Below is the ‘Tip of the Week’ from Ep58: Startup Boards, Part 2 (Mahendra Ramsinghani)
A well-run, productive board meeting is often the exception and not the rule. This can be due to board members that get off topic or spend too much time on non-critical issues. But any good board meeting begins with structure and this is largely driven by the entrepreneur. And as an investor, it’s best to establish not only the board meeting frequency but also the expectation of what will be reviewed. For many founders, this will be their first experience working with a board. So, I wanted to take this week’s tip to breakdown the components and items that should be included and reviewed in an efficient board meeting.
First off, the format by which the information delivered is not important. This often could be a standard word doc, a powerpoint, or just an email report. It’s the components included that matter.
Most material on best practices here advises to start off w/ a summary. How did the last quarter go? What major wins and losses did the business experience? Are there a few key data points, driving success or failure, that should be called out? This section should be brief, concise and may consist of a few sentences and a few bullets.
The second component of a strong board review should be an operational update. This serves as a high-level status report of the major areas of the business including financials, product, KPI’s, and Team.
Financial Overview: What’s the cash position? what’s the fume-date? How much is being burned per month? Are there key hiring or office decisions that will alter the burn going forward?
Product Overview: What’s the launch status? Has product-market fit been achieved? What key product changes have or will be made? Does the current embodiment of the product allow for mass market access?
KPI Overview: What are the top 3-5 things that are most critical to business success. Where is the business at vs. the original forecast/plan? What do the next 12 months look like? What’s at risk? When will new plan numbers be established?
Team Overview: What are the key positions that need to be filled? What profile is desired in open executive roles? Why are these hiring decisions necessary and what KPIs will they impact? Recall John Greathouse’s comments in a recent episode that the single biggest contribution of the early-stage investor is to help recruit and build a great team.
This is where the founder lays out the three major action items and initiatives for the business? Why are they critical? What is the desired outcome or objective of each? How can the board help in driving these to completion? Often these will be related to the KPI’s that are being reviewed. If not, the founder and board may need to think about adding or switching one of the existing KPIs to line-up w/ the key objectives for the business.
So what are examples of these key initiatives? Depending on stage and business type, they could be…
- Launching the product on time and budget
- Customer acquisition and cost per acquistion
- Expanding Net New MRR
- Increasing engagement and use amongst existing customer sets
- Margin Expansion via Cost Reductions in DM or DL
- Optimizing Pricing Strategy for either maximum market penetration or maximum margin dollars
There are numerous key objectives for the early-stage startup that will evolve andchange over their life-cycle. And the founder can set these initiatives themselves or with the board’s the input. It’s not unusual for these to be a combination of the most critical items to the health and expansion of the business and the key growth objectives that the next round of investors will be looking for. And this doesn’t have to be the first time that the investor group ever sees the material. If there are areas of concern or areas in which a specific board member can help, it’s always great when the entrepreneur reaches out, one-to-one, in advance of the board meeting to discuss these areas and get input. Debates in a board meeting are fine, but there should never be an adversarial divide between the CEO and the board members.
And a final thought here is on board meeting minutes. While it’s good to have a record of items discussed… minutes are really only useful as a reference. It’s often better to focus on actions and decisions. At the top of every good minute report is a a dated-section of key decisions made. I can’t tell you how frustrating it can be to regularly re-visit major decision items when nothing material has changed. Record the agreed upon decisions and give those focus by including them at the top of the Report. And, of course, it’s best to explicitly identify the individuals, their actions and in some cases the date by which those actions need to be closed. If an observer, advisor or director offers to help, their offer should be included.