Take guidance, not orders

Repost of my post at Nivi and Naval's great VentureHacks.  Every entrepreneur should get VentureHacks for Christmas.

 

There is a behaviour I witness in some first-time CEO's that I meet, not necessarily the younger and more mavericky generation, that I do not think is necessary nor helpful.  It's an insidious but frequent tendency to let the board decide rather than advise or approve. It goes like this:

Because VC's have blocking rights on some important decisions (approving the budget, your comp, raising money), they are often able to wield way more power than their 20% ownership would suggest they should have.  As a result, entrepreneurs often talk of coming to the board with their slides in hand asking "what does the board want me to do ?", which is code-speak for "I am here to ask for permission from my investors to do what I need to do".

They will present the strategy they believe in but essentially allow the board (read: the investors) to walk straight through the carefully thought out action plan and redesign the entire strategy in one swell meeting.  The investor probably walks away feeling like he provided value and the entrepreneur now goes back to his team to explain that his investors puked over the team's strategy and that the priorities have changed. 

That may be the product of investor behaviour, but I would argue this is the CEO's fault.  Nature hates a leadership vacuum, and VC's will fill that gap if you don't.

If you really believe in what you are doing, you come to the board telling board members what you are planning to do, taking considered advice on whether this is the right strategy, considering that advice and executing on what is, in your best judgement, the right path for the business.  That's what you are there to do. Take decisions fast, don't fall for analysis-paralysis, trust your gut, execute and iterate.  As Tim Ferriss would say, ask for forgiveness, not permission.

Guy Kawasaki does lists all the time and it seems to work for him so I thought I would try one too: Here are the top five lighthearted reasons why VC's should not drive your strategy:

• We forget 50% of what we said at the last board
• We don't know the people inside the company and hence have no clue what the team can really execute
• We meet many smart people and hence we have way too many ideas that you cannot possibly implement
• We are focused on the 5 year vision, yet we are focused on the quarter too, even we are confused
• We don't need to deliver on it, you do.  We come and collect when the job is done.

You want to leverae your board, and you don't want to get fired for being a solo player either.  Personally I really like what my partner Jeff refers to as a culture of "champion and challenge". I guess you have to be born in the USA to say phrases like that but it's spot on.  If I really disagree with a strategy decision, trust me, we will have a serious discussion about it.    But come and champion what you believe in, take ownership, step into the role.  Ultimately, I backed you because I believe in you, and you know better. 

Comments

[DavidSmuts]

Fred, do you realise as a VC that you're not supposed to reveal the trade secrets of the industry?! You could be expelled from the order:)

Great post and I agree with you 100%. Board composition is also something many new CEOs take for granted. If you've got an investor NED on the board make sure you have real "independent NED" whom you know, to balance him. If you have 2 investor NEDs on the board, pack it with another 2 "independent" NEDs. Forget what the VC says about the board being too large. The golden rule in my book, is to balance every investor NED with an independent NED. Investor NEDs are NEVER independent.

And of course, always keep the board focused on strategy not operations, and if you as a CEO feel a bit intimated (understandable when you have a big shot VC partner on your board) then appoint a seasoned Chairman to the board (whom you know and trust) to make sure the board stays on track. Personally, I like having a Chairman on the board but admit it might be overkill for a very small start up.

[John]

thanks again fred, very insightful. your newsletter is the only one that i still subscribe to, you always have a different, more honest, angle on what else is being said out there. thanks

john

[Richarddjordan]

Again you nail it with this one. I've been there. Previous company. We made several mistakes, but one was, as founders, letting the investors spin us off in various directions we weren't 100% convinced were right. As a more experienced hand like yourself would probably expect, we did this, only to find at the next board meeting the same investors were of a different mind and would forget they ever pushed us one way or the other previously.

I suspect as a founder & CEO you only make this mistake once. Next time you recognise that its your ass on the line, you're being paid to make decisions, so you might as well do what you believe to be right. That way if you fail and get fired by the board at least you know you did your very best and have no complaints.

I agree with the comment above from David. Same thing can happen when looking for funding. I see a lot of startups that think they should wave around in the fundraising winds. With AppWhirl we're a team that has learnt a lot from our past experiences and one of those learning points is that we know our space best (not to be confused with our customers knowing our product priorities best), we have a plan, and we're going to work to that, and try not to let the investment tail wag the startup dog.

[David Semeria]

Very good. The same is also true when raising capital. Everyone has different views on how much you really need, your runway length, milestones, etc. But only the entrepreneur really knows what is needed to get to the next hurdle.

This is not a plea for obstinacy - the ability to listen and synthesize is crucial - but, just as in the board room, only the founders/CEO have the complete picture.