The Boardroom Blueprint: Maximizing Investor Relationships for Entrepreneurs
DESCRIPTION
Interplay’s Incubator Partner, Phuong and I discuss the importance of managing boards and investors effectively for entrepreneurs. We chat about how boards can either be a significant asset or a liability and provide guidance on how to ensure they are a valuable resource. It is important to carefully select board members who you trust and who have the best interests of your company in mind. Setting clear expectations, communicating transparently, and regularly connecting and nurturing the relationships are key. Phuong and I finish off the conversation chatting about how a well-structured board can be a valuable resource for entrepreneurs if best practices are followed, including making board meetings more than just updates and ensuring alignment of KPIs with the company's stage.
Links:
TRANSCRIPT
MPD: Welcome, everybody. I'm Mark Peter Davis, managing partner of Interplay. I'm on a mission to help entrepreneurs advance society. And this podcast is part of that effort. Today, we've got a Phuong segment. And for those who are new, Phuong gets in and crushes very tactical ways of building businesses. Today, she's covering board dynamics, hell of a topic, super complicated, super important the reality is boards can be your biggest asset or biggest liability as a founder, and it's.
The, it's all nuanced and determining kind of the outcome for that. And there's a lot of little whiz bang wisdom in this and I hope it's useful to you. Enjoy.
How'd you like dinner last night?
Phuong: It was great. I really loved it's been a long time since I graduated from Duke and I don't really have a lot of people that I keep in touch with. Consistently and it was great to see everyone and get everyone's perspectives on their relationship with Duke and what they're doing in the venture community.
MPD: The context for in case will decides to include this banter. And the pod, which you never know with it's dangerous. Like we just started talking and he's your eyes lines in the sand later around what makes the cut. He's a liability in my life, but anyway the Duke venture community is a free group.
AK it's all listed as the blue venture community. Now it's a free group that student alumni or employee of Duke can join. You get into slack groups and email us and the idea is you just help each other. There's about a thousand members. It's really active. There's no geographical focus. So if you're out there listening to that and that applies to you, a couple of clicks on the Googles and you can be out helping people and getting help.
All right, with that, you want to do a real, should we do a real thing?
Phuong: Yeah, let's do it. Let's do it. So today I wanted to talk about a topic that really hits home for me. It's something that I struggled with a lot as a founder. And now, even though I'm a few years removed from it, I still think about how I did this and wish that I had done a better job.
And that is managing your board and your investors. Because these people frequently overlap for today's purposes, I'm just going to refer to them interchangeably, but we know in real life, that's not the case. All first off, why do you even need to manage your board, right? Aren't they industry experts and experienced investors, and aren't they all aligned in the common goal of making your company successful?
Should it be easy then? I think in theory, maybe, but in practice, I think the answer is oftentimes no. And it's because boards are made up of people with different intentions, different personalities, different management styles. And so founders really need to actively manage them so that they can get the full benefit of a well functioning board.
One that can provide guidance through major decisions and access to resources that are going to be critical to their growth. So how do you effectively manage a board? The first step is to be thoughtful about who you put on your board in the first place. And I think when you think about that, the number one consideration, my opinion is to pick people that you trust.
You want to work with people who, have your company's best interests in mind and who know what they're talking about. And then the only way to build that trust. Is through time, I think. So get to know potential investors well in advance of starting your fundraise, understand their strengths, their weaknesses, and maybe even talk to other founders who have worked with them before.
As a reference, second tip is to set expectations. From the beginning, clearly identify the expectations of your board. And make sure they understand your business plan, your goals, and your vision, and then also be clear on the level of involvement you can expect from them, what can they contribute beyond capital?
Could it be intros to potential customers or specific technical expertise, just know that upfront. Next step is to make time to connect on a regular basis. You really have to nurture this relationship. You don't want your investors to think that you only call when you need money. So create a regular cadence of meetings and take advantage of that time.
The most common mistake that founders make is thinking that investors are doing them a favor by giving them money. And that makes them feel like they're being annoying by sending investors. Frequent information or asking them for guidance, but really view investors and your board as business partners.
You're not bugging them. You're giving them insight and influence over what's happening with their money. For your regular meetings, be organized, have an agenda, don't treat it as a status update. Use it as a meeting where you can openly discuss strategic or tough topics. For example, if you have a 3 hour meeting, don't spend more than 45 minutes on your KPIs and your highlights, your low lights, then use the rest of the time to really dive deep into 1 or 2 strategic topics.
And when you're doing that, be clear and transparent in your communication. Paint a complete picture. Founders are often optimistic, but don't let that turn into exaggeration. Don't be afraid to communicate the bad stuff or when you're going through a crisis so that your board can help you. If you wait until the last minute, it's often too late to do anything about it.
And they're going to be really mad. And then beyond that. I wanted to talk about some watchouts, some negative behaviors from your board that you should intentionally manage. The first one is being cautious of board members who are trying to make decisions for you. This happened a lot to me, and I wish that I had the confidence and the insight to really stand up for my business and for for myself, board members job is to help you think through the issues by offering insight and tools not to tell you how to run your business.
Remember, this is your business. You're the expert. I think another watch out is to look to be careful of overbearing and unhelpful members. You might end up with someone who's not very helpful and causes a lot of unnecessary conflict. It's important that you handle this immediately to minimize the negative impacts that it has on you and on your board.
Meet with them one on one, share your concerns don't get, don't take it personally, but use specific examples of when their feedback was not helpful. And then if that doesn't work, you might have to consider exit options, such as buying out their shares or negotiating a separation or finding additional investors so that their influence is diluted.
Hopefully, it doesn't have to come to that if you've done all the up front diligence. Yeah, didn't mean to end on that negative note because I think that boards can be super impactful and super helpful, but hope that I've given you some insightful help.
MPD: Yeah, no, I think this topic is super important and I think ending on the negative note is probably appropriate.
Boards can be great, but generally when they're great, they're occasionally helpful, but not the massive driver of the overarching business. But a lot of times entrepreneurs step in shit with the board in the way they're constructed or the way they're managing it. And so it's the game is to mitigate issues with it and manage it in a way where it can be really helpful when it needs to be.
So I want to echo a couple of things you said. I think this can boards can be awesome. You just have to really lean into some best practices. One, I want to just double down on what you said before. Board meetings should not just be updates. The dream board meeting is people get context and it gets to brainstorming.
The problem is a lot of entrepreneurs show up and they want to update. The second best version of what they'll do is they'll talk through the issues they identify, but the board is most functional when the board is helping entrepreneurs identify the issues they're not seeing. That's where it's really a mirror or a reflection of kind of what, how to think about context or.
Other case studies that might be relevant to help entrepreneurs, not just navigate the things that they know they have issues with, but maybe the things that they haven't realized are issues yet. That's the magic. And I don't think you get there generally if you have huge boards. I don't think you get there if you're pulling punches as the entrepreneur and not being fully transparent.
I don't think you get there if you're not communicating very frequently. I think best practice is like a monthly update, even if it's not monthly board meetings. And I, I love when people write short, frequent emails, that's fine, right? No one wants bureaucracy in any of this. So I do think this can be highly functional and if the board works well, From a governance standpoint, they're going to make sure, they're counterbalance the entrepreneur to make sure things don't go off the rails.
Nothing unethical happens. Okay, great. But in the best world, they're the SWAT team that is out helping the entrepreneur knock down doors or walls that the entrepreneur doesn't have a way to get into, whether it's introductions or a key hire. And so if you make them allies in the right way, and not everyone can be your ally because not everyone has that kind of juju.
You can set these people loose to solve particular issues that aren't your superpowers as a founder.
Phuong: Yeah, and I think that's why it's super important to keep those things in mind as you're trying to compose your board at the beginning, right? Like you want to, there are a lot of things you're not going to know, but you're gonna, you can ask, you can tell by the positions that they're in, how helpful they're going to be from a technical perspective, from opening doors, from making intros.
And how willing they are to help, I think, try to assess that up front.
MPD: Another good best practice, just to add one more thing on to this, I had an entrepreneur call me two years ago now, something like that. And they said, Hey, I've got a bunch of big name VCs on the board, but most of the people who are actually on the board representation were early in their career, really didn't have any operational experience.
Totally fine. They can be great, but I remember still, but what they there was just no one in the room who knew how to set a pole star for the board. So highly recommend creating some sort of basic management dashboard, but identifying a handful of KPIs that the board is aligned on are the priority for getting to the next phase.
The next phase could be the next funding round. It could be. A key proof point. And so everyone's focusing and measuring against a common thread. And it comes back to what you were saying about having organization. That's the mechanism to have an organized and structured conversation because there's a million things to talk about in a company.
But there's probably only 5 that matter at any given time. And so it's about getting to those 5 and focusing.
Phuong: Yeah, and I think also level setting on the right benchmarks for those KPIs. And I had experience with a board member who had only ever run huge, Fortune 500 companies. His benchmarks were misaligned with, a early stage, 6 month old company.
And that caused a lot of friction. So I think, having those KPIs and level setting on for your stage is really important.
MPD: Boards are hard. Good luck. And if you get it right, hopefully they supercharge the business for you. Cool. Thank you, Phuong. Appreciate you. Good one.
All right, everybody. Thanks for listening. We will be back with more. I hope everyone is safe and sane and well.