In most startups, one of the founders is the first salesperson — often out of necessity as much as passion. But as startups scale they add sales reps or maybe some form of a Sales Manager once there are more than a couple of reps. But how do you know when to bring on a senior sales leader? Too soon and you have a very expensive employee, too late and your sales reps are creating their own processes and approaches. As a CEO there are several telltale signs that you need to hire a CRO, for example:
- You wake up in the middle of the night concerned about HOW you’re going to make this quarter’s number. You have no clue about what the levers are, or what the pipeline/forecast details are, to get there.
- You are spending too much of your own time managing individual deals and pricing, or teaching individual reps how to get jobs done.
- Your Board asks you if you’re ready to step on the gas and scale your revenue engine and you don’t have a great answer and aren’t sure how to get to one.
But don’t wait until you’re waking up in the middle of the night to hire a CRO. Instead, use this simple process to build some consistency in your sales team and set yourself up to scale rapidly when the time comes.
Building a Sales Team: From “Whiteboard” to “PDF”
There is a framework we learned from one of our original investors at Return Path, Greg Sands. Greg always talked about the evolution of an enterprise selling process as going from “selling on whiteboard, to Powerpoint, to PDF.” A “Whiteboard” approach to sales is one that is exploratory and conceptual. A “Powerpoint” approach is a sale that requires creativity and tailored pitches, while a “PDF” sale is a standard sale that can be taught quickly to an inexperienced sales rep and used with a high degree of predictability to all customers.
Many startups think that they need to be at the PDF stage quickly but as a startup your goal should not be to deliver a polished, buttoned down and refined final PDF to customers. Your goal should be to start with a mindset of discovery.
Whiteboard Sales Approach
Your initial sales team (maybe the CEO and/or Head of Product) should go to a prospect’s office and literally use a whiteboard, drawing things out (drawing charts, and frameworks, and circles, and arrows, and exclamation points), while you try to understand your potential customer’s problem. You’re creating this with the client because you don’t have a deck yet, much less a PDF. It can be very interactive and engaging selling on a whiteboard and using that very intimate moment to try to develop the right story for your product.
Powerpoint Sales Approach
As you evolve and grow, chances are you’ll have a sales deck and a pitch because you won’t be discovering what the customer needs. You’ll have very refined (and tested) ideas about their needs and maybe you’ll even have customer segments. But a caution here is that what could (and often does) happen is that your deck, your pitch, get modified along the way — for every single pitch. So, if you have four salespeople, each of them has a different version on their laptop, and there’s probably no central organizing body yet that has thought about what the tone and tenor of the brand should be.
This is the “Selling with PowerPoint” stage and it’s here that good, clever, senior, business development-oriented salespeople are most successful because they will create custom pitches for each client based on their learned history of what has and has not worked in other places. You are still miles away from being a sales machine and what you need is a level of sophistication and market understanding that enables you to get to a PDF presentation.
PDF Sales Approach
A PDF is something that’s complete, that can’t be modified or altered, and it ensures that everyone’s speaking the same language. At this point you have the kind of consistency and message and positioning that enable you to be repeatable and scalable. You can hire a new, junior sales rep, train them for a few weeks, hand them a prospect list and a pdf, and have a really good sense of that person’s likely productivity.
Of course, selling by whiteboard — and even PowerPoint — is sufficient to a point in time but if you’re thinking about unleashing your product on a massive scale, then you have to get to the point where you have a very smooth presentation and message that you know resonates with the audience.
You might be thinking that you can get your sales team from whiteboard to PDF quickly, that it’s a matter of understanding the process and then executing it. But the reality is that there is no quick way to get from whiteboard to PDF and it’s not a linear process. You can’t put into your business plan that you’ll spend the first six months selling with whiteboard, the next six months selling with PowerPoint, and the next six months selling with PDF. It’s much more nuanced, there’s a lot of trial and error, a lot of experimentation, and a lot of thinking and rethinking based on customer ideas and feedback. At Return Path, for example, it probably took us somewhere between five to ten years before we got from whiteboard to PDF and it was only after refining our approach and materials that we were able to build a sales machine.
Obviously, a startup can’t wait the five to ten years to hire a CRO, but even at the “Whiteboard” stage an inquisitive person, excited about your product and customers, could help build and grow a dynamic sales team… and certainly by the “Powerpoint” stage, a strong senior sales leader can make a world of difference — and drive you to the “PDF” stage.
If you’re new to the Chief Customer Officer role, we’d like to share some advice we wish we had learned earlier in our careers. There are a few common misconceptions about customers and the service organization. If you don’t realize these as misperceptions, you can spend a lot of time dealing with issues that are not real, but perceived. We have identified five of these common misperceptions, although we are sure there are more.
Misperception #1: The service organization fully controls churn (customer attrition)
In a lot of organizations you’ll see the service organization be measured solely on customer churn. If you really think about it, there are many elements that come into play that impact churn, including
- How the customer is sold
- The quality of the product
- How easy it is to onboard the customer
- How easy it is to use the product
- How easy it is for the customer to understand what kind of value they’re getting out of the product
Of course, the service functions do have a critical role, but they’re not the only functions in a company that impact churn. The responsibility for churn also lies with sales, engineering, marketing, and other teams. One reason why you need a C-level senior person in charge of all service operations is because you need someone who understands the customer experience broadly and that person has to work cross-functionally to ensure customer retention.
Misperception #2: The service organization is just a cost center
In many businesses, if a function isn’t generating new revenue, it’s seen as “second class.” From our perspective revenue retained is revenue gained and the service organization has a big impact on retaining revenue. In addition, the account management portion of a service organization is often in charge of up-sale and cross-sale opportunities which can be huge areas of growth. CCOs should work within their company to alter that misperception of service as a cost center because the service organization can have a huge impact on revenues.
Misperception #3: Service teams should focus on responding to defections
I’ve recently found a situation where the customer success team is built to focus on the clients who have raised their hand and said, “I want to leave.” This reactive approach drives low job satisfaction and isn’t the “best and highest use” of a service team’s time. By the time a customer is frustrated enough, or isn’t seeing the value enough, that they want to leave — you’ve missed a window of opportunity. The right focus should be proactively helping customers reach their desired business objectives. If you can do that, most customers will stay. That’s the theory behind the rise of the customer success team and that’s what great companies are doing today.
Misperception #4: Service’s job is to “paper over” gaps in the product
There is a widespread practice of covering for product issues by throwing service at the problem. That certainly can work, but it’s not optimal. The superior approach is to focus the service team on becoming a trusted advisor for customers, helping those customers achieve their desired outcomes. To do that, the CCO will have to work cross-functionally with the product team, the marketing team, and the sales team to drive a more friction-free customer experience.
Misperception #5: Service is boring and tactical
There is a wide-spread misperception that working in the service organization is boring. It’s mundane, it’s tactical, it doesn’t appeal to people who think strategy is grander than tactics. I don’t agree with that at all. A great service organization starts with a strategy. It starts with an understanding of customer segmentation. It includes thinking about the different customer personas and how to define an appropriate and valuable customer experience. That core strategy actually takes a while to develop. Once the strategy takes hold, it is core to driving retention over time. And, while a lot of people perceive that the service organization jobs are boring, or just answering trouble tickets or reacting to client problems, that’s not the whole role. It is a strategic role as well.
The Chief Customer Officer has a big impact on the success of a company, especially startups and scaleups, and their function touches nearly every aspect of a company. To give your company the best chance of scaling, the Chief Customer Officer should understand, pinpoint, and manage misperceptions so that they can devote their time, energy, and resources to the real problems that help customers.
In addition to our work on helping CEOs understand board-building best practices, which I posted about last week, I’ve spent the past several months publishing a second series of blog posts to help current and aspiring directors (really, any senior executive!) understand the behind-the-scenes details of private company board service. This second series is also now an eBook and its content will also feature in the upcoming second edition of Startup Boards that I’m collaborating on with Brad Feld and Mahendra Ramsinghani.
When Bolster published the findings of our Board Benchmarking study, we revealed that 4 out of 5 seats on private company boards today are held by individuals who are white, and 86% of director seats are held by men.
And we also learned that 2 out of 3 CEOs are open to bringing on first-time directors to their boards, largely to help add some much-needed diversity to the most senior ranks of corporate service. To assist current and aspiring board directors out there, we decided to aggregate our team’s collective brainpower to shed light on how to get recruited for a board role, what to expect once you’re there, and how to make an impact.
You can see the full list of blog posts here:
- Introduction to Startup Boards
- How to Prepare Yourself to Get on Your First Board
- Should You Serve on an Advisory Board?
- Interviewing for a Board Role
- What You Need to Know About Board Compensation
- Preparing for Your First Board Meeting
- Corporate Governance as a Board Member
- How to Be a Great Board Member
- When Things Aren’t Black and White: How to Deal with Murky Areas
- Giving Difficult Feedback and Making Your Voice Heard
- How to Know if You’re Doing a Good Job as a Board Member
You can download all of these in an eBook, How to Succeed in Your First Board Role, from the Bolster web site.
We hope this book helps inspire and empower you on your own journey as a board director. And if you’d like to get access to more exclusive content like this and be considered for a board role in the future, you can sign up as a Bolster member here.
Over the past several months, I’ve published two series of posts on the Bolster blog about Boards. The first series is designed to help CEOs better understand how to build, diversify, and scale their boards of directors. I’ll write about the second one next week. Both series of posts will feature in the second edition of Startup Boards, a book originally published in 2014 by Brad Feld and Mahendra Ramsinghani. The second edition, which is also co-authored by me, will be out late this year or early next year.
As I’ve gone about building our business at Bolster, including leading several dozen board searches for companies of all sizes and stages from pre-revenue to public, I’ve noticed that there are still a lot of questions among company leaders about board-building best practices. Without a lot of documentation and analysis about private company boards, most startup CEOs learn about building and managing boards through trial and error. As a result, this critical component of corporate governance is often under-utilized. Directors’ skills and networks are under-leveraged, term lengths are rarely re-negotiated, and board diversity becomes an afterthought.
This is why I set out to publish a comprehensive look at building boards, written from one CEO to another. You can read the full series here:
- The New Way to Scale A Board of Directors
- The Purpose of a Board
- Size and Composition of Boards
- Board Evolution and Turnover
- Diversity in the Boardroom and The Importance of Appointing First-time Directors
- What to Look for in a Director
- How to Recruit and Interview Directors
- How to Onboard Directors, Especially First-time Directors
- How to Compensate Independent Directors
- How to Build a Director Bench or Advisory Board
- How to Evaluate Your Board
The team at Bolster also compiled all of these posts into an eBook you can download by clicking on this link, entitled How to Build Your Board. No matter where you are in your journey as a CEO or company leader, I hope this is a resource and reference for you to look back on over time.
By the way – if you’d like to get access to more content like this or start a search for an independent director for your own board, you can sign up as a Bolster client here.
It feels like it may be a bit premature to write a post with this title here in the summer of 2021. Even as vaccines are rolling out fairly quickly, the combination of the Delta mutation of the COVID-19 virus and a bizarrely large anti-vaccine movement in the US, plus slower vaccine roll-outs in other parts of the world, are causing yet another spike in infections.
However, I read Michael Lewis’s The Premonition last week, a bit of a “mid-mortem” on the Pandemic, and it got me thinking about what lessons we as a society have learned in these past 18 months, and how they can be applied to entrepreneurs and startups. I am particularly drawing on the few weeks I was deeply engaged with the State of Colorado’s COVID response effort, which I blogged about here (this is the 7th post in the series, but it has links to all the prior posts in order).
Here are a few top of mind thoughts.
First, entrepreneurial skills can be applied to a wide range of society’s challenges. The core skills of founders and entrepreneurs are vision, leadership/inspiration/mobilization of teams, and a fearlessness about trying things and then seizing on the ones that work and rapidly discarding the ones that don’t, quickly absorbing learnings along the way. If you look broadly at the world’s response to the Pandemic, and at Colorado’s response as a microcosm, you can see that the jurisdictions and organizations that employed those types of skills were the ones that did the best job with their response. The ones that flailed around — unclear vision, lurching from plan to plan and message to message, pandering to people instead of following the science, sticking with things that didn’t make sense — those folks got it wrong and saw more infections, hospitalizations, and deaths.
Second, parachuting in and out of leadership roles really works but is a little bit unsatisfying. I think that, even in a short period of time, I got a lot of good work done helping organize and stand up the IRT in Colorado. It was very much an “interim CEO” job, not unlike a lot of the roles we place at Bolster. Without a ton of context around the organization I was joining, I still had an impact. The unsatisfying part is more about me as the exec than it is about the organization, though. I’m so used to being around for the long haul to see the impact of my work that I found myself pinging Sarah, who took over the leadership of the group after I left, Brad, and Kacey and Kyle on the teamfor a few weeks just to find out what was going on and what had become of Plan X or Idea Y.
Third, I came to appreciate something that I used to rail against in the business world, or at least came to appreciate an alternative to it. I frequently will say something like “don’t solve the same problem four different ways,” almost always in response to people facing a big hole in the organization and trying to hire four different people to fill the hole, when likely one hire will do (or at least one for starters). But what Michael Lewis calls the “Swiss cheese defense” or Targeted Layered Containment (TLC) that worked pretty well as defense and mitigation against the virus while there was no vaccine totally worked. He calls it the Swiss cheese defense because, like a slice of Swiss cheese, each layer of defense has holes in it, but if you line up several slices of Swiss cheese just right, you can’t see any of the holes. Some masking here, some quarantining there, couple closures over there, a lot of rapid testing, some working from home where possible, some therapeutics – and voila – you can blunt the impact of a pandemic without a vaccine. The same must be true for complex problems in business. I am going to amend my approach to consider that alternative next time I have a relevant situation.
Fourth, blunt instruments and one size fits all solutions to complex problems (especially in this situation, with multiple population types in multiple geographies) — even those with good intentions — can’t work, drive all sorts of unintended consequences, with a lack of feedback loops can make situations worse or at least frustrating. Nationwide or even statewide rules, quite frankly even county-wide rules, don’t necessarily make sense in a world of hot spots and cool spots. Statewide regulations for schools when districts are hyper local and funded and physically structured completely differently, don’t always make sense. There are definitely some comparables in the business world here – you’d never want, for example, to compensate people across all geographies globally on the identical scale, since different markets have different standards, norms, and costs of living.
Finally, I am left with the difficult question of why all the preparation and forethought put into pandemic response seemed to fail so miserably in the US, when several nations who were far worse equipped to handle it in theory did so much better in reality. I am struggling to come up with an answer other than the combination of the general American theme of personal choice and liberty meeting the insanely toxic and polarizing swirl of politics and media that has made everything in our country go haywire lately. Big government incompetence in general, and failures of national leadership on this issue, also factor in heavily. I also gather from Michael Lewis that the transition from one administration to another frequently involves a massive loss of institutional knowledge which can’t help. Of all these, failure of strong leadership stands out in my mind.
The lesson for startups from this last point is important. Leadership matters. Eisenhower once said something to the effect that “plans are nothing but planning is everything.” The thoughtfulness, thorough planning, communication and inspiration, and institutional knowledge that come from effective leadership matter a lot in executing and growing a startup, because you literally never know what COVID-analog crisis is lurking quietly around the corner waiting to pounce on your startup and threaten its very existence.
This is a topic we write about obsessively in Startup CXO: A Field Guide to Scaling Up Your Company’s Critical Functions and Teams — in fact, it’s basically the whole point of the book! I’ll write some more specific posts here in the coming weeks that take some excerpts from the book, but Bolster is putting on three free and open webinars we’re calling our “Bolster-up Series” over the coming weeks that I want to share with everyone who reads StartupCEO.com.
In this series, I’ll be doing short interviews with CEOs who we work with at Bolster on the different aspects of scaling specific functions, how they diagnosed those problems, and how they leveraged on-demand executive talent to solve those problems. The three events are:
- 7/20 2:00-2:30pm EST: Signs your Finance function isn’t scaling and what to do about it with MediaWallah founder and CEO Nancy Marzouk.
- 8/12 2:00-2:30pm EST: Signs your Revenue function isn’t scaling and what to do about it with Ozcode CEO Shimon Hason.
- 9/15 2:00-2:30pm EST: Signs your Marketing function isn’t scaling and what to do about it with Drip CEO John Tedesco.
You can sign up for the first one on Finance by clicking here.
It’s good that my friend Brad Feld‘s new book (co-authored by Dave Jilk, who I’ve also known on and off over the years), is divided into 52 chapters and is designed as a bit of a devotional, to be read one chapter per week.
Each chapter of The Entrepreneur’s Weekly Nietzsche: A Book for Disruptors is, as the authors write in the Introduction, worth “chewing on a while.” The structure of the book is laid out as:
The book contains fifty-two individual chapters (one for each week) and is divided into five major sections (Strategy, Culture, Free Spirits, Leadership, and Tactics). Each chapter begins with a quote from one of Nietzsche’s works, using a public domain translation, followed by our own adaptation of the quote to 21st-century English. Next is a brief essay applying the quote to entrepreneurship. About two-thirds of the chapters include a narrative by or about an entrepreneur we know (or know of), telling a concrete story from their personal experience as it applies to the quote, the essay, or both.
That structure is perfect for me. I did ok in Philosophy classes, but I wouldn’t say it was my preferred subject. So the fact that Brad and Dave turned every Nietzsche quote into plain English before applying it to entrepreneurship and disruption was a welcome tactic to make the book as accessible as possible.
I wrote one of the essays in the book on creating a Company Operating System, which is in the chapter called “Doing is not Leading.” It’s an honor to be included as a contributor alongside a number of awesome CEOs, including Reid Hoffman, Ingrid Alongi, Daniel Benhammou, Sal Carcia, Ben Casnocha, Ralph Clark, David Cohen, Mat Ellis, Tim Enwall, Nicole Glaros, Will Herman, Mike Kail, Luke Kanies, Walter Knapp, Gary LaFever, Tracy Lawrence, Jenny Lawton, Seth Levine, Bart Lorang, David Mandell, Jason Mendelson, Tim Miller, Matt Munson, Ted Myerson, Bre Pettis, Laura Rich, Jacqueline Ros, and Jud Valeski.
In his Foreword, Reid Hoffman connects the dots perfectly:
Returning to Nietzsche, let’s examine why he in particular is such an apt patron philosopher for entrepreneurs. Nietzsche was rebelling against a stultifying philosophical practice that exalted the past—specifically the ideals and images of former thinkers and former leaders. He wanted to refocus on the now, on what humanity was and what it could become. As part of his rebellion, Nietzsche philosophized with a hammer: he wanted to destroy the old mindsets that locked people into the past, and thus better equip them to embrace the possibility of the new. Nietzsche’s desire to shift mindsets is also why he emphasized new styles of argument. Whereas most philosophers would typically open an argument in a classical form or by reviewing a historical great, Nietzsche would lead with an arresting aphorism or a completely new mythological narrative. He was, above all else, a disruptor of pieties and convention, always in search of new and original ways to be contrarian and right, never satisfied with the status quo. This is exactly the kind of mindset entrepreneurs should adopt. This is why a daily practice of philosophy can be the way that an entrepreneur moves from good to great. And, why a daily practice of Nietzsche is a great practice of philosophy for entrepreneurs.
What I love about the book is that you can read any given chapter at any time without having to read it front to back, and the combination of Nietzsche and entrepreneur essays makes the topics come to list. Pick one — they are organized into five sections, Strategy, Culture, Free Spirits, Leadership, and Tactics — and you’re sure to get both something chewy (e.g, thoughtful) and delicious (e.g., practical).
As I finished up my work on the Second Edition of Startup CEO: A Field Guide to Scaling Up Your Business and started working on a new startup, my colleagues and I started envisioning a new book as a sequel or companion to Startup CEO that is going to be published on June 9 with our same publisher, Wiley & Sons. The book is called Startup CXO: A Field Guide to Scaling Up Your Company’s Critical Functions and Teams.
Simply put, the first book left me with the nagging feeling that it wasn’t enough to only help CEOs excel, because starting and scaling a business is a collective effort. What about the other critical leadership functions that are needed to grow a company? If you’re leading HR, or Finance, or Marketing, or any key function inside a startup, what resources are available to you? What should you be thinking about? What does ‘great’ look like? What challenges lurk around the corner as you scale your function that you might not be focused on today? If you’re a CEO who has never managed all these functions before, what should you be looking for when you hire and manage all these people? If you’re an aspiring executive, from entry-level to manager to director, what do you need to think about as you grow your career and develop your skills?
Startup CXO is a “book of books,” with one section for each major function inside a company. Each section is be composed of 15-20 discrete short chapters outlining the key “playbooks” for each functional role in the company – Chief People Officer, Chief Financial Officer, Chief Marketing Officer, Chief Revenue Officer, etc., hence the title Startup CXO – which is a generally accepted label in the startup ecosystem for “Chief ____ Officer.”
Here are the front and back covers of the book, with some great endorsements we’re so proud of on the back.
This is an important topic to write about at this particular time because America’s “startup revolution” continues to gather steam. There are only increasing numbers of venture capital investors, seed funds, and accelerators supporting increasing numbers of entrepreneurial ventures. While there are a number of books in the marketplace about CEOs and leadership, and some about individual functional disciplines (lots of books about the topic of Sales, the topic of Product Development), there are very few books that are practical how-to guides for any individual function, and NONE that wrap all these functions into a compendium that can be used by a whole startup executive team. Very simply, each section of this book serves as a how-to guide for a given executive, and taken together, the book will be a good how-to guide for startup executive teams in general.
Startup CXO has my name on it as principal author, and I’m writing parts of it, but I can’t even pretend to write it on my own, so the book has a large number of contributors who have the experience, credibility, and expertise to share something of value with others in their specific functional disciplines — most of my Bolster co-founders are writing sections, and the others are being written by former Return Path executive colleagues — Jack Sinclair, Cathy Hawley, Ken Takahashi, Anita Absey, George Bilbrey, Dennis Dayman, Nick Badgett, Shawn Nussbaum, and Holly Enneking.
Startup CXO is also pretty closely related to Bolster’s business, since we are in the business of helping assess and place on-demand CXO talent, and as such, the final section of the book has a series of chapters written by Bolster members who are career Fractional Executives about their experience as a Fractional CXO.
Oh, and stay tuned for a third book in the series (kind of) due out late this year. More on that over the summer as the project takes shape!
(This is the third in a series of three posts on this topic.)
In previous posts (here, here) , I talked about the difference between Mentors and Coaches and also how to select the right ones for you. Once you’ve selected a Mentor or Coach, here are some tips to get the most out of your engagement.
Starting to work with a CEO Mentor is fairly easy. Give them some materials to help understand your business, and then come prepared to every session with a list of 1-2 topics that are keeping you up at night where you want to benefit from the person’s experience.
Kicking off a CEO Coach engagement is more in-depth. I always recommend starting to work with a CEO Coach by doing a DEEP 360. Not one that’s a bland anonymous survey instrument, but one that involves the Coach doing 15-20 in-depth interviews with a wide range of people from team to Board to others in the organization to people you’ve worked with outside the organization, including some non-professional contacts. Let the Coach really learn about you from others. The reason for this is that, although you may have an area of development that you want to focus on (like I did when I met Marc), you may actually need help in other areas a lot more acutely.
In general, I’d say these are a few good rules of thumb for getting the most out of your Coach or Mentor relationship and sessions of work together:
- Do your homework. If you have an assignment to read an article, take a survey, or just write something up, either do it or cancel the next meeting or it will be a waste of everyone’s time
- Be present. Step away from your desk. Turn off email. Silence your phone. These are some of the most valuable times for your own personal development and growth, and they are few and far between when you get to be a CEO. Treasure them
- Bring your whole self. Even if your coach is a full 5 on the Shrink-to-Management Consultant scale I mentioned above, people are people, and you’re no exception. You have a bad day at home — it will show through at work and it will impact your Coach conversations (maybe less so your Mentor ones). Don’t ignore it. Mention it up front
- Don’t bullshit. You know when you’re wrong about something or have made a mistake. You may or may not be great about admitting it publicly, or even admitting it to yourself. ADMIT IT TO YOUR COACH. Otherwise, why bother having one?
- Encourage primary data collection. The biggest place I’ve seen coaching relationships fail is when the Coach or Mentor only has access to a single point of information about what’s happening in the organization — you. Even if you’re not in full-on 360 mode, encourage your Coach or Mentor to spend time with others in the organization or on your board here and there and have a direct line of communication with them. If they don’t and all they’re working off is your perspective on situations, their output will be severely limited or subject to their own conjecture. Especially if you can’t get the prior bullet point right (garbage in, garbage out!)
- Make it your agenda even if it means changing on the fly. You may be working on an analysis of your team’s Myers-Briggs profile with your Coach – and that’s the topic of your next meeting – but right before the meeting, you learn that one of your CXOs is resigning. Change the agenda. It’s ok. It’s your time, make it work for you
- Learn to fish. At the end of the day, a good CEO Coach should offer you ways of thinking about things, ways of being, ways of learning in your organization, processes to give you the ability to do some elements of this by yourself – not just answering questions for you. Sports trainers are useful for an athlete’s entire career to push them harder in workouts, but they also teach athletes how to work out on their own
- Reality check the advice. Make sure to test the strategies that Coaches or Mentors are giving you against your organization. All strategies won’t work in all organizations. These conversations should offer a variety of strategies – you can pick one or pick none and do something totally different. The value isn’t in being told what to do, it is in going through the process of deciding what to do for YOUR organization with some expert inputs and reflections on other experiences
- Close the loop. I’ve written before about how to solicit feedback as a CEO. To make sure your coaching work is effective, be sure to include feedback loops with your key stakeholders (team and board) on the things you’re working on with your CEO Coach
It’s worth the money. CEO Coaches can be really expensive. Like really, really expensive. $500-1,500/hour expensive. CEO Mentors can be free and informal, but sometimes they charge as well or ask for advisor equity grants. Even if you have a thin balance sheet, don’t be shy about adding the expense, and you shouldn’t pay for this personally. Adding 10-20% to the cost of your compensation will potentially make you twice as effective a CEO. If your board doesn’t support the expense…well, then you may have a different problem.
There’s a lot written publicly about this topic. Jason Lemkin at SaaStr has a particularly good post that really puts a fine point on it. And the coaching team at Beyond CEO Coaching a new boutique coaching firm specializing in coaching black CEOs, writes in “Who are you not to be great?”, “You can play it safe and reduce your risks and likely the rewards, or you can go big. We at Beyond CEO Coaching want to help you to go big.”
By the way, this entire framework applies to non-CEOs as well. Every professional would benefit from having a Coach and a Mentor in their life, even if those aren’t paid consultants but more senior colleagues or members of the company’s People Team. Sometimes a Mentor and a Coach are one and the same…sometimes they are not.
Thanks to a large number of Bolster members I know personally who are CEO Coaches and Mentors for reviewing these posts — Chad Dickerson, Bob Cramer, Tim Porthouse, Marc Maltz, Lynne Waldera, Dave Karnstedt, and Mariquita Blumberg.
Last week, I blogged about Bolster’s Board Benchmark survey results, which really laid bare the lack of diversity on startup boards. There are signs that this is starting to change slowly — one big one is that of all the board searches we are running at Bolster, about ⅔ of them are open to taking on first-time directors; and almost all are committed to increasing diversity on their boards.
This is also something that I would expect to take some time to change. Boards are small. Independent seats aren’t necessarily easy to open up. Seats don’t turn over often. And they take a while to fill, as CEOs are thorough in their recruitment and selection process.
My new mantra for Startup Boards is simple: 1-1-1.
1 member of the management team.
Then 1 independent for every 1 investor.
Simply put, this means you should grow from having 1, to 2, to 3 independent directors as your board grows from 3, to 5, to 7 members.
Here are four tough conversations you may have to have along the way, with some suggestions on how to navigate them. All of these conversations need to come with a point of view of why independence and diversity matters to your company, a lot of empathy, and appreciation for the value the person brings to the table.
The conversation with your co-founder about only one founder/executive on the board. This one will be the most personally difficult, since you likely have a strong personal bond. Expect to hear things like “Aren’t we partners in this business?” and “How come my vote doesn’t count?” Just let your co-founder know that while of course they’re a key partner, the company has a limited number of board seats to fill — each one is a golden opportunity to get an outside perspective on your business and get really good mindshare of an industry expert and create a new brand ambassador. You already have 100% of the mindshare and ambassadorship your co-founder has to offer. You can make that person a board observer, you can make sure they’re in all the key board conversations, and you can even give the person some special voting right in your charter or by-laws if you need to. But do not put them on the board. It’s obviously easier to do this from the beginning as opposed to removing them from the board down the road, but at least try to have the conversation up front that someday, it’s going to happen (note this could be a different dynamic if the person is a founder but no longer active in the business).
The conversation with an existing VC about leaving the board to make room for new investors or an independent. This one will be less personally difficult but will require you to be very artful since the VC is likely contractually given a board seat – meaning you’ll have to get them to give it up voluntarily. You may also want to align with another VC on your board to help the conversation or process along. Depending on the circumstances at hand, your key points of logic could be one of the following: (1) you don’t own as high a percentage of the company as you once did, and I’d like to make room for the new lead investor to join the board without compromising our independents or making the board too big; or (2) I’d like to replace you with an independent director who brings operator perspective and comes from an underrepresented group – it’s important to me that we build a diverse board, and it’s not great that we have don’t have gender or race/ethnic diversity on our board in this day and age. As with a co-founder, you could change this person’s designation to a board observer so they’re still present for key conversations, you’re not changing their Information Rights, which are likely contractually given in your charter, and if required, you can give the person or firm some sort of special voting rights if there’s something they can no longer block (but which they have a contractual right to block) by losing their board vote.
The conversation with a new potential investor about not taking a board seat. If you have a big new lead investor writing a $40mm check into a growth round, you may not have a leg to stand on. But new investors who write smaller checks as you get larger, who might only be buying a 5-10% stake in the business…there, you might have some wiggle room to negotiate. Your best bet is to do it early in the process before you have a term sheet, and do it as an exploratory conversation. Otherwise, your talking points are the same as talking to an existing investor above. Investors are starting to realize the power of a diverse board, and may be open to this conversation. Some are making this a proactive practice, notably two of my long-time investors and directors Fred Wilson and Brad Feld (and some of their partners at Union Square Ventures and Foundry Group) — and those investors have also been willing to mentor the new, first time board members once they join.
The conversation with an existing independent director about leaving the board when their term is up. Perhaps you have an existing independent director who is not adding to the diversity of the board, but you already have a full board. Or perhaps your existing independent director isn’t doing a great job or has grown stale in the role. Once a director is fully vested, you have an easy opportunity to thank them graciously and publicly for their service, extend their option exercise period multiple years, and affirm that they’ll still take your call if you need help on something. You should set this expectation up front when you give the director their initial grant. If they ask why you’re not renewing them, you can simply say something like “We’d like to add some fresh outside perspective to the team.” One thing to think about, particularly for early stage companies, is only giving new directors a 1 or 2-year vest on their first option grant, so you can make sure they’re a high value director…and so you can have the option of an easy exit (or re-up) in a shorter period of time than a traditional 4-year vest.
The net of it is that as CEO of a venture-backed company, you wield an enormous amount of (mostly soft) power around the composition of your board – probably a lot more than you think. You just have to wield that power gently and focus on the importance of building a diverse board in terms of both experience and demographics.
I love having independent directors on my Board. They are a great third leg of the stool alongside a CEO/Founder and VCs. They provide the same kind of pattern matching and outside point of view as VCs — but from a completely different perspective, that of an operator or industry expert. The good ones are CEOs or CXOs who aren’t afraid to challenge you. Equally important, they’re not afraid to challenge your VCs. At Return Path, I always had 2 or 3 independent directors at any given time to balance out VCs, and some have become great long term friends like Scott Petry, Jeff Epstein, and Scott Weiss. At Bolster, we’re already having a great experience with our first independent, Cristina Miller, and we’re about to add a second independent. And I’ve served as an independent director multiple times.
So as you can imagine, I was shocked by one of the headlines coming out of the Board Benchmark study we ran at Bolster across 250+ clients (detailed blog post with a bunch of charts and graphs) that only ⅓ of companies in the study have any independent directors. Even larger companies at the Series C and D levels only have independent directors 60% and 67% of the time. What a missed opportunity for so many companies.
Less surprising, though still sobering, were the numbers on diversity that came out of the study. 79% of the directors in the sample are white. 86% are men. 43% of boards are completely racially homogenous (most all-white) while 80% are mostly racially homogeneous (meaning only one diverse member); 56% are gender homogenous (most all men), while 87% are mostly gender homogenous (only one female). For an industry that is spending a lot of time talking about diversity in leadership teams and on boards, that’s disappointing.
Here’s the linkage of the two topics: The solution to the board diversity problem lies in having more independent directors, since management and VC board seats are often both “fixed” and non-diverse. Independent seats are the easiest to fill with diverse candidates. Conveniently, more independent directors also leads to higher quality boards.
In partnership with some DEI experts, our study also includes some suggested actionable tips for CEOs and board leaders, which I encourage you to read. There are really three simple (IMO) steps to having more diverse boards, and there is some good news in the Bolster study around these points:
- Add independent director seats. 50% of the companies in the survey either have or expect to have an independent board seat open within 12 months. That’s a good start, but honestly, I can’t imagine running any board without at least 1-2 independent directors (up to 3-4 for larger companies), starting on Day 1. Given that only ⅓ of companies in the sample have any independent board members at all, the 50% number feels quite low.
- Open the recruiting funnel to include first-time directors. Historically, companies have mainly targeted current or former CEOs or people who have board experience to be independent directors. That is a recipe to perpetuate having mostly white male board members. But Bolster has done a few dozen board searches so far, and 66% of those clients have expressed a willingness to take on first-time directors, as long as they are “board ready,” which we define as having been on any kind of board, not just a corporate board; having reported to a founder or CEO and had regular interaction with and presentations to a board; or having significant experience as a formal or informal advisor. Once you widen the funnel to include all candidates who meet those criteria, you can very easily have a diverse slate of highly qualified candidates. Bolster is a great source of these candidates (this is a real focal point for our business), but there are plenty of other online or search firm sources as well.
- Have the courage to limit the number of management/investor board members. Whether or not you can add independent board members may be a function of how many seats you have to play with in your corporate charter. Of course, you can add seats indefinitely, but there’s no reason to have a 7-person board for your Series A company. My rule of thumbs on this are simple: (a) Only one founder member of the management team on the Board – more than that is a waste of a valuable board slot; and (b) VCs should always be less than 50% of your board members, so as new ones roll on, old ones should roll off – or add a VC and an independent at the same time. Both of these take serious effort and courage, both are worth it, and both probably merit a longer blog post someday.
The Board Benchmark study also had a wealth of information about compensation for independent directors — cash vs. stock, what kind of stock, how much stock, vesting and acceleration provisions.
Here’s a Slideshare of the full survey results, in case this and/or the Bolster blog link isn’t detailed enough for you:
If you’re interested in learning more, the survey is free to take and all the granular results (including comp benchmarks) are available to benchmark against your company if you take it. Just email me if you’re interested at [email protected].