Blue Mine Group

Developing an effective board for venture success con't...

The final aspect...

Board management

With the right board design in place and the right members making up the board, you can focus on the third area of excellence – board management. Typically it is the chairman’s key function to manage the board and make sure it performs effectively. The chairman should lead the board in setting its purpose and direction, and in balancing discussion and consensus building with championing progress of key issues. In doing so, he or she will secure support and advice from the CEO and other board members. Well-managed boards typically have three characteristics:

• A balanced schedule of formal meetings. Most ventures hold formal board meetings regularly, monthly or bimonthly. Each meeting should comprise a regular review of performance to date, a focus on a specific topic, and time for ad hoc discussion. The specific topics should be carefully considered and scheduled. These can include a strategy review, approval of the annual business plan and budget, review of management performance and approval of bonuses, review of market / competitive conditions, review of innovation and research and development activities, and many other topics.

• Continuing informal oversight. In addition to the formal meetings, well-managed boards have effective processes for ongoing informal oversight. Primarily based on continuing chairman – CEO dialogue, this can be supplemented by assigning individual board members to specific areas of ongoing oversight based on their particular skills and experience.

• Continual timely information sharing. Board members should have continuing access to timely, accurate and relevant information. Good CEOs ensure their boards are always kept apprised of all key developments, and make sure there are no surprises at board meetings. With the wide range of online collaboration tools now available, boards today are able to keep informed, discuss issues and reach decisions between formal meetings

Developing an effective board for venture success...board members

Board members

 

Selecting members

With the right board design in place, you can now turn your attention to recruiting and selecting the right members to your board.  It is important to take into account both the individual qualifications and the collective skills and team dynamics of your board.

You should seek individual team members who offer the right personal skills and experience for your board.  Typically, these might include:

• Broad business experience of ventures at your stage of evolution
• A specific area of skill or knowledge that will be of value to the board
• A deep understanding of the role of a board and individual board members
• The ability to work and collaborate in a team, yet independent minded and able to think and reach conclusions without being unduly influenced by others
• Strong ethical standards and an understanding of legal and regulatory requirements 
• A good listener, able to ask questions, alert and inquisitive with sound problem-solving skills and judgment
• An effective meeting participant with strong communication skills.

In addition, you should try to achieve a balance of skills, experience and personalities on your board. Ideally, your board will consist of the right mix of people to provide the full set of skills, knowledge and perspectives your venture needs to realize maximum value and results.

Reviewing board member and team performance

Just as your management team should be reviewed periodically individually and collectively, so too should your board. In our experience, this is rare for venture boards, but it is a powerful process that generates significant benefits.

From time to time the board should take time to review and critique its own performance. Led by the chairman, the board should evaluate its results against goals, and also evaluate its working practices against best practices. Such an exercise can generate rich lessons for your board.

In addition, the board should define processes for performance review of individual members. Typically these reviews are conducted by the chairman or by an independent board observer or advisor. The reviews should be based on the board member’s performance against responsibilities, and should include assessing the extent to which the board member is:

• Devoting adequate time and attention to board matters
• Developing an appropriate level of company-specific knowledge
• Doing an appropriate level of preparation for board meetings
• Participating effectively in board meetings
• Maintaining independence and avoiding potential conflicts of interest.

Such reviews serve to improve the individual performance and contribution of board members. Unlike with management, board member reviews do not carry the potential sanction of dismissal. Board members can typically only be removed in accordance with the organization’s board policies and bylaws.

Developing an effective board for venture success

Board design

Before inviting candidates to join your board and preparing for your first board meeting, it is important to give careful thought to the structure, roles and responsibilities of your board. 

Board structure and roles

The structure of your board will largely be determined by your venture’s phase of growth. During the start up phase, the board structure will most likely be small and relatively informal, comprising founders and investors. As your venture grows, non-executive appointments will be made to bolster functional and industry skills and add representatives from new investors.  Over subsequent stages, the board structure will be further formalized and aligned with the venture’s financial, organizational and ownership structure.   

One initial structural decision is the size of the board.  As a general guide, a board must be large enough to accommodate the necessary skill sets to fulfill the board’s mission, while at the same time small enough to promote cohesion, flexibility, and effective participation.  In practice, venture boards are typically three to five members in the early stages, growing to eight to ten members over time.

You will need to determine the core policies governing board members, such as how board members are elected, re-election frequency, term limits (if any), as well as the number of boards a director may sit on simultaneously. These and other policies normally form an important part of your company’s governing bylaws.   

Another key decision is to define the board’s leadership role, the chairman. We believe that the responsibilities of the chairman of the board and the chief executive officer differ significantly, and that ventures are best served by having a non-executive chairman who is not the CEO. Such a structure ensures the chairman can focus on his or her role as leader of the board, eliminates conflicts of interest, ensures the board can fulfill its central role of oversight of management, and provides the CEO with a “thought partner” in running the business.

Some argue that a joint chairman / CEO is more effective at creating a bridge between the board and management and can ensure that both are acting with a common purpose.  However in our experience, this structure is normally a result of a powerful founder or leader asserting his or her control, rather than a truly optimal structure for the board. Ventures in this position should at least ensure that a non-executive independent undertakes a senior leader role in working with the chairman / CEO to manage the board.

Regardless of which leadership model is selected, it is imperative to delineate clear roles in order to avoid an undue concentration of power.  To achieve impartiality, the board leadership must be independent in thought and action, look to strengthen oversight, and provide checks and balances and improve information flow between the board and management.

The chairman’s role is that of board leader and steward of the company.  He / she presides at meetings and reviews and manages the composition and performance of the board.  Overall, the chairman is responsible for the board’s performance much like a CEO is responsible for the management team’s performance.  In addition, the chairman ensures that the external accountabilities are addressed and often plays the role of external figurehead.

In addition, individual members usually take on specific roles.  Public companies normally require directors to participate in specific committees on issues such as auditing, compensation, and nomination / corporate governance. Smaller companies, however, may allocate these roles on an ad-hoc basis depending on director preference and/or availability. 

Board responsibilities

Many boards lack clarity as to their responsibilities, and as a result end up either neglecting certain responsibilities or taking on responsibilities that are really the function of management.

The central responsibility of the board is to oversee and direct management in order to secure the best long-term interests of the company and its stakeholders. We believe this translates into the following five specific responsibilities for venture boards:

• Review and approve strategy and plans: the board’s first primary responsibility is to approve the venture’s strategy and business plan. Management is responsible for developing the company’s strategy and business plan; the board’s responsibility is to review, provide input, request clarification, and ultimately approve the strategy and business plan.

• Appoint and review the CEO and key executives: the next key responsibility is to appoint the company’s CEO, and to approve the CEO’s appointment of key executives. This includes setting the CEO’s and key executives’ compensation plans. The board must periodically evaluate the performance of the CEO and key executives, as a basis for both compensation awards and to approve continuation in those roles. The board must also develop a management succession plan to ensure long-term company leadership.

• Approve major decisions and commitments: the board must review and approve all major decisions and commitments that can materially impact the future of the company. These might include major investments, changes in the venture’s fundamental business model, and strategic combinations such as alliances or acquisitions, Once again, it is management’s role to develop the recommended action, and the board’s to review, question, clarify and ultimately approve.

• Monitor company performance against plan: a fourth key responsibility is for the board to continually track and monitor the company’s performance versus its plans. In doing so, the board will need to rely on the information and reports generated by management. As such, boards should ensure that sufficient precautions are taken and processes are in place to ensure that the information it reviews is timely, complete and accurate in all material respects. The board must identify issues that need to be addressed, and move quickly to direct management to take appropriate action to both exploit opportunities and guard against threats. Ultimately, if management cannot or will not address issues according to the board’s directives, the board will need to appoint alternative executives to do so.

• Ensure ethical, legal, and regulatory compliance: the board has a significant responsibility regarding ethical, legal, and regulatory issues in order to protect the interests of stakeholders and manage ongoing risk.  Company boards must ensure compliance with all applicable legal and regulatory requirements by putting the right processes, checks and balances in place.

In addition to these five major responsibilities, individual boards may take on other responsibilities. A common example with venture boards is for board members to provide help to the venture by introducing management to their personal networks. Such responsibilities must be secondary, however. Many boards suffer from the problems described at the beginning of this article precisely because they have appointed board members for their connections rather than their abilities as directors! Boards should take particular care not to expand their responsibilities to encroach on management. We believe that for most ventures, the above five responsibilities should define the role of the board.

Next: board members

Developing an effective board for venture success

A venture’s board of directors plays a significant role in its success. An effective board both contributes substantial value to the venture and directs it wisely to maximize growth and value for its stakeholders. By contrast, an ineffective board can become a major drain on vital senior executive time, and can destroy substantial amounts of stakeholder value. This article introduces a framework for improving board effectiveness to drive venture success.

Many venture boards suffer from one or more problems that lead to sub-optimal results. Boards dominated by one or two personalities do not act with the considered wisdom of all members. Boards made up of unqualified members are unable to act effectively. Board members who act only in the interests of some stakeholders bias the board in ways that may not be in the best interests of the company. Some boards are too involved in day-to-day detail, whereas others are too detached from the business. Many boards lack focus and structure, and are managed too loosely.

In our experience, building an effective venture board requires excellence in three areas: 

• Board design – defining the right board structure, roles and responsibilities.

• Board members – selecting right mix of qualified members, and reviewing fit and performance periodically.

• Board management – managing the board with the right blend of formal meetings, informal oversight and information sharing.

We will explore board design in our next entry.

Building an effective management team con't...

Teamwork

With the right organization in place populated by the right people, the final dimension of management team effectiveness is to ensure your executives truly work together as a team. A high performance team is one that together can achieve results well beyond the aggregate of individual capabilities. The New England Patriots in the early 2000’s were an example – few individual stars, but spectacularly successful as a team.

This is easier said than done. Venture executives are typically experienced, type-A personalities, with strong views and individual ambitions and preferences. In addition, by necessity (as described above), each person has individual goals and accountabilities, which the venture needs them to achieve. How do you foster teamwork in such an environment?

Three elements are key:

Develop shared vision and values

One of the foundational tenets of teamwork is to have your team share common values and be committed to a single vision of the team’s goals. This can include:

1. Developing a core, written set of values as a team early on, and evolve as needed.
2. Establishing mutual accountability and trust
3. Insisting on transparency – do not shield ulterior motives or political agendas
4. Accepting and encouraging diverse viewpoints
5. Managing disagreements in a healthy and productive way – encouraging open expression, empathy and listening, with a joint commitment to make fair tradeoffs where needed

Conduct joint problem definition and solving

Teams that identify and solve problems together typically experience strong bonding and mutual commitment. However, team problem solving can be lengthy, so should be reserved for key issues that face the business as a whole. Individual executives should focus on solving functional problems, and the CEO should make decisions on issues that do not warrant team attention.

It is important that you identify clear criteria that will define which issues will be problem-solved by the team. Failure to do so may lead the CEO to view his or her team as indecisive or the team to consider the CEO’s actions as unilateral and unfair.

For key issues that do warrant management team attention, incorporate the following best practices:

1. Begin by jointly defining the problem and the outcomes to be achieved
2. Define the criteria by which solutions will be evaluated
3. Do not focus on only a few alternatives, rather generate multiple possible solutions
4. Do not be unnecessarily hampered by perceived constraints; identify and agree on which constraints can be overcome and which cannot
5. Explore each option’s advantages and disadvantages; insist on factual support wherever possible
6. Try to avoid a vote, rather “take the pulse” of the team periodically and use that to guide the discussion
7. Creatively devise hybrid solutions that borrow the most desirable elements from distinct alternatives
8. Designate ample time to discuss and solve problems, but also set a deadline to impart urgency.

Pursue continuous joint learning 

Similarly, a team that learns together, particularly through extensive joint experience and problem solving, develops a very strong group culture and identity. 

One way to facilitate group learning is to reflect as a team on performance and lessons learned after reaching a milestone or overcoming a significant obstacle. Other tactics can include 360-degree feedback, creation of new processes and metrics, revision of team’s values / ground rules, and team-building exercises.

Building an effective management team con't...

People

With a well thought out organization in place, you can focus on filling your management positions with people best suited to execute the defined roles and responsibilities to implement your venture’s strategy.

Recruit the right people

Attracting the right people to fill your management team is one of the most important tasks of the CEO.  The people you bring onto your team must possess the right individual and collective skills, market knowledge and passion.   

Often early-stage venture founders tend bring on people with whom they are close or have worked in the past.  While it is important to know, trust, and be able to collaborate with the people in your team, it is essential to be rigorous in identifying the right skills and experience needed to fulfill the roles and responsibilities that you have defined as needed.

Once you have determined these attributes, explore multiple channels to find the right people. It is frequently unnecessary to hire an expensive search consultant – with the right effort in networking and using the web, most ventures can generate a strong pool of candidates from whom to choose.

To maximize your chances of success, clearly define your ideal profile candidates, as specifically as possible – including the education, companies, positions and geographies you would ideally like to see on their resumes. Then seek out people that closely match your ideal.

Equally important, clearly define your value proposition to prospective executives. Good people have many career options – why should they select your business as a venue for their talents and energies?

Provide direction, coaching, feedback and rewards

Hiring good people is certainly not enough. No matter how experienced your executives, each venture and each team has its own unique circumstances and challenges. Just like world-class athletes, even experienced executives need direction, coaching, feedback and rewards to maximize their individual performances.

Giving direction is about agreeing to the goals to be achieved, and the broad guidelines on how to get there. It is not detailed micro-managing. It begins with the focus and responsibilities you assign to each executive. Building on that foundation, tailor the amount of direction you give to the needs of each team member. With some, you may only need to provide little more than inspiration; others may need you to be more specific.

Recognize the strengths and skills or your executives, but also be alert to their individual development needs. Whether you personally provide coaching or use a range of other formal and informal training methods, it is critical that you put in place a process for continually improving your team’s individual skills and knowledge. Successful companies integrate training into their core management practices and make it a source of competitive advantage. 

Provide feedback regularly, primarily informally and occasionally more formally. Most successful ventures adopt an open culture in which team members are open and willing to receive and provide feedback.  In addition to direct manager feedback through performance and development plan review and informal conversations, feedback can be solicited from peers, team members and even external stakeholders. Feedback should be paired closely with professional development to build competencies in areas of need.

Executives join ventures for a range of both financial and non-financial rewards. Translate the value proposition you offered to your team when you hired them into tangible rewards that meet their needs and motivate the performance your venture needs to be successful.

Change executives when necessary

As mentioned above, with rapidly growing and changing innovation-based ventures, management team changes often need to be made relatively frequently. There could be many reasons - the business grows to a level beyond the skill-set of the incumbent, the business needs change or external market conditions cause unexpected stresses.

As the venture’s leader, you must place the good of the company above personal relationships. Each executive must be regularly and objectively assessed against his or her goals and responsibilities, and those who either can’t or won’t meet the required standards must be replaced. This is probably one of the responsibilities most CEOs like the least – yet it is vital for the health and success of the venture. Very few venture CEOs feel they let people go too soon – almost always their rueful observation is that they held onto people for too long.

It is important in making such changes to do so within the right legal and ethical parameters, placing a high value on the lives of those affected, and ensuring that the way in which changes are carried out minimize distractions to the task at hand and cultural upheaval.

Next we will explore the importance of teamwork.

Building an effective management team

Organization

The first step is to define the team correctly. Unlike in basketball, there are no standard positions on a venture’s management team. The foundation of success in building an effective management team is to define the team’s, and by extension the organization’s, roles and responsibilities carefully and thoughtfully.

Define roles and structure

In many ventures, insufficient thought is given to the management team and functional roles and structure. Frequently the CEO or founder will put in place an organizational structure that replicates his or her previous experience. In other cases, roles and structure are defined based on the skills or preferences of the incumbents. Internal politics often comes into play, with individual managers seeking roles and responsibilities that give them more personal power and influence.

The correct approach is to begin with the needs of the business. What is the strategy and business model? Based on these, what are the core daily tasks and activities that need to be done? What are the key initiatives that need to be accomplished? 

Once these are detailed out, the next step is to review all these activities and initiatives and explore alternate ways in which to group them. To do so, it is a good idea to define a set of criteria to guide you. These might include:

• Defining roles that ensure all the key activities and initiatives will get done properly.
• Defining roles that will reasonably fit with skills available in the market (as an example, many ventures have a VP Sales and Marketing, but in practice there are few executives who truly have top class skills in both disciplines; despite the coordination challenges, ventures are typically better off creating separate sales and marketing VP roles so that they can find people who can actually perform the roles successfully) 
• Defining the right number of roles – too few, and the roles become impossible to do; too many, and costs will be too high, and there will problems of communication and coordination
• Maintaining a reasonable balance of responsibilities and workload amongst the team
• Ensuring that the right roles report directly to the CEO – critical roles should not be assigned at a lower level, nor should less critical roles report to the CEO
• Defining roles that will attract executives of approximately the same level of capability and experience – having some roles defined to require senior, experienced executives and others to require more junior people creates a built-in imbalance in the team.

This analysis and definition must first be done in the abstract, disconnected from any incumbent executives. Once the theoretical ideal roles and structure are defined, in practice they may need to be adjusted to account for the particular capabilities of existing executives. However, at least you will clearly see where you are comprising the ideal, and where you may need to make a change in the future.

Bear in mind that your management team structure and roles will need to evolve relatively frequently as the needs of the business change. It is important that all executives understand this up front, so that expectations are set accordingly. This applies even to the CEO.

Clarify focus and responsibilities

In finalizing the team’s roles and structures, ensure each executive has a clear, distinct focus and a clear, distinct set of responsibilities. In this sense, strive to make your management team’s focus and responsibilities “MECE” – mutually exclusive and collectively exhaustive. Many problems arise in organizations and amongst management teams when

• executives are not clear as to their individual focus and responsibilities
• individual focus or responsibilities overlap, or
• some elements of focus or some responsibilities fall through the cracks.

In doing so, ensure each executive is clear on how your overall strategy and business plan translates into each person’s goals and responsibilities, and vice versa.

Getting your executives’ focus and responsibilities right is enormously important, as it cascades down the organization and becomes the primary determinant of what all your people do every day, and how easy or difficult it is for them to be successful.

Give executives freedom balanced with accountability

Once you have clearly defined each executive’s focus and responsibilities, it is essential to give them the freedom to act. Many ventures are led by CEOs who consciously or unconsciously micro-manage their executives. By doing so, the CEO ensures both that his or her attention is not focused on those issues that are the true province of the CEO, and also does not get the best out of his or her team members. Management team members should be given the tools and resources to do their jobs, and then allowed to perform freely. 

Balancing this freedom is the vital concept of true accountability. Each executive must be held accountable for his or her goals and responsibilities. Simply put, this means there are real consequences, both positive and negative, for each executive’s performance. Executives who achieve their goals and fulfill their responsibilities are rewarded; those who do not are not rewarded, and ultimately may even be replaced.

Next up the roles and imporatnce of the people involved

Building an effective management team

For business ventures focused on commercializing innovation, an effective management team is one of the primary drivers of value. Venture capital firms and other investors always stress that the importance of the management team for venture success - many prefer an A-level team with a B-level idea than the opposite.  Similarly, noted author and professor Jeffrey Pfeffer contends that it is “more important to manage your business right, than to be in the “right” business. Success comes from being able to effectively implement a competitive strategy, not merely from having one.” 

Yet building an effective management team, like building any team, is challenging, and is certainly more than just assembling talented people. Consider the United States Olympic basketball teams in 2004 and 2008. The 2004 team was essentially an assembly of individual stars who did not play effectively as a team. By contrast, the 2008 “Redeem Team” performed more like a true high-performance team, and as a result easily won gold.

So how does a venture build an effective management team? What are the practical, essential steps CEOs should take to succeed in this critical area?

In the Innovation Venture Model, our best practice innovation and venture management methodology, management team effectiveness is achieved through doing three things well:

• Organization – defining the team correctly - the roles needed and their responsibilities 
• People – putting the right individuals in each role and helping them succeed
• Teamwork – getting the team to work together effectively.

We will explore these three topics in detail in blogs to come. Stay tuned..

Evolution: Maximizing long term product life cycle value: exit

 

The final aspect...

Exit

At some point, your team will become aware of when your product begins to exhibit characteristics of decline, such as declining revenue or profitability, or new generations of technology becoming prevalent in the market. The conditions are not always obvious, so it requires careful tracking of your internal and external metrics, as well as an impartial and objective team assessment. More than one product has been retained long past its "sell by" date for emotional, not economic, reasons!

The exit process involves a careful examination of your original roadmap and the options available to you. As part of the analysis, build a financial model to assess the remaining value that can be realized through the different alternatives. Your model will help you to define your alternatives, clarify assumptions, and estimate outcomes. This information combined with your financial and strategic objectives and insight from employees, customers, and partners will help you to make a prudent decision.

In most cases, the options available to your product during exit are sell, harvest, or discontinue:

Sell
Sell part of or the entire product to another company. This alternative should be a consideration if you find a willing suitor that places a high value on your product because of synergies with its business. Also, this option allows you to recover a "salvage value" without subjecting your company to any future market risks.

Harvest
In this scenario you allow your product to undergo its natural "end of life" process with minimal or no additional investment. This alternative is attractive if you have an entrenched and passionate user base that is willing to continue purchasing your product because of preference or high switching costs. If chosen, you would ideally allow for the last product to be purchased naturally and, if possible, migrate your user base to a newer product offering. One consideration for deciding to harvest a product is that the ongoing contact with customers provides you with a valuable source of information for subsequent products.

Discontinue
If there are no sales or it is unprofitable to continue selling your product and there is no remaining strategic value in doing so, you should discontinue selling your product. In this case, you will transition any remaining customers to your next generation product. It is important to ensure that the process is implemented wisely so as not to damage relationships with existing customers and partners. It is possible that this elimination or "pruning" could also have positive effects in that it streamlines your product line-up and allows your resources to be optimally deploye

Evolution: Maximizing long term product life cycle value: refine

Refine
Once a potential problem or opportunity is identified, clearly define the issue, identify the underlying cause and explore available courses of action. As always, use a fact-based approach to problem-solving that minimizes guesswork.

Successful companies see these issues as a chance to further innovate. Market conditions change continually, and your product offering will need continual refinement. You goal is to remain nimble and dynamic, but at the same time to act wisely and with a long-term view. Some refinements will be minor adjustments, whereas others may be more significant adjustments in product focus or positioning.

As in previous stages, the main "project tracks" are product, market and process (operations). In a similar fashion, once an issue has been identified, follow a systematic "develop, test and launch" mini-process. Potential refinements may include:

Product

• Product offering / feature enhancements / design improvements
• Pricing / promotions
• Positioning
• Bundling
• Ancillary services

Market

• Market focus
• Sales and marketing programs
• Partnership opportunities

Process

• Operational processes
• Customer experience
• Cost reduction.

Normally the longest phase of the product lifecycle is this measure / refine phase. Done well, your products can be continually refined and deliver value for years, going through multiple revisions and continually finding "new life".