Many companies put off the task of assembling an effective board until they run into trouble.
Behind every great CEO is a great board, and I’ve noticed that startup founders tend to put off the task of building strong boards. Consider successful tech companies like Amazon and Google that built their boards early on. They’re more an exception than the rule, however; more often than not, companies find that there are few, if any, consequences until they run into trouble.
Many boards have gotten into trouble when they think they answer only to the CEO.
After years of advising startups on board management and executive search, I believe that the only true role of the board is to hire and fire the CEO. After all, great boards understand that they are accountable to each other and to company shareholders. Also, great boards are diverse – in thought, background, and perspectives. The statistics bear repeating: Just 10% of Silicon Valley directors are women, and the percentage of VC-backed startups with a female founder or CEO is even lower.
So here are some practical tips for assembling a great board.
Know the company’s vision. Where do you want the company to go? Define what you need the board to do to achieve those goals. Keep that in mind as you consider and define the attributes, skills, and experiences that you need of your board members.
Seek the right skills. Create a simple grid combining attributes that actually exist in the market. Draft a table with all the desired aspects of a “final” board. Fill in the table with prospective ideas for each director, ranking each in terms of depth or fit and whether that person can be recruited. Keep this list current, fresh, and ongoing, and make it an active item of discussion at board meetings.
Develop role and responsibilities for members. As Jim Collins says, “Do you have the right people in the right seats on the bus?” It’s never too early to have committees or key areas of responsibility. Do you have the best head of audit, compensation etc.? Who are the lead directors that you as CEO can rely on in each critical area?
Build a culture and invite debate. Foster a culture of open feedback and independence. You want different opinions and perspectives to help you consider alternatives. Consider the culture and interaction you want from your board: passionate and intense debate, or cerebral and deliberative? You want to recruit a board that pushes you, makes you uncomfortable and challenges conventional wisdom. At the same time, you want a board and not an operating committee – so setting boundaries is important.
Break through your comfort zone. Boards tend to reach for what’s familiar and comfortable, which results in homogeneity. Knowing that, you should strive for diversity of opinion and not be afraid to go against the grain. Keeping that top of mind will help you be open-minded to alternatives you would not have considered in the first place.
Thanks to the Growthinkers who traveled far to Los Angeles today - Alicia, Bridget, Dave, and Stacey - for a great day of strategy sessions, brainstorms, and re-connecting. And also a thanks and kudos to everyone who filled the day with such positive energy and "optimism bias"! Onward and upward for 2015 and beyond!
Something's going on in L.A. all right. The region earned its reputation as the fastest-growing startup ecosystem in the world in 2014. Digital tech companies in the county raised $3.04 billion last year, according to Built in Los Angeles' annual report— a 188 percent surge over 2013, when the local tech scene raised $1.06 billion. And 82 firms saw $5.9 billion from exits — up a whopping 430 percent.
"2014 was a banner year for L.A.'s tech ecosystem, which has helped grow our economy and reduce our unemployment rate by 2 percent," Mayor Eric Garcetti said in the report. "This report shows that Los Angeles has the creativity and talent needed for the digital tech industry to thrive."
Last year, more than 250 companies got funding, and 172 of them raised more than $1 million, with Snapchat's $486 million round right at the end of the year leading investments. In addition, 80 companies were acquired and two went public, led byMaker Studios' $500 million sale to Disney(in a deal worth up to $950 million) and TrueCar's $1 billion valuation after its IPO.
Other 2014 highlights includedConversant's $2.1 billion buy by Alliance Data Sytems, Internet Brands' $1.1 billion acquisition by KKR, Ad Colony's $350 million sale to Opera, LegalZoom's $200 million investment by Permira, true[x]'s $200 million acquisition by 21st Century Fox,StyleHaul's $107 million sale to RTL Group, and the Rubicon Project's $102 million IPO.
Director of Client Development
The recent International Consumer Electronics Show (CES) in Las Vegas featured more than 3600 exhibitors and was attended by over 170,000 people, both show records. It’s a trade-only event for the consumer technology industry and not open to the general public. Exhibitors include many startups up to Fortune 500 companies like Ford, pictured below.
Among the hottest products
on display were drones. Over 80 exhibitors featured drones, a 500% increase
Reliable news sources -- including CNBC, the Kauffman Foundation, US News & World Report, and others – have published articles about the boom in entrepreneurship. While it may make for a great story, a quick look at the numbers shows otherwise.
According to recently published statistics from the U.S. Labor Department, just 3.6% of Americans under 30 own equity in a business, a drop of over 66% since 1989, when the US population was 247 million compared to the current 327 million. That’s a drop of almost 15 million individuals.
A number of factors can help explain this long-term trend.
· Debt from student loans Money spent to repay student loans means it takes longer to save money to self-fund a business. With high student loan default rates and flat or minimum increases in wages it’s difficult to save enough money to start a business.
· Post-recession fallout Prior to the Great Recession, Millennials had generally grown up in an economy which was stronger than the historical average. Seeing job losses and company closings is scary for those undergoing their first economic downturn. Safety and stability often become more desired than controlling one’s destiny by starting a business. It takes time and maturity to understand that the economy is cyclical.
· Fear of failure Some social scientists have pointed out that over-protective parents with a risk-averse mentality cannot possibly create a home environment conducive to the curiosity and joy of discovery needed by entrepreneurs.
· Lack of exposure to conventional business models Starting on a shoe-string budget, slowly building revenues, taking on little or no debt or investor capital, and being profitable from the beginning are business attributes seen as boring by many Millennials. Ignoring business models in non-tech industries reduces the number of opportunities available to potential entrepreneurs.
· The political environment Anti-business activist groups ignore the many positive contributions made by small and startup businesses. Lack of exposure to positive contributions by businesses reduces the desire to be an entrepreneur.
· Fewer workers and more independent contractors As companies outsource more jobs to independent contractors, many workers are self-employed yet have few or no benefits and low pay, factors which contribute to an inability to grow their independent contractor businesses.
Trends like this don’t turn around overnight but there have been positive signs lately. Lower gas prices have increased American’s confidence in the economy according to the University of Michigan’s Index of Consumer Sentiment, up 13.5% in 2014 compared to 2013 and up 5.4% in December, 2014 compared to November, 2014. Confidence in the economy generally means an increase in the number of business startups.
More Millennials are moving from their parent’s homes into their own dwellings. This requires the purchase of household items which gives an overall general boost to US GDP. This also contributes to consumer confidence.
The “Internet of Things”, which brings technology to items typically thought of as non-tech, opens many opportunities for those who have grown up with, and are comfortable using, technology.
More colleges and universities are now offering degrees in Entrepreneurship which can hopefully give potential entrepreneurs some of the skills and confidence they’ll need to start businesses.
Just as the Depression spawned the mindset of The Greatest Generation, I’m confident the Great Recession and the slow recovery have taught potential entrepreneurs how to be resourceful, which is one of the most powerful skills an entrepreneur will need.