In my previous post I laid out some dos and don’ts for board meeting attendees. In this post I’ll describe best practices that help enable the board to surface and tackle the key issues the company is facing.
A good way to structure the meeting is to divide it into three parts: progress reporting, strategic discussion and administrative items.
1. Progress Reporting — The objective of the “reporting” section is for management to tell the board how the company is performing. This is the meat of the meeting and is typically divided into three presentations: (a) key performance metrics, (b) functional areas of the company (e.g. marketing, engineering, and product), and (c) company finances.
It is critical for the company to have a plan of record against which performance can be measured. Many entrepreneurs are hesitant to create a board plan for fear that there will be repercussions if plan is missed. Having no plan means that the board will make their own decisions about how the company is performing and this is far worse. For early stage companies, more it is common to miss plan by wide margins and that’s to be expected, but for later stage companies more rigor on both the planning and execution side is expected.
For the functional areas, it’s a best practice to have one or two VPs report per board meeting so that there can be a deep dive into these areas. The CEO can then lead a brief review of the other areas. In these deeper dives: VPs should avoid a laundry list of accomplishments and focus on key issues:
- What are the key objectives for the year (and how are they doing against such objectives)?
- What are they doing differently than their competitors, prior companies or industry norms?
The board meeting is not a super-operating committee review in which tactical decisions are examined. It is a strategic session in which priorities and resource allocation against those priorities is assessed. Presentations should be geared to facilitate such a discussion.
For the financial reporting, as long as the company is burning the cash, the most important financial metric is: When does the company run out of money? It should always be reported. I suggest using a waterfall for cash burn as well as other key metrics. It is also important to establish consistency in both format and data presented. When metrics are changed again and again it makes it very difficult for the outside board members to understand how the company is doing.
Another best practice is a dashboard, which is a single slide that displays trends for a few key metrics. A good dashboard enables the board members to look at progress against these metrics over time and quickly get a sense of the company’s performance.
What is the point of all this reporting? First, it gives the board members a chance to help in a variety of ways:
- offering suggested approaches for problem solving,
- recognizing certain recurring patterns from prior experience,
- challenging key assumptions and
- making introductions to potential customers, partners or new hires
In order to do any of these things effectively board members need to be presented with a clear picture of what’s going on with the company.
Secondly, management is typically heads down fighting one fire after another in the hectic pace of startup life. Having a routine check up from people looking at the business from a higher level can help management identify issues that might be lost in the daily grind. Third, it allows a common understanding of the business that sets the stage for the next part of the meeting, the strategic discussion.
2. Strategic Discussion — Startup companies are continually facing critical strategic issues:
- Is now the time to start ramping up the sales force in order to gain market share?
- Will a partnership with a more established player solidify the company’s market position or will it consume company resources without delivering any real benefit?
- When is the right time to start the fundraising process?
The strategic discussion section of the board meeting provides an opportunity to discuss these important issues with the board. The goal of these conversations is not to arrive at a vote in which the board approves some key decision, but rather to seek input on the issues facing the business so that management can understand and benefit from the board’s collective experiences. Best practice in this area is to discuss one or two of these issues at each meeting as it is difficult to cover more.
3. Administrative Items — Administrative items are the things that the Board actually needs to vote on. I prefer beginning with the administrative section to get it out of the way quickly before people are tired and cranky. For early stage companies the items are typically limited to the approval of options and minutes.
For stock options, it’s important to have all of the relevant information for the board members to make the grants (e.g. fully diluted capitalization, number of shares left in the pool). I have a template slide for options here. When an unusually large option grant or one with a peculiar vesting schedule is coming up for approval, it shouldn’t be presented to the board for the first time in the meeting. It is far better to surface these items well in advance of the meeting to avoid a long debate during the meeting itself. This is a good model for any issue that is coming up for approval: provide adequate information for the board to make the decision and raise issues ahead of time to avoid surprises.
A properly structured board meeting enables management to get the most value from the board and gives the board members the ability to understand and provide assistance to the business. If you follow this structure and the dos and don’ts, you can ensure that nobody is bored at your board meeting.