Author Archives: Zach Shulman

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June 2, 2011

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Board of Directors, Dealing with VCs, Management, Startup Life

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The Weekly Update on Steroids

Some of you know my feelings about the incredible value of a startup CEO sending out a weekly update to the company’s board.  See The Weekly Update.

Steve Blank has taken this to a new level – put it on steroids.  In his post today he writes about having an enhanced version of the weekly update replacing board meetings for companies that are in the angel funded stage.  I am not sure if eliminating board meetings completely is the right answer, but I currently recommend fewer board meetings (one half in fact) for companies in our portfolio that practice the weekly update routine (and that applies for those well beyond angel funding).   The real time updating is teamwork at its best.  I could be convinced that Steve is right.  It is all about results driven communication between the management team and the board and often certain investors.

Here are links to Steve’s posts.  Enjoy.

Reinventing the Board Meeting – Part 1 of 2

Reinventing the Board Meeting – Part 2 of 2 – Virtual Valley Ventures

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May 30, 2011

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Board of Directors, Management

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Role Splitting – Non-CEO Founder and Board Member

Interesting conflicts can arise when a non-CEO founder is on the board of directors of a startup.

Assume that Jim is the tech guru founder of Company X.  Jim founded Company X with Al, a self proclaimed entrepreneur.  Company X raises some venture capital, and after about a year Jim goes to his non-management board members and basically says “Al has to go”.   See my earlier post Tech Founder Wins at Early Stage.  So the board fires Al and, after a search process, hires Brett as the new CEO; Brett is thus hired in as a non-founder CEO.  After the management change there are 5 directors, namely Brett, Jim, 1 VC rep and 2 independents.

The interesting conflicts arise for Jim.  He is both a board member and also, as the tech guru (make up any “C” title you want like CTO or CSO), reports to Brett, the CEO.  Depending on Jim’s personality, Jim may find it difficult to speak his mind at a board meeting for fear of pissing off Brett “his boss”.  Jim might not want to risk management harmony day to day.  He might have a sense of loyalty to his boss and not want to show disloyalty at a board meeting by taking a contrary view or raising issues that the CEO does not think important.  These are just some examples of potential conflict.

My general feeling is that it is imperative for the non-CEO board member to truly act like a board member at all times.  He/she has to accept the dual role and so does the CEO.  I think that this should be discussed ahead of time with all parties (and by that I mean the entire board) to help ensure that it happens.   The dual role is not easy to handle for some people.

Open communication at a startup is critical.  The tech guru board member needs to be able to speak up and voice issues freely.  Granted, tech founders sometimes have a different sense of business reality than others, but having them talk freely at board meetings is super important.   Each board member should feel unencumbered and empowered.  The independent board members should be relying on the non-CEO founder board member to gain additional insights, etc.

I am not suggesting that the CEO and tech founder director should not try to work out issues ahead of board meetings.  Rather, I am suggesting that Jim be expressly encouraged to voice differing opinions openly, freely and as needed.  Discussion will follow and the board will function better for it.

Happy Memorial Day!

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May 24, 2011

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Dealing with VCs, Startup Life

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Shareholder Alignment

Sorry for the longer time between posts lately.  I have been swamped at work and that is my excuse.  Given that, I have been wondering how Fred Wilson and Brad Feld (among others) do it – how do they post almost every day. I am sure that they too are swamped at work.  When I wake up they are always waiting “smiling” at me in my inbox.

For Brad, I am pretty sure it is because he has no kids.  My kids luckily take up a lot of my time, and I am fortunate for that!

For Fred, I think he is just super human and maybe sleeps very little.  He has kids and he seems to do a lot with them based on his posts.  Ok, enough chatter.

Quick substantive content.  Shareholder alignment is a tricky topic that involves not only the alignment of common holders (think founders and management) with preferred holders (think investors), but also the alignment of preferred holders with other preferred holders.  The simple truth is that the more shareholders a company has the greater likelihood of misalignment of shareholders.  I like to follow the general rule that minimizing the number of shareholders is always a good thing.

You might have a situation where one Series of Preferred Stock wants outcome X and another Series favors outcome Y.  You might have a case where a group of investors inside Series A favors a different outcome than another group of investors inside that same Series A (for example, one group might have more dollars to invest and so favors keeping the company independent and another group might be tapped out and favors selling).  There are many variants and examples.

I find the alignment or misalignment of interests among investors a fascinating topic.  Just as investors love to invest in entrepreneurs they already know, VCs love to invest with VCs they know.  This minimizes the chance of misalignment and also creates a typically reasoned outcome when it happens.

As an entrepreneur/founder, I urge you to think about not only the alignment of your own interests with those of your investors, but also how your investors’ interests might run in parallel or intersect/clash with each other.  Both topics could greatly impact your startup.

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May 18, 2011

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Board of Directors, Dealing with VCs, Management, Startup Life

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Board Meeting Follow Up

I think communication is a critical factor in the success or failure of a startup.  I guess I would phrase it as “over-communication”, with over-communication typically being associated with successes.  Prior posts have touched this topic, namely 3 Up / 3 Down and The Weekly Update.

Most of the written communication falls on the CEO of the company, but there is one practice that should fall on a director who is not the CEO.   It does not matter if this director is the “lead” director or chairman.  In short, after each board meeting, a director should promptly write an email to the entire board (including the CEO) with follow-up and action items coming from the meeting.  The email is typically short and often just a set a numbered points.  Importantly, the numbered points are not just for the CEO and his/her team to perform.  They may also task other board members.

The goal of the post-board meeting email is to make sure that everyone is on the same page.  This is really helpful for the entire board team, including of course the CEO.  Hopefully your board meetings (assuming you have outside board members) conclude with 2 “executive sessions”.  One with the CEO and no other management team members (and that might mean excusing another board member if he/she is also on the management team; and it certainly means excusing any other non-board member attendees who are present, except for contractual board observers, if any) and then a final session without the CEO and just the non-management board members.  The post-board meeting email should also appropriately address any issues surfaced in the final executive session as well.  This is a way of reporting back to the CEO.  Sometimes it is not appropriate to address all issues in this group email, particularly on points that are critical of the CEO and thus often handled one on one.

When I have been asked to write the post-board meeting email, I often run a draft by one other director before sending it off to everyone.  Nice to get another set of eyes to catch any missed items, etc.

Good practice to consider.