to share with the entire management team if you’d like.
I thought I was a shitty board member today.
1. I was late. My brother had surgery today so I had an excuse, but that set a crummy tone.
2. I was painfully bored by the first 90 minutes. I let myself get frustrated as you read us the board package. I know some board members like this and while I don’t, that’s my problem, not yours. You get to run the board meeting however you want.
3. I was annoyed with my lack of clarity on what you were looking for.
4. I let myself get distracted. Rather than pay attention, I drifted to email which I hadn’t been on all day. The mediocre audio wasn’t helpful here, but again that was my problem. I could have paid attention.
5. I then got very frustrated with what I thought was a “let’s go raise a bunch of money thread” which I couldn’t tell where it was coming from, but I presumed that there was some positioning going on. I shouldn’t have. But I let that + my general annoyance derail me.
I’m sorry. I know I wasn’t helpful today.
So you are clear about where I’m at.
– I’m psyched about the progress you are making.
– I’m totally comfortable with you running hot at an $xxx net burn rate for the balance of the year. You’ve got plenty of money.
– When I’m bored in, or annoyed with, a board meeting, that’s my problem in the moment to deal with, not yours. You’ve got 14 people in the room / on the phone and that’s more than any human should have to try to process.
– You and <your COO> have my full, unambiguous support.
We all have off days – when you have one – own it.
For those of you that missed my note yesterday, I’m going to start using the first paragraph of my posts with an announcement about something in my world. Today’s is the launch of a new product from Orbotix called Selfiebot. My Orbotix friends are masters at creating amazing robots and are hard at work on the next generation of what we are calling “connected play.” Selfiebot is an autonomous flying robot that shoots HD photos of you, freeing you from the limitations of a handheld startphone when taking selfies. Check out Selfiebot today.
While we are on the topic of Orbotix, let’s talk for a little while about expectations for outside board members. Yesterday I met with an outside board member of another company I’m on the board of. He’s been on the board for about six months and is feeling uncomfortable with his contribution. He’s a very experienced CEO with a large exit under his belt, a founder/investor in several other companies, and an excellent operator. But he hasn’t been an outside board member much. He wanted to get feedback from me on how he was doing and whether his expectations for his own engagement were correct, and what he could do to work with the CEO and leadership more effectively.
I’m an enormous believer in the value of outside directors relatively early in the life of a company. I like to keep boards small and weighted toward outside directors as the companies grow, rather than just a cadre of VCs sitting around the board torturing the CEO with conflicting advice and opinions. I’ve written about this extensively in Startup Boards: Getting the Most Out of Your Board of Directors.
I generally see three types of outside board members getting recruited to a board of a VC backed company.
Note the emphasis on independent thinker. It doesn’t matter who the relationship originates from. There is a unique role for an outside director in a startup company and it’s one that can be profoundly helpful to the CEO. But that person needs to be operating from a headspace of an independent thinker, not a proxy for one of the other participants on the board.
The person I was talking to yesterday is definitely #3. While I’ve known him for a long time and was an investor / board member in his successful company, he most definitely is not my proxy. I learn an enormous amount from him about the particular dynamics of the specific business since he knows it so well, so when he talks, I listen carefully. I have no interest in being in between him and the executives of the company or hearing about what comes up in his operating level discussions, unless he feels like it’s a board level issue and discussion. But most importantly, I want the CEO to learn from this outside director and his experience by developing his own deep, personal relationship.
Back to Orbotix. We’re recruiting at least one outside director to Orbotix as part of the continued scale up of the company. Paul Berberian, the CEO, wrote a magnificent short overview of his expectation for a board member that he’s sharing with everyone he’s talking to. I asked his permission to reprint it here – it follows. If you are considering adding an outside director, I encourage you to prepare a similar document, and make sure it’s for all of your directors, including your investor directors.
Orbotix Board of Directors Expectations
Orbotix is a startup company and our expectations for board members can be summed up with the following statements:
Be True: No bullshit or tap-dancing on any subject. Be honest with your thoughts and opinions. Our time together as a group is limited and holding back or sugar coating any issues or concerns you have with the business is simply wasting time in trying to get to the real discussion. If you don’t have an opinion or relevant experience to make an informed decision – say so. No one knows everything. And of course all the other table stakes for serving on any board such as always act in an ethical manner and in the best interest of the company.
Be Prepared: We put a lot of time into preparing the board book – read it in advance. We do not review the board book at the board meeting unless there are questions. The first few minutes are open for questions, approval of standard business items and then we dive into a deep discussion on one to three key subjects. These subjects will we outlined in the board book but additional material may be presented at the meeting. Try to come to each board meeting with one big question or insight you’d like to be addressed during our strategic discussions. Each board meeting will end with an executive session where the directors can give feedback to the CEO as well as talk privately without management present. The lead director will then follow up with the CEO to provide any final thoughts on the meeting.
Be Present: We have four board meetings a year and expect board members to be physically and mentally present. Board meetings are typically 3 hours or less. If you cannot attend physically getting access to a high quality video conference system can be a substitute. We take great care to plan BOD meetings around your schedule so please make them. Missing one board meeting can happen, but it should be rare. If you miss multiple board meetings we assume that something else is taking priority and you should evaluate ongoing participation. When at the board meeting turn off you phone and laptop and participate in the discussion. We will take breaks to allow you to check messages. If you are highly distracted due to other pressing matters, please let us know in advance so we don’t question your willingness to participate. We have a “small group meal” in advance or after the board meeting – typically a dinner the night before. The meal will have 2 to 4 people and will include an equal number of board members and management. This is the opportunity for the board to get to know management and each other at a deeper level – groups will be different for each board meeting. They are not designed to conduct the board meeting in advance. An Orbotix exec will coordinate the meal in advance.
Be Available: One of the key roles a startup board member can provide is to act as a coach or sounding board for the CEO. These interactions typically occur between board meetings. Making time on your turf to have these interactions is invaluable. The expectation that these meetings will not exceed more than a few hours per quarter. Often approvals are needed in short order – board members are expected to be responsive on emails / calls that clearly declare action needed in the title or message.
Be Supportive: As a board member you are expected to support the company and CEO. If you support the company but not the CEO you have three options 1) coach the CEO 2) replace the CEO or 3) resign. Unless there is some unusual circumstance, options #2 and #3 should not be without warning as it is expected feedback will be shared with the board in the executive session. An engaged and supportive BOD member will use their best efforts to help Orbotix succeed. Examples include leveraging your network for creating meaningful partnerships and introductions, and freely sharing your expertise and insights on strategy, products and performance. Additionally we expect every board member to speak about the company favorably in public and share their enthusiasm for our work with others.
Be A Player: We make fun things. That is why before each BOD meeting starts we begin with a play session to highlight our accomplishments and developments since our last meeting. We want our BOD members to embrace their inner child and play with our creations, offer feedback and most importantly share with their friends and family to help us shape our products and experiences. We cannot build fun things unless we are all having fun – so let’s play!