Leading a world class board is the single most important thing startup CEOs can do to help their businesses thrive and become industry leaders.
Matt Blumberg is the author of Startup CEO: A Field Guide to Scaling Up Your Business, and Startup CXO: A Field Guide to Scaling Up Your Company’s Critical Teams, coming out in May, and he is also the co-author of the second edition of Startup Boards scheduled to be published in the fall. In this episode he talks about the importance of creating a great board for startup companies.
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A great board can be your secret weapon for world-class strategic and operational advice, for access to capital, for critical introductions, and quite frankly, for learning how to be a great CEO.
A so-so board is just a waste of time – and a bad board can kill a great company.
I think that what really separates startup boards from boards of larger organizations, other than their size, is what the board does.
I always say there’s kind of a sliding scale. If you take a raw startup on one end of the spectrum and a huge public company on the other side of the spectrum, GE or Apple or such, there’s a sliding scale where at the very early stage, your board is probably spending less than 5% of its time on governance and oversight and financials and 95% of its time on strategy and product market fit, and then at the other end of the spectrum, the board probably spends almost all of its time on governance and oversight, and it certainly engages in strategy, but not minute by minute.
Why is it important to have truly independent members on these boards?
Independent directors may have some stock options to be compensated if the business does well, but they don’t have a material stake in the business and they’re not management. They typically either current or retired operating executives from the industry or from an adjacent industry. They provide a third leg of the stool that can bring an independent point of view to the table. They know what it’s like to be an operator, but they’re not operating this business and they’re not heavily invested in it. They can truly look out for sort of the interests of all shareholders.
Bolster, is a B2B marketplace that is seeking to connect venture-backed startups, venture-backed CEOs, or heads of HR with executive-level talent – vetted and vouched executive-level talent for board, advisory, and freelance or on-demand executive roles.
We find when we are going through the needs assessment with a client doing a board search, the first two questions we ask: number one, is it important to you that we find someone who’s an experienced board member, and number two, is it important to you that we find you underrepresented talent?
Most frequently, the answer is yes and yes, and that gives us an opportunity to sort of take a step back and talk about the fact that the talent pool, if you really limit it to people who’ve been corporate directors or, and in many cases, CEOs, is not going to be a particularly diverse talent set.
What we do at Bolster is we try to define and help our clients think through what it means to be “board ready” as opposed to board experience, and there are handful of things that that make you qualified as board ready. One is you’ve been on a board. Two is you’ve been on a board that’s not a corporate board. Maybe you’ve been on a nonprofit board, maybe you’ve been on a board of a community organization, like the town soccer club or the Girl Scouts or the PTA or the school board, that’s a pretty significant experience as well. Or, have you been on an advisory board, or have you been an advisor to a CEO or to a senior executive? And then finally, the last thing is, if you haven’t done any of those things, have you spent a lot of time in a board room, so have you been a senior executive reporting to a founder or a CEO and found yourself four times a year face to face with the firing squad of a venture-backed board? And if you have, if you’ve done that for a number of years, that’s as good an experience as you can get.
if you’re a venture-backed CEO, you’re running a startup, I think one of your best calling cards in life is, “Hi, would you be interested in being on my board,” and it gives you access to people and time with people that you wouldn’t otherwise get, and not in a disingenuous way at all, but you will end up face to face, or whatever the digital equivalent is, with industry leaders and with people who’ve had incredible success, incredible success in lots of different walks of life that even if all you do is a one hour screening discussion and it doesn’t go anywhere, you’ve learned something, you’ve added someone to your network.
I really designed Startup CEO, which I wrote it after fifteen years of being a CEO, to be the thing that I wish someone had given me when I started my company, and I didn’t really know how to be a CEO.
Joe: [00:00:00]Hello and welcome to On Boards, a deep dive at what drives business success. Hi, I’m Joe Ayoub, and I’m here with my co-host Raza Shaikh. On Boards is about boards of directors and advisors and all aspects of governance. Twice a month, this is the place to learn about one of the most critically important aspects of any company or organization, it’s board of directors or advisors as -well as the important issues that are facing boards, company leadership and stakeholders.
Raza: [00:00:36] Joe and I speak with a wide range of guests and talk about what makes a board successful or unsuccessful, what it takes to be an effective board member, what challenges boards are facing and how they’re assessing those challenges, and how to make your board one of the most valuable assets of your organization.
Joe: [00:00:55] Our guest today is Matt Blumberg. Matt is the founder and CEO of [00:01:00] Bolster, a talent marketplace for CEOs of venture-backed companies launched in 2020. Previously, Matt founded Return Path where he served as chairman and CEO until its sale in 2019.
Raza: [00:01:14] Matt was also a co-founder and serves as a board co-chair of Path Forward, a nonprofit that was spun out of Return Path in 2016, whose mission is to empower people to restart their careers after time spent focused on caregiving.
Joe: [00:01:32] He’s the author of Startup CEO: A Field Guide to Scaling Up Your Business, the second edition of which was published last year, and Startup CXO, the sequel to Startup CEO, coming out in May, and also the co-author of the second edition of Startup Boards scheduled to be published in the fall. Welcome Matt, it’s great to have you today with us on On Boards.
Matt: [00:01:57] Thanks so much for inviting me.
[00:02:00] Joe: [00:02:00] So, there’s a quote that I saw from you that I thought was a great way to start off because it’s so much what Raza and I talk about all the time, and it is “leading a world-class board is one of the single most important things startup CEOs can do to help their business thrive and become industry leaders.” So, what is a world-class board for a startup, what does that look like, and how is it different from other boards?
Matt: [00:02:28] Well, one of the things that is kind of unique to startups is most of them are run by first time entrepreneurs, first time CEOs, and there’s no real school to go to for how to be a startup CEO, and one of those things, you can learn a lot in your business career that you can apply as a CEO, but one thing that’s a little tricky to learn how to build a board and what to do with the board, and I always tell startup CEOs that a great board can be your secret weapon for world-class strategic and operational advice, for access to capital, for critical [00:03:00] introductions, and quite frankly, for learning how to be a great CEO, and the difference between that and a so-so board or a bad board is like night and day, right? A so-so board is just a waste of time and a bad board can kill a great company.
Joe: [00:03:14] Well, I wanted to say, I could not agree more that a bad board is a waste of time. It’s just, what is the point? Anyway, go ahead, I’m sorry, you’re singing my song here, Matt.
Matt: [00:03:25] Yeah. So, look, startup boards and boards in the venture ecosystem, I think, are a little bit different than larger corporate boards, public boards or non-profit boards or academic boards or community boards or association boards, and I’ve been on almost all of those, but the thing I think that really separates startup boards from boards of larger organizations, I mean, other than their size, which I think we’ll talk at some point today about sort of the construction of a board at a startup, is it’s sort of what the board does.
I always say there’s kind of a sliding scale. If you take a raw startup on one end of the spectrum and like a huge [00:04:00] public company on the other side of the spectrum, GE or Apple or such, there’s a sliding scale where at the very early stage, your board is probably spending less than 5% of its time on governance and oversight and financials and 95% of its time on strategy and product market fit, and then I think you get to the other end of the spectrum and you’re a director of one of the largest public companies in the world, the board probably spends almost all of its time on governance and oversight, and it certainly engages in strategy, but not minute by minute.
Joe: [00:04:33] Right. The one thing though that is common to all of these boards is what you said about the importance of a truly world-class board. That cuts across every kind of private company, public company and non-for-profit organization, don’t you think?
Matt: [00:04:49] Absolutely, yeah.
Joe: [00:04:51] So, in the context of a VC-backed board, what does “independent” mean as applied to independent board member? [00:05:00]
Matt: [00:05:00] Yeah. In the venture ecosystem, you think of boards as having three kinds of directors. First is management, second is investor, and third is independent. Management is fairly obvious, right? It’s usually the CEO. Sometimes it can be multiple people from management, if they’re multiple founders of a business, and I’ll come back to that topic in a minute.
Second is investors, and those are typically partners at venture capital firms where the firm has made a significant equity investment in the company. They own. 10, 20, 30% of the business, and as part of that investment, they negotiate the right to have one or more board seats. And then the third type of a board member is an independent, and all that means is neither A nor B, so it’s someone who’s not on the management team, not a founder and also someone who’s not a representative of an investor, and in a startup board or in a private venture-backed board, you might have three directors in the really early stages, maybe five as the company gets a little bigger, and seven by the end, and you usually don’t [00:06:00] see fewer than three and usually don’t see more than seven unless the company is literally on the cusp of going public, although even then, seven is a fairly good number, and getting the mix right of the three types of directors is really important.
Joe: [00:06:13] So, if the VCs are the investors who bring in the so-called independents because they know them, they’ve worked with them. Is that an independent board member?
Matt: [00:06:22] No, that’s not necessarily the way it works. I’ve certainly seen that in some cases, but typically in sort of the company’s charter or bylaws, the governing documents of the company, the venture investors will negotiate the right to a board seat or two board seats,, and they’ll specify the size of the board. And I think the most typical language is that the board will appoint independent directors that are mutually agreeable to both parties.
I’ve certainly seen plenty of times where VCs suggest people or propose people. They may have the right to designate them, but a strong CEO or a CEO who’s thinking carefully about it would rather do a real search and find the [00:07:00] best person for the board who’s not necessarily his or her best friend, and also not necessarily the investor’s best friends, but someone who’s there in the best interest of the business.
Joe: [00:07:08] Why is it important to have truly independent members on these boards?
Matt: [00:07:14] Yeah, if you think about the three types of directors, you have management who are heads down living in the business day to day, right? They are eating and breathing and sleeping the substance of the business. You have investors who typically have preferred stock and who, while they might also be great directors and a number of them are, they are on the board to represent their limited partners and their stake in the business.
Independent directors are neither. Independent directors may have some stock options to be compensated if the business does well, but they don’t have a material stake in the business and they’re not management, they’re not sitting there in the business all day long. They typically are operating executives, either current or retired operating [00:08:00] executives from the industry or from an adjacent industry. They sort of provide a third leg of the stool that can bring an independent point of view to the table. They know what it’s like to be an operator, but they’re not operating this business. They’re not heavily invested in it. They can truly look out for sort of the interests of common shareholders and all shareholders.
Joe: [00:08:19] Right. Isn’t there fair amount of research on this that really shows that when you have truly independent board members, it makes a difference in the success of the company?
Matt: [00:08:29] There is a lot of research on that, and some interesting research that shows not just that, that more independence equals better outcome, but that there’s fairly good correlation between the number of investor directors in VC-backed companies with success, and that the correlation is not linearly up into the right.
And again, I would say this is correlation, it’s not causation, but somewhere around two or maybe three sort of venture directors on a board is correlated with the highest exit [00:09:00] multiple of the business, and actually, as you add more venture directors, that exit multiple tends to come down, and like I said, it’s correlation, there are lots of reasons why those two things go together, but it is kind of an interesting thing to note.
Joe: [00:09:11] Yeah, and I don’t find that, and I doubt anyone finds that, particularly surprising. And I mean no disrespect to my venture friends, but you know, too many is – I could see why that would become counterproductive, productive at some point for sure.
Raza: [00:09:25] Matt, talk with us about Bolster and what is Bolster hoping to accomplish, especially as it relates to board and board recruiting?
Matt: [00:09:34] Yeah, absolutely, Bolster, which is a new company, we’re just about a year old. Maybe by the time the podcast is live, we’ll have had our first anniversary. We are a B2B marketplace that is seeking to connect venture-backed startups, venture-backed CEOs, or heads of HR with executive-level talent, so it’s’sort of confirmed and vetted and vouched executive-level talent.
The types of things that we’re [00:10:00] matching talent companies for really fall into three categories. One is independent board members, and I’ll come back to that in a second, but the other two are either sort of mentor-coach advisor-type relationships, or freelance executive or on-demand executive relationships, and those would be things like interim CXO or fractional or part-time CXO, or even just a project-based consultant.
We’re sort of taking advantage of a few really important macro trends. One is the sort of the gig economy, moving up market into the C-suite. We are taking advantage of the rising trend in sort of coaches and mentors as being meaningful to everybody in a business. We are taking advantage of the trend of diversity, and certainly, the trend of agility in business as well. We sort of describe ourselves as the new way to scale your team, yourself and your board.
As it relates to boards, we have a very significant practice, a very good percentage of our business is actually in running board searches for venture-backed companies. We spend [00:11:00] a lot of time with our clients, the CEOs, helping them think through requirements; what is it that they’re actually looking for in a board member? Sometimes they don’t even quite know, or sometimes they’ll start by saying they want one thing, and as we talk through it ,they’ll evolve their point of view. They may come in with something very simple like, “I have an open independent slot I need help filling it.” They may say, “I have an open independent slot and I’m interested in making my board more diverse,” but they haven’t really thought through sort of what it is that they actually want other than someone filling an independent seat or a person from an underrepresented group filling that seat.
We spend some time sort of lightly coaching the CEO about their requirements. The Bolster network is over 3,000 senior executives at this point from all across the country, from every race and ethnicity, men and women, representing every function, so we have a few hundred CEOs and former CEOs, but we also have hundreds of heads of marketing, of sales, of product, of technology, of HR, CFOs, et cetera. So, depending on what it is that the CEO is [00:12:00] looking for to sort of round out the board, we are likely to have dozens and dozens of candidates who are potentially good fits.
Raza: [00:12:07] That sounds like a great service, Matt, for both sides. How does the experience work for one side of that marketplace and the other side? And are you essentially playing the matchmaker in between?
Matt: [00:12:20] We are. Yeah. I mean, ultimately the Bolster business is designed to be a very low touch marketplace. Think of other marketplaces that you’re used to using like Airbnb where you probably don’t talk to anyone, or maybe you talk to someone after you’ve confirmed the rentals to find out how to get in, or like Uber or other talent marketplaces out there like Upwork or Fiverr.
There are some things we do that we’ll probably never be completely no touch or low touch, and I think helping a CEO hire an independent board member is probably at the top of that list. I think we are doing it in a very light touch way because we have thousands of executives who are deeply profiled, we can actually sort of come up with the slate very, very quickly, [00:13:00] but at the end of the day, any CEO who’s hiring an independent board member is going to interview many candidates many times before they get to the end of that process, so it’s never going to be like tap, tap, and, “Oh, there’s the Uber,” but we’re certainly taking a lot of the time and a lot of the mystery, we think, out of the process and helping to make very precise matches for the company’s needs.
Raza: [00:13:20] Matt, one of the things we talked earlier was that part of the challenges that if you want diversity and inclusion in all this fractional and part-time help that you need, you also need to kind of open it up a little bit more. There may be a chicken and egg problem of if you’ve never been a board member, how can I become a board member? Talk about that, how you’re hoping to make that more enabling for folks.
Matt: [00:13:48] Yeah, absolutely. I mean, just the math is what it is, the number of experienced corporate directors in this country. Even if you just limit it to people who’ve served on startup or private or venture-backed boards, that group is [00:14:00] overwhelmingly male and overwhelmingly white, and there’s nothing wrong with those people, they make fantastic board members, but they’re not the only people out there that can make fantastic board members.
We find when we are going through the needs assessment with a client doing a board search, the first two questions we ask, and we ask them in sequence intentionally is, number one, is it important to you that we find someone who’s an experienced board member, and number two, is it important to you that we find you underrepresented talent?
Most frequently, the answer is yes and yes, and that gives us an opportunity to sort of take a step back and talk about the fact that the talent pool, if you really limit it to people who’ve been corporate directors or, and in many cases, CEOs, is not going to be a particularly diverse talent set, and that the way that all of us in the startup world can do our part for the long haul to make boards more diverse in this country is to widen that funnel, the top of the funnel, so you’re not limiting yourself to people who have experience as corporate board members.
I have a friend who [00:15:00] is a black executive, black CEO, and he served on a bunch of boards, and he said to me, tongue in cheek, once, he said, “I think there are twenty-five of us,” meaning black executives, “who serve on all of the boards, and we just keep adding boards as opposed to adding new people to the mix.”
What we do at Bolster is we try to define and help our clients think through what it means to be board ready as opposed to board experience, and there are handful of things that that make you qualified as board ready. One is you’ve been on a board, fine. Two is you’ve been on a board that’s not a corporate board. Maybe you’ve been on a nonprofit board, maybe you’ve been on a board of a community organization, like the town soccer club or the Girl Scouts or the PTA or the school board. Those things are real. They’re different kinds of boards, but that’s a pretty significant experience as well.
Raza: [00:15:46] Helps you with readiness.
Matt: [00:15:47] Absolutely, because not everyone does that either, right? One of the other things we ask is, have you been on an advisory board, or have you just been an advisor to a CEO or to a senior executive? And then finally, the last thing is, if [00:16:00] you haven’t done any of those things, have you at least spent a lot of time in a board room, so have you been a senior executive reporting to a founder or a CEO and found yourself four times a year face to face with the firing squad of a venture-backed board? And if you have, if you’ve done that for a number of years, that’s as good an experience as you can get.
Joe: [00:16:20] I really think the way you’ve widened the net is terrific. It makes so much sense, this differentiation between having been on a board and being board ready. It’s a great way to look at it.
Raza: [00:16:31] I want to back to our original question of how startup boards are different, how they’re constructed, and what are other dynamics that come into play. Would you add a few more things to that? For example, would you imagine that startup boards actually have a fairly regular rotation of board members because new investors come in and they need the board seats, and other such characteristic that are a little [00:17:00] unique to startup boards.
Matt: [00:17:01] Your first point is a good one. There’s a lot more sort of turnover and evolution of early stage boards. Some of it is that investors come and investors go and they tend to sort of come with board seats. Sometimes in early stage, venture-backed companies we’ll have multiple founders and one of them is the CEO and then that person is not the CEO anymore, so there can be some rotation there.
But the other thing, and this is something that I’ve done in my past and we certainly advise our clients at Bolster as well, is when you’re starting a company and adding your first independent or your first couple of independent board members, to think really carefully about the term that you give them. Unlike public companies where they actually sits for three years and there’s an election and a rotation, private companies are a lot less formal than that, but typically, the term of a board member is sort of noted by the vesting on their stock options, and most venture-backed companies have this kind of standard in their head for employees of doing a four-year option grant and sort of do that same reflexively for independent directors.
One of the things that we sort of advise is, if you’re in your first few [00:18:00] years in the business, if you’re a seed company or pre-revenue or Series A company and you’re hiring a board member, give them a one-year vest, give them a two-year vest. You can give them fewer options, so they end up with the same amount sort of per year of service, but you should do that for a couple of reasons. One is you want to make sure that that they’re a good fit for the board, and two is you want to make sure they’re what the organization needs now.
Again, in that sliding scale that we talked about earlier on between product market fit strategy and critical introductions and it’s not so much governance, what you need at the beginning of a startup can be very different than what you need two years in.
For example, when we just started Bolster, we decided to have a five-person board kind of right out of the gate, with myself. two representatives of two of our investors, and we had two independent seats to play with, and we had a very experienced team building Bolster in terms of our knowledge of how to build a software company, a SaaS company, how to run and scale the business.
The business of Bolster is a talent marketplace, and actually, our team had never before done a marketplace business [00:19:00] and had never done a business that was in the talent space, so we said, “All right, we have two independent slots to fill. Let’s find someone who’s a marketplace expert and let’s find someone who’s in the talent business in one way or another, and they don’t have to be CEOs. They don’t have to have prior board experience. They just need to be experts in those two things that no one else around the table is an expert in.”
We filled one of our independent board seats last year with a woman named Cristina Miller who has a deep, deep background in online marketplaces. She’s now the COO of Goldbelly, and before that, she was one of the senior executives at 1stDibs, and before that she was at Gilt Groupe, so she knows marketplaces. She knows the questions to ask about marketplaces, so she knows the metrics to look at. She knows, even though those were different kinds of marketplaces, sort of how to pattern match for us in that space.
We’re still in the search right now for our second independent director, someone who’s coming out of the talent space. We’re interviewing some amazing people and I expect we’ll have that person appointed shortly, but that’s sort of the type of thing we’re doing, and we’re giving these people two-year terms because I don’t [00:20:00] know what we’re going to need in two years.
Raza: [00:20:01] I’ll lastly add just one other thing. You briefly alluded to the compensation. I would also say for startup boards for a pretty long time, there’s just no convention of like cash compensation for board member. It usually just comes in the form of stock or options or restricted grants and so on, but no real cash compensation.
Matt: [00:20:22] Yeah, that’s right. I’m not sure I can even think of anyone that gets cash compensation for serving on a venture-backed board. The one exception. I think I’ve heard of once of someone who was really doing some consulting in the business, as well as being a director and sort of blended together, but that’s really not a standard practice. Standard practice is in equity grant. It’s typically either a non-qualified stock option or restricted stock or restricted stock unit, and there’s some sort of terms around the margin that you might negotiate or it might vary from company to company, but within a pretty narrow band. Early exercise or acceleration [00:21:00] provisions or post termination exercise period are all things that are kind of up for grabs, but there’s not a lot of variables there.
In terms of the amount of equity that’s given, this is actually something Bolster is doing an industry survey on right now, which we’re not quite done with yet, so I can’t give you specifics, but as we’ve surveyed hundreds of companies across different sort of stages of growth and financing, the sort of clear trend is that the earlier the company, the more basis points you’re likely to get as an independent director but the lower the sort of gross and net value is of that grant. It’s sort of what you would expect, you’re an early stage company. It’s like being an employee at an early stage company. You’re going to get more shares with a completely uncertain outcome to them at a low 409A value to them, and as the company gets closer and closer and closer to being sold or it’s going public, there’s going to be a smaller grant with a more certain higher value.
Joe: [00:21:48] Some of the things you’ve talked about, about board composition, I just think, are so right on. One of the things you’ve said earlier was when CEOs, your clients essentially, are [00:22:00] interviewing board members, they’ll want to interview them several times or many times, and I think one thing that I run into when I do this for private companies, is sometimes there’s a view of, “Let’s get this done. Let’s find the board members and get them on. When they finally have made a decision to build a board, then let’s get this done fast.” And what I say is, “get it done right, don’t get it done fast.” When the CEOs are doing the interviews, how many times do they talk to board members and how many board members per seat, if you know that?
Matt: [00:22:35] Yeah. I mean, look, it will certainly vary case by case, company by company, even within the same company, but I would say the sort of the minimum is that the CEO would talk to several candidates once to sort of screen them, then sort of pick one or two favorites. The one or two favorites I would expect the CEO would really do a deep dive interview with ideally in person, even in today’s landscape.
The director that we [00:23:00] appointed last year, Cristina, she and I got together in person on her back porch last fall. We sat 10 feet away from each other, but for three hours, and had a very in-depth conversation, and then typically, again, with your one or maybe two finalists, I think best practices, they should be interviewed by every single other board member. Fundamentally, a board is a team, and you’re talking about adding someone to the team, so the rest of the team should be comfortable with the person.
The final thing, that I always do and I recommend to our clients as a best practice, is when you get down to your final one, and it’s hard to do it too but not impossible, but certainly with your sort of preferred candidate, have them do an audition. What I mean by that is, have them come to a board meeting, not as an observer, but as a participant, so you haven’t put them on the board yet, but you want to see how they do in a board meeting.
It’s a little extra work, right? You have to not just get them the materials like you do all your other directors, but you have to commit an hour or two with them before the meeting to really make sure they understand some of the details, the jargon and the [00:24:00] acronyms, the quirks of your income statement or balance sheet, the issues that you care about. Make sure they’re really prepared to be a participant in the board meeting, and you have to be willing to do that, but I’ve found, at least twice running my prior company ,that I had finalists who I was convinced were just the perfect person to join our board, who actually bombed out of the audition, and they both did it in the same way.
I think there are a lot of ways you could bond that audition,, and again, the board is a team and has its own culture; someone could come in and be a bull in a China shop, for example, but actually I had the opposite problem with both of these directors, which is, they knew it was an audition, they were fully prepared. I told them I wanted to make sure that their voice was heard, their point of view was heard in the meeting, and they came in and they didn’t say for hours.
Joe: [00:24:42] Mm, really?
Matt: [00:24:43] Even if I called on them to give their point of view about something, they would respond, but they would respond in sort of this shorter sentences as possible, and I just knew that that wasn’t what I wanted out of a board member. I wanted someone who wasn’t afraid to speak his or her mind, and that particular board had [00:25:00] some kind of larger than life personalities on it, and whoever was going to join the board had to be able to be heard in that room.
Joe: [00:25:07] That sounds like a great idea, and it sounds like it’s worked for you. One thing that Raza and I have observed over the last couple of seasons is that one of the most difficult things that boards do or CEOs do is off-board people.
Now, this isn’t exactly that, and that’s why I liked your idea of bringing someone on for one or two years, that way you really have time and you have an opportunity to really turn the board over if you need to, but isn’t it a little awkward to invite someone to a meeting and then tell them, “Well, you didn’t pass the interview, but thanks.”
Matt: [00:25:41] It’s horrible.
Joe: [00:25:42] Yeah.
Matt: [00:25:42] Yeah. I mean, it’s horrible. It’s the same or worse as you have two finalists for a role on your executive team and you’re going to tell someone now after they’d been through the whole process. It’s not materially different than that. Other than that, in a lot of cases, you’re talking to people to join your board who are more senior than you and more experienced than you, [00:26:00] and that’s not fun, but that’s part of the game.
Joe: [00:26:02] When it happens with your clients, do you do the telling or does the CEO do the telling?
Matt: [00:26:08] I would do it if the CEO made me. But what I say to them, we actually wrote an e-book for our clients about how to build your board that has a specific section about this. I think interviewing, if you’re a venture-backed CEO, you’re running a startup, I think one of your best calling cards in life is, “Hi, would you be interested in being on my board,” and it gives you access to people and time with people that you wouldn’t otherwise get, and not in a disingenuous way at all, but you will end up face to face, or whatever the digital equivalent is, with industry leaders and with people who’ve had incredible success, incredible success in lots of different walks of life that even if all you do is a one hour screening discussion and it doesn’t go anywhere, you’ve learned something, you’ve added someone to your network.
What I encourage our CEOs to do when they go through a board search process [00:27:00] is everyone who they interview should hear from them personally. If all they did is a 30-minute screen or a 45-minute screen, maybe you can do an email, but it should be a personal email. If you’ve gone to the end with somebody, if you have two or three finalists and you’ve done the deep dive multi-hour interview, you’ve had a meal with them, they have auditioned for you and come to the board meeting and you’re going to ding them after that, that better be the most gracious ding of your life, and you should think of it as, “Hey, how do I keep this person as an advocate for my business out there in the world, even if I’m not going to put them on the board? You don’t have to go crazy with it, but for me, if I get to that point with somebody, they’re getting a handwritten note from me and they’re probably getting a really nice bottle of wine, and that’s not everybody’s preferred gift. There are lots of ways you can do that, but it should be the kind of thing that when the person gets, they say, “Wow, that is really a stand-up thing to do. That company is a class act. I want to maintain this relationship, even though it didn’t work for me to end up on the board.”
Joe: [00:27:57] Yeah. I think if you can leave that kind of [00:28:00] situation with the person that does not join your board, thinking you’re a class act, that is a big win. I think that’s a great way to look at it.
Matt: [00:28:08] And that your company is one that the world should pay attention to.
Joe: [00:28:12] Absolutely. When you’re helping or when you’re coaching the CEOs about what they might need on their board, now, if it’s only one, maybe you don’t do this, but do you create a grid of the skills that you want? Do you put one of those groups? Because I know that a lot of boards do this, I do it. Do you do it in the startup field as well?
Matt: [00:28:31] Yeah, that’s exactly how we do it, and we always encourage CEOs to sort of think about the construction of their board, pick your metaphor like it’s a jigsaw puzzle and you’re looking for just the right fit, or in the world of sports analogies, sometimes you’re best served if your team isa basketball team and everyone can run down the court together and pass and shoot, but sometimes you want your team to be a baseball team where everyone is playing the same sport, but a pitcher is really different from the catcher, which is really different from a shortstop.
I would say more often than not with startup [00:29:00] boards, they start as basketball teams and then turn into baseball teams. At the super early stage, it’s just everyone doing everything to help the company thrive and survive, but when the company gets a little bit bigger, it’s helpful for them to have people that are a little bit more position players, even if they’re all professional athletes in the same sport.
The typical grid experience, greater requirements grid that our clients will go through will have really four main things that we’re looking for, although the fifth would be sort of demographic representation, and that may actually be the first, in many cases, but sort of the four other things that we look at, our functional experience, so do you want someone who’s been a CEO? Do you want someone who comes from a go-to market function like sales or marketing or business development? Do you want a CFO, because you’re trying to staff an audit committee? Do you want a product or technology person? So, that’s functional.
The second is going to be industry, so do you want someone that can open doors for you in a particular industry? Do you want someone who’s been a buyer in a particular industry, et cetera, who knows the competitive landscape?
The third, after [00:30:00] functional and industry, would be customer type. Do you want someone whose career has been aimed at products and services for large enterprises? For consumers? For small businesses? Or any variant in between?
Then finally, how do you think about stage type? And this may be one that’s a little more unique to startups, but do you want to put someone on your board who is really just like a whiz at the early days of a startup? Do you want someone who has scaled a business to a hundred million dollars or more? Do you want someone who’s led multiple stage transitions over time?
It’s sort of those four things; ,functional industry, customer type, stage type, along with demographics tend to be the grid that you fill out. Whether you’re looking for one board member or two or three, and we were doing one search right now for two board members for a company and one search for three board members for a company, and those are more just, “Hey, across all three of these people. I want this experience, that experience, this industry, that industry, but it doesn’t all have to come in one person.”
Joe: [00:30:54] Right, right. I think that is a great approach to board composition. How often [00:31:00] do you advise your clients, your CEOs, to look at this grid? I mean, is it every year? Is it every couple of years?
Matt: [00:31:07] Well, we’ve been in business for eleven months. It’s typically the needs assessment for a board search. I suspect once we have long-term relationships with clients and we’re sort of second lap around the track or third lap around the track with them, that it is something we encourage them to revisit, reevaluate periodically.
Joe: [00:31:23] Yeah, I asked that because I look at it, and we’ve talked to a couple of guests that do this on boards. It’s almost like a strategic plan for your board, and like strategic plans, I think some of the most effective boards look at it every year. It may be a short look, but you actually touch base to say, “Okay.” As you said, the board that was fabulous last year may not be the board you need for three years from now and you have to be thinking about that all the time. If you’re doing the right job here for your company.
Matt: [00:31:54] That’s right. I mean, I think with venture-backed companies, one of the things that happens is that it ends up being a forcing [00:32:00] function for that, so you don’t have to like set a calendar reminder for every January 1st is financing, right? Because every time you do a financing, there’s going to be a conversation about who’s on the board, who’s putting money in, are people ready to roll off? That tends to be the flashpoint for sort of thinking about the overall composition of that team, but certainly a good practice to think about it periodically.
Now, one of the things we haven’t talked about is how to evaluate a board, and there’s a whole process that we developed years ago with the legendary Bill Campbell in Silicon Valley around doing effectively a 360 on a board itself for startups that we are building into our platform at Bolster and it will be something we encourage our companies to do. Probably not every year, that’s a little bit heavy, but at least like every other year to just make sure that the board is holding itself accountable and maybe even has input from some people on the management team or potentially outside shareholders as well.
Joe: [00:32:50] Yeah, great practice.
Raza: [00:32:52] Matt. I want to now touch upon the books that you have written and are writing, and give us a little bit on the [00:33:00] Startup CEO, what that was about and the preview of your Startup CXO book coming up.
Matt: [00:33:06] Yeah, for sure. Startup CEO, and the subtitle is A Field Guide to Scaling Up Your Business, is designed as a field guide. You can read it front to back, but you certainly don’t have to. It’s got sixty to seventy very small chapters, and each one is a “how to” do something, but they’re organized into sections.
The first one is around strategy. There’s one around execution. There’s one around people. There’s one around boards. There’s one around self-management, and there’s one around exits. Each one of those sections probably has ten chapters, and it’s literally how to hire someone, how to fire someone, how to run a board meeting, how to do a pitch deck for a VC, how to work with an executive assistant, et cetera. It’s sixty to seventy of these very kind of short lessons.
I really designed the book, and again, wrote it after fifteen years of being a CEO. I designed it to be the thing that I wish someone had given me when I started my company and I didn’t really know how to be a CEO, so that’s [00:34:00] Startup CEO.
I’m very excited about Startup CXO, which is the sequel that is coming out this May of 2021, and the book has my name as an author, but it was a collaboration with eight or nine people who are senior executives that I worked with either at Return Path or Bolster or both. The way to think about Startup CXO is it’s a book of books. It is also structured as a field guide, how to do this, how to do that, but the different sections are written by different functional executives about their function.
Section one is how to be a startup CFO written by Jack Sinclair, who was my co-founder in both businesses, both Return Path and Bolster, and a career CFO., He’s got twenty-two chapters about how to do each different functional competency of being a chief financial officer, how to think about strategic finance, how to think about operational accountancy, how to run legal and facilities and IT when you’ve never done those things before, how to do M&A due diligence, et cetera, so a whole bunch of chapters about CFO.
Then it’s got a section about how to be a chief people [00:35:00] officer written by Cathy Hawley, my co-founder at Bolster and a career chief people officer, fifteen or twenty chapters about the different ins and outs of being a chief people officer, and it’s got a section for every C-suite member, so how to be a CMO, how to be a head of product, how to be a head of technology, how to be a head of sales, and the like, so I think it’s all in nine sections. It’s very long, but again, it’s not necessarily designed to be read after five, and it’s not like it’s the story Return Path or the story of Bolster. All these people have are twenty to thirty years into their career, and they’ve done this job at multiple companies in multiple spaces and are really kind of distilling the experience down, although there are certainly some common threads through the whole book, so that’s Startup CXO.
Raza: [00:35:41] Oh, that sounds like such a great resource for folks
Matt, also, please talk about your second edition of the Startup Boards book that’s coming out in the fall. What is that about?
Matt: [00:35:53] So startup boards was a book published in 2012 or 13 by two venture capitalists, Brad [00:36:00] Feld, from the Foundry group who, was on my board for 18 or 19 years at Return Path, and Mahindra Ramsinghani, and Brad and Mahindra wrote a very good book about startup boards that they have added me to as a third co-author to do the second edition coming out this fall.
We wrote two e-books at Bolster over the last few months, which we’re going to fold into the Startup Boards book. One is called How to Build Your Board, which is an e-book for CEOs, and the other is How to Succeed in Your First Board Role, which is an e-book for any senior executive that’s never been on a board and is interested on getting in one.
The second edition of Startup Boards this fall, it’ll be a refresh of the first edition. It will have some of this new content in it. It’s certainly going to talk more about diversity, which is a much hotter topic now than it was nine or ten years ago, and it’ll also have data from the study that I mentioned that Bolster is running about private company boards.
Joe: [00:36:55] It sounds fantastic.
Matt, it’s been great speaking with you. Thanks for joining us today
Matt: [00:36:59] joe, [00:37:00] Raza, it’s nice to be with you. Thanks for having me.
Joe: [00:37:01] And thank you all for listening to On Boards with our special guest, Matt Blumberg.
To our listeners, we have a request. If you enjoy our podcast, please take a moment to review and rate it on Apple iTunes. It really helps others find and discover this podcast.
Raza: [00:37:17] Also, the easiest way to access our podcast is just go directly to onboardspodcast.com and all the episodes are available, and you can even contact us with your comments and suggestions right there on the website.
Joe: [00:37:30] And to our listeners, please stay safe and take care of yourselves, your families and your communities as best you can. Raza, you take care.
Raza: [00:37:38] Yeah, you too, Joe.
Joe: [00:37:39] Thanks.