The last two columns I’ve written were about showing investors you have an irresistible team and then some thoughts on how to build up a team on the back of raising funding. To close this ‘team trilogy’, how about looking beyond the day-to-day team for expertise?
Being an entrepreneur can feel lonely. Particularly for a someone founding a business by themselves. But even for a pair or threesome, discussions can soon get stuck in a rut.
So it’s super useful to tap into objective external input and support. But there are watch-outs. Often as an investor I see a page of a pitch deck full of headshots and names, sometimes with a brief biography, under the title ‘advisors’. I know the entrepreneur hopes to impress with all the expertise and experience they have gathered around them. But very often it’s a turn off, as I cannot see any thought given to what is hoped to be achieved by each individual, and only see the risk of:
- a pointless list of people without commitment, time or proper understanding of the business (sometimes just on a vanity project to burnish their own credentials)
- a minefield that slows down decision making
- confusion born from random conflicting advice & direction.
There are some questions to ask yourself that help avoid these common pitfalls and gain the most value:
1. What do you need from external input?
Particularly at the start of a business you might be looking for consumer insight and/or sector insight and expertise. The obvious hunting ground being someone currently or recently retired from an established business. The watch out here is their ability to adapt what they know from a large, mature business into the context of a resource constrained high growth start-up.
A network is hugely valuable for any start-up — connections lead to serendipity, and it’s remarkable how this ‘luck’ translates into investors, customers and other help. Again, someone from within the industry is likely to have a useful network.
Think about whether this is a one-off need, such as finding suppliers, or an ongoing requirement, such as building a pipeline of customers. When it is the later, this might be best to be an agreed and remunerated role.
2. What is the role — director, mentor or coach?
A director in a business is a formal role. Given the obligations on the director it shouldn’t be taken lightly by either party. A substantial investment is very likely to require the oversight of an investor director. Do your due diligence and get references to ensure the suggested director has relevant skills & expertise, with facilitation and judgement to help make effective decisions and is someone with whom you’d have good chemistry — you will, and should be, seeing a lot of them.
One to be avoided is the ‘board observer’ — someone giving investors some oversight but not committing to actually understanding or contributing to decisions being made. This invariably ends up making the board meeting a highly inefficient information sharing exercise rather than strategic decision-making forum.
‘Mentor’ is an oft used word — and often utterly meaningless, or worse, positively destructive. Google think their team can ‘mentor’ a start-up during a 30-minute conversation. Compete tosh. Real mentoring needs longevity, so the mentor understands the business, the market context and the strengths and weaknesses of the team in place.
Although it may not be as broad a role as a Director, mentoring is similarly hands on – contributing expertise, helping to create and explore possibilities, helping explore decisions and ensuring robust decision making and all the time ensuring the entrepreneur is developing their own capability.
Coaching also needs a long-term relationship with the entrepreneur but uses the generic questioning skills of the coach, without industry or functional expertise, to help the individual, or team, to recognise their strengths & weakness and to develop their capability.
Specific ad-hoc advice can be sought from experts. I always value the advice of entrepreneurs that have been in a similar position growing a business, more than that of an industry expert who has climbed the greasy corporate ladder or from an investor that is clearly great moving money around and counting the beans, but with little real-life consumer or operational experience. With anyone that is just dipping into a question, remember that however forcefully they are making their point, it is their context not yours that will be most influential in their opinion. And too many different views can confuse an issue. Ultimately you need to become adapt at sifting using other people’s opinions as good insight and stimulus, but trust your own instincts to make the right decisions for your business.
Sometimes an entrepreneur just needs some moral support – a shoulder to cry on, someone looking out for their personal well-being and motivation. Friends and family can be good for this. Then again, the stresses and strains of growing a business is sometimes best left out of the closest relationships.
3. What is the commitment?
To be effective, any director needs to commit to more than just attending board meetings. As a minimum the preparation and intimacy to be up-to-speed on the business between board meetings. But they’d ideally also have some real involvement in the areas where they bring expertise, for example finance, marketing, sales, production or funding.
For Worth Capital, whilst we are never making the operational decisions, where we have expertise that can quickly fill a gap, we really roll-up our sleeves for our portfolio companies. In the last couple of months, we’ve been negotiating rents & contracts on a large fulfilment centre in Bristol; creating a forecasting and inventory tool for a direct-to-consumer e-Commerce business for whom demand was growing very fast and where the big risk was product availability; and re-examining the customer proposition and ending up with a much stronger name and brand identity for a B2B SaaS product.
4. What should a board look like?
It is useful to ensure a very tight board in the early days. Nimble decision-making and executional agility are more important than strategic navel gazing. The founders plus one other is ample.
But as a business grows the board may need wider experience, or additional investment may require representation. Any meeting of more than five or six people requires facilitation to be efficient. So, at this stage you may nominate one board member to lead the board or take on a formal Chairman. A Chairman role is useful if they have credibility to be a figurehead, particularly with potential investors. But again, the commitment and expectations need to be clear.
5. What is the agreement between the parties?
Once you’ve decided ‘what’ and ‘from who’, you need formalise the expectations.
If someone has contractually committed (either to payment in cash, kind or with equity or options) then there needs to be a formalised two-sided agreement where both parties can hold each other to account for the time and expertise that is being committed.
Are you interested in equity investment?
The Start-up Series, hosted by smallbusiness.co.uk, gives company the chance to secure equity investment of £150,000 to £250,000 every month. To find out more, go here.