7 suggestions for founders and BODs to get the most out of the relationship from serial entrepreneur. (5 min read)

I am a “serial entrepreneur” with 30 years of accumulating scars and gold stars, acquisitions and mergers, IPOS and bankruptcies and many good friends along the way. This includes 25 years with 17 startups in various leadership positions.  For those interested, more on my background here.

In the past few months, I have heard and read things like this from entrepreneurs and investors about the relationship between investors/boards and founders/entrepreneurs:

1.  Entrepreneur example – I don’t need a board, they are of little to no value and a waste of my time and energy.

2.  Investor (personal) example – When I asked to be introduced to founders of one VC to see if I could help them, this is what I heard (more or less), “My founders don’t like me in their shorts as it is, if I introduce you to any of them, they will think you are my mole.”

Both of these statements are true when it comes to startups and highlight misalignment and mistrust in general between parties that are supposedly focused on the same goals.

Here is where I see the problem (proposed solution ideas forthcoming):  Simply stated, neither party is seeking nor providing the proper guidance or information at the proper time.

Entrepreneur side

I believe that the entrepreneur is correct in his belief that boards offer little value because, as I see it, too many board members act as if they are on a traditional board which was designed to establish corporate governance.  Since the startup isn’t even a real business yet, there is very little to govern.

Another issue I have heard is that too many board members offer helpful “advice” that can be and many times is detrimental to the business and its trajectory.  They give this advice with the explicit or implicit reasoning that they are on lots of boards and see many things that work/don’t work or have historical operating success so they should be heeded. This is poppycock! ( I love that word and never thought I would use it in a post). The founder is not usually looking for nor needing most of this advice – at least not early on.

Why is it poppycock? (Ha! That’s twice!)  Their experience is pretty useless for a startup unless they offer advice on process or the Scientific Method or where to get help where they need it.  On the first day until they find a market, a startup (a temporary organization in search of a market) enters a world of multi-layered uncertainty.  Most of the investor’s experience cannot be applied properly as the context is usually different. They are also out of touch or out of date in their advice.

The problem that usually crops up here is one of certitude. These veteran investors sound very sure and offer compelling arguments but forget that most of the time their advice was not useful.  The founder gets frustrated but is unsure what to do so one avenue is to avoid having a board all together.

Market is Key

Many times the founder will be told that team is the most important thing in any startup.  This is not entirely true.  It is conventional wisdom which is almost always wrong.  (I used to think this myself.)  Don’t get me wrong, having a solid team for a startup is key but not the most important thing.

Market is everything and pretty much the only thing early on.  Why?

  • You can have a stellar team but do a poor job in finding the market and you fail.
  • You can have a killer strategy to a non-existent or insignificant market and you fail.
  • You can execute to perfection but pick the wrong business model and you fail.

I can go on but I think you get the picture.

Board side

Entrepreneur – Here is why a board has value early on.  You do not need governance but you do need advice and expertise in certain necessary areas that you are lacking (this also means pointing out areas where you think you are strong but are not. hopefully in a helpful way). Also, you likely need someone to tell you that you are full of crap when you are. (Hopefully you have a co-founder that can help here as well).  This is what you should look for and demand from your board members. They can recognize where you and your leadership team are weak and find ways to help where and when it can move the company forward.

Create an advisory board if you do not already have one but be very clear on who is on it and what you are asking of this person.

Investor – If your entrepreneur does not have an advisory board, I recommend you make this a requirement or be pretty sure that 90% of the time you can kiss that investment goodbye.

Five founder questions

Here as some questions (not exhaustive) to ask yourself as an entrepreneur to see how autonomous you can be:

  1. Do you know how to conduct or have you conducted a proper Product Market fit process?  For example, do you know that your primary function early on is to DISPROVE your initial hypothesis as your first idea almost never survives first contact? Most entrepreneurs do the opposite which leads to cognitive biases that can cause problems down the road.
  2. Do you know how to run a proper meeting to get the most out of the exercise and your precious time?  Most use these to get updates from the team and few to no critical decisions are made.
  3. Can you describe in detail your Critical Decision Process?  If you are unfamiliar with this term, you should find out quickly as you may be making decisions in a vacuum that sound good at the time but turn out badly.
  4. Do you know how to hire the best people early on to make sure that you maximize time and energy?  How do you screen for humble, hungry and smart team members?
  5. Do you know how to create healthy team conflict?  This is one of the best ways to leverage all the brainpower and experience on the team so you surface all possible avenues to pursue in order to pick the best one or two to go after first.  This is part of the Critical Decision Process above.

For the investor, helping your founders at this stage can pay off dividends down the road and increase your chances of more investments providing a positive ROI.  I believe that you should be working with them to identify where they are strong and where they need assistance or help identify a 3rd party, process or book that can help them.  Again, if you don’t, 90% of the time you will lose your investment and sadly you have probably put one or more additional funding rounds into them by now with no hope of getting those back either.

Bottom Line

I believe a board is quite necessary for startups but not the ones they have been getting. It is time to break the cycle.  Here are my suggestions moving forward:

  1. An entrepreneur should only get money from the outside if she is unable to raise it on her own or from friends and family.
  2. Spend time and money finding a market first.  Do not waste time building a product if it is not necessary (B2C is much easier here than B2B).  Find the need, solve the problem.
  3. Investors should insist that Entrepreneurs have advisory boards to fill in the missing pieces to becoming a successful startup and business.
  4. Investors should be very careful in the “advice” they dispense.  An offhand comment from an influential investor can send an impressionable founding team down the wrong road.
  5. Both parties should realize that they live in a world of uncertainty and to never fall in love with their original product idea.  Remember: your job is NOT just to build a product but to fulfill a need enough people will pay full price for to have a repeatable and scalable model. Falling in love with the market search process and/or the customer are the best ways to go. (This furthers supports #2 above)
  6. Fail fast and move on. Stop wasting people’s hard earned money and precious time trying to convince everyone how great your idea is.  Your goal is to disprove your hypothesis, learn from it and quickly move to the next one. (This supports #2 and #5)
  7. Once through the product/market fit knothole, the board should help the Founder learn how to s the business in a healthy (and profitable?) way or work out a way to replace him with minimal impact. This should be decided quickly.  See previous post for more on this.

Here is a great example of a team that got the right advice at the right time from the right people. Blue River Technologies went from building an autonomous lawn mower to a robotic lettuce thinner with paying customers in about two months!  They also secured $10M in funding shortly thereafter.

I posit that if these guys went the typical route of getting funded early on, did not follow the Customer Development Process and employed only the typical board model it would have been months to years before they found their way to market and might have run out of money before they garnered success.

However, as of the date of this blog post and about 5 years after incorporating, Blue River has about 45 employees, has raised over $30MM and have products help farmers with over 500 million pounds of lettuce per year. That’s a lot of lettuce. (I called to ask for the number of customers the have but they were unwilling to share.)

Conclusion

Let’s find a better way to help more driven entrepreneurs become successful and worthy investors pay back their funds in a less risky way.

What happens in Vegas should stay in Vegas and not creep into our startup investment methodology.

I hope you enjoyed this.

I am gingerly stepping down from my soapbox now. :~)

Be Exceptional!
(www.catalystgrowthadvisors.com; bill@catalystgrowthadvisors.com)

I look forward to your comments. If you found this post useful, please share with others. (Thanks Craig!)

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