How would you like a great advisory board?

Have you ever thought of creating an advisory board? As you can guess, that would be an informal group with no legal responsibilities, but one able to be called upon to act as business, industry and scientific advisors to you and the company.

Usually, you would want to create an advisory board to fill in the critical areas of need not evidenced in the board of directors or within the company itself.  University professors, industry gurus, lawyers familiar with patent law and former executives of competitor companies are typical recruits you might consider. Sometimes, celebrities will agree to sit on an advisory board as a gift to the CEO, providing a bit of glamour for the company at small expense.

How many advisors should you seek for a board?

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There is no limit to the number of individuals for such a board, but there is a practical limit to the amount of cash and / or stock to be allocated to these outside advisors.  The rule of thumb for an advisory board member is to expect a half to a full day each year on site, typically in a strategic planning meeting with numerous members of the staff, as well as some reasonable number of phone calls from senior members of management during the year.  Included in the “package” is the expectation that the advisor’s name will be freely used in the company’s marketing, a bio listed on the website, and occasional calls will come as references to the advisor from potential investors and others looking for deeper insight into the secret sauce of the company or state of the industry than can be provided by many on the inside.

How do you pay an advisory board?

For this, an advisory board member for a small to medium sized company should expect to receive options equal to ¼% of the fully diluted stock of the company, vesting over two years, and subsequent grants if there has been additional stock issued to dilute the advisor, bringing the advisor back to this percentage if an advisor is renewed after subsequent two-year intervals.  Alternatively, some companies pay an advisor a fee of $1,000 to $2500 per “on premises” meeting day and optionally much smaller stock grants, if any.

Additional commitments of time by an advisory board member should be compensated as would any consultant, at half and full day rates agreed upon in advance between the CEO and the advisor. There is no rule as to uniformity of pay, as some advisors may be willing to serve at no cost while others are industry consultants used to receiving fair payment for services rendered.

Are there any special documents needed for advisors?

Advisors fill blind spots in the corporate knowledge base and guide you in areas where you feel you have a personal weakness.  There is usually a formal agreement between the company and the advisor, carefully calling out the time expectation, the forms and amounts of payment, and the indemnifications from liability granted by the company to the advisor in return for confidentiality and non-disclosure of company trade secrets by the advisor.

A particularly strong advisor, especially if well known, may be named chairman of the advisory board, which is often just an honorary title, since the CEO is usually tasked with the planning of the full day meeting of advisors annually, and setting the agenda to match the needs of the corporate board and senior management.

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An experienced coach has seen your movie before.

Business coaches come in all sizes and shapes.  Entrepreneurs will have a relative willing to devote time, a school friend with business experience, professionals who charge for the service, investors with a reason to promote your success and more.

Photo courtesy IBM Business Coaching

But by far the best coaches are those that have lived through the process you’re going through and built successful enterprises in your same industry.  Especially if they have sold their companies and live comfortably upon the proceeds, these people are often the most willing to help and the most patient through the process.

One great source for coaches is among fellow members of a CEO roundtable organization, Young Presidents Organization or similar association where you are comfortable with the coach candidate and know something about his or her style.  Another is through industry associations or civic groups such as Rotary or Lions Club.   Some larger communities have organizations of corporate directors, composed of a combination of service providers and professional corporate directors. I’ve personally been involved with the ABL Organization for almost thirty years and share problems and solutions with a monthly roundtable of smart CEOs from companies of all sizes.

If you take smart money from a good angel or venture organization, the lead investor usually becomes your board member and has a vested interest in your success.  If you are lucky enough to create competition among investors for your company, you can select the investor or group with an individual who has experience in your niche and identifies with your vision.

[Email readers, continue here…]   How do you pay a coach?  If the coach is also a significantly large investor such as a VC fund, the board member-coach will offer a limited amount of time outside of board work at no extra cost, all for the good of the investment.  Professional advisors, consultants, are typically paid by the half day or full day, charging anywhere from $400 per half day at the low end up to $3,000 or more at the high end for a full day of work.  Some charge by the hour, making themself available much as an attorney, keeping track of hours spent on phone calls and emails with you. And some will willingly work for stock options, an amount to be negotiated based upon time spent and stage of corporate development.  Years ago, I co-wrote my first book, profiling just such a person, trading his time and experience in exchange for equity – and managing to become wealthy in the process by picking and aiding great young companies that grew large and

Original 1994 book

were ultimately sold at a tremendous profit.  We had no term for such work in those days, and created the phrase “resource capitalist” to describe the person and process.  He brought resources to the table from personal experience to a great contact base, and was able to help speed the time to market while introducing the company to great potential buyers at the right time in the process.  His average percentage of a company was 5% in return for spending a day a week as I recall.

Jokingly, I used to tell people that I worked for food, with so many free lunches being offered from all sides. But alas, there is no free lunch.  And over the years I have vastly curtailed the practice. However, there surely are experienced executives out there who’ll work for a meal. It is worth asking.

There must be many more creative ways to pay a coach, especially for early stage businesses.  The one warning: avoid those looking to become partners, asking for larger portions of equity than, say, 5% when they contribute no cash to the enterprise.  There may be times when such a person can truly be a founding partner in a young business and devote enough time and resources to warrant more, but this is taking on a partner in every sense of the word, and should be done carefully and only after spending time with a number of the person’s references and becoming comfortable with the person, ready for the long run.

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Avoid “The tyranny of the new office” syndrome.

One of the most obvious observations I make with growing company CEO’s is that planning for a new office is done with an optimistic view of the future, incorporating planned space that compromises only slightly the measured needs for the next three or more years as outlined in the financial forecast.

The result, signing a lease for space enough to handle the growth called for in the plan, is a predictable group behavior I’ve come to label “The tyranny of the new office.”  The company plans a move to a new facility with plenty of space that is probably built out but not planned for use until the company grows to the next stage of need.  Employees move into their new cubicles and offices, spread out far more than in the previous facility.  The excitement and noise of working in too-close proximity to cohorts suddenly becomes an unexpected near silence, as everyone notices that they do not have to raise their voices any more to be heard above the din of noise.

[Email readers, continue here…]  The exciting sounds of an office filled to capacity functioning in a growth environment are exhilarating to most that have experienced it.  The distractions are dealt with using earphones with smartphones, concentration and tolerance; but they are dealt with by all.  The change to a near silent environment is so startling that, many times, employees express a bit of resentment or even depression, masked by the common statement that “it is so much easier to get work done without the noise.”  It is the excitement of activity that generates more and better output for most, not the isolation of silence.

But back to “the tyranny of the new office.” Two predictable outcomes almost always follow a move into an office much larger than today’s needs. First, you’ll find subtle moves by employees into the unused, reserved space.  After all, it is there and unneeded for now.  Why not make use of the space until needed?  And second, management sees the open space and often finds it easier to justify acceleration of one or more new hires since the facility is available and infrastructure complete.  Unconsciously longing for a bit more of the excitement from the noise of the previous office, managers often make subtle unrecognized moves to fill the void with new hires earlier than plan.  That’s why the label, “tyranny” even if the word seems out of context.

If and when asked, I always recommend more frequent moves as opposed to longer term leases.  It seems from experience that both the company and the employees gain from such staggered moves.

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Sign short term leases early on. Move as you grow.

Avoid long-term commitments.

It is statistically true that at least half of the young companies funded by angel or venture investors will not survive three years from funding to demise, and more than that percentage will die with two years if not well financed.  The greatest burden of either a growing company or one needing to retract and reduce expenses is the office lease.  Although payroll is almost always the greatest cost, companies have flexibility as to how to handle both rapid growth and rapid decline in the personnel arena.

The most difficult thing to deal with in either rapid growth or retrenchment is the office lease.  A five-year lease may be cheaper per month than a three year lease, and may provide for more free rent and tenant improvements.  Those benefits pale in comparison to the high cost of retaining or buying out a longer term lease when growing or reducing in size – which is most of the time for early stage companies.

[Email readers, continue here…]  From personal experience with many companies in my portfolio and from many board experiences over the years, young companies are unpredictably unstable in their facilities requirements. Flexibility is worth a few percentage points of fixed cost when companies are in high growth mode or are at early stages of proof of market.

It is a hassle to move, requiring time and planning.  It is much worse to worry over paying for two leases each month and tying up two large deposits.  Or honoring a personal guarantee if the company cannot pay.

Then there is the dread of “The tyranny of the new office” to worry about. But that is a story for next week’s insight…

Posted in Growth!, Hedging against downturns | 1 Comment

Are you uncomfortable with home-based workers?

Do home-based employees work with the same dedication and productivity as those in office cubicles next to each other?

That depends upon the management as much as the employee.  I have a friend who is a

CEO of a recruiting firm who “virtualized” her company after a decade of maintaining a fixed office location.  She organizes morning conference calls, has each employee tweet the others in their department when starting work and ending the day, creates the feel of closeness with employee contests, and rewards her best sales people by assigning them the best leads, creating an environment where the best excel and those unable to cut it in a virtual environment fall out on their own accord for lack of revenue.

But most important, the unpredicted benefit of having very low infrastructure overhead may be the one most important element in saving the company during the strongest and longest downturn in recruiting industry memory because of the recent recession.  Much larger recruiting companies were in trouble, with high fixed costs for facilities that could not be shed quickly.  This CEO’s decision to try to retain an excellent, motivated staff in a virtual environment paid off and continues to pay off in every way.  The employees are more satisfied, actually work more hours in a day even if spread over a longer period, and uniformly claim a better lifestyle as a result of the move.

[Email readers, continue here…]   But as you see from the story above, it does take more creative management to make this work. It is a management skill that was not taught nor learned until recent times. A creative CEO will find ways to motivate and compensate for the lone nature of working alone, but using social networking tools to make office workers and home workers feel and behave as a unit.   After all, with this generation of texting, tweeting, IM-based workforce, you’ll find as much of this kind of communication from adjacent cubicles as from distant home offices.

Let’s pause for a word about dress code and formal accountability for the home office worker.  Employees working at home must dress for work, even if casual, and find a schedule for the start of each work day that is to be counted upon by fellow workers.  It won’t be long before home workers will routinely greet each other via video conference from the home desk.  Although possible today and used by some, it is not a requirement of most employers with home-based workers.  Someone who “comes to work each day” even if to the computer in a separate part of an apartment, is putting on the business hat in a much more formal way that one who drifts to a computer in the room beside a blaring TV, dressed in pajamas and arriving whenever convenient.

How about the employee unable to self-motivate in a home environment?  With the proper measurements of productivity, it will soon become quite obvious to both the employee and manager that such an opportunity is not right for that person.

Ask any CEO who has tried letting employees work from home, whether for a day a week or as a rule with occasional office visits.  You’ll find stories of emails time stamped well into the night, work performed at unusual hours and productivity increases.  You’ll also hear a bit of pride in the telling.  A CEO that encourages this once-risky venture and is rewarded with increased performance, is a person fulfilled and willing to tell anyone who’ll listen.

Posted in Depending upon others, Hedging against downturns | 2 Comments

Niche marketing works. Here’s how.

How many of us throw away marketing dollars because our paid efforts reach an audience that is much larger than the target or niche audience we need to reach?  Whether it be for publications, social marketing, or even those once-necessary postal mailers, we have tools now that were not available just a few years ago.

So, let’s up our marketing knowledge first with a few short answers to marketing questions…

What Is niche marketing?  Simply, it’s offering a specific product or service to a specific group of people.

Why Is niche marketing important?  This is easy. Here’s a question to respond to a question:  Would you want to throw away advertising or marketing dollars reaching people who won’t buy no matter what? Of course not. So, aiming a brand-new smartphone full of great features but increased complexity using AARP Magazine as your marketing resource just won’t get the job done.  Your niche market is younger, and perhaps smaller – especially if the feature set on the smartphone is so radically new that you would need to reach early adapters.

So, what other benefits are there to niche marketing?  Here are just a few to consider…

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  1. You’ll have less competition. If you can find a gap in the market and target a specific group of people that no other business is targeting, you’re onto a winner. Where else are consumers going to find your product, if no one else is offering it or if other companies offer it, but haven’t found the right niche audience?
  2. You’ll save money. Niche marketing means targeting the right audience at the right time for the right product.  That’s easy to say, but once was impossible to implement.
  3. You’re the expert. By narrowing your audience and product, you’ll be perceived as the expert and there may not be a competitor to challenge you with an adjacent ad or campaign.
  4. You’ll Think more deeply. If you’ve taken the steps to research your market and niche, the chances are that you’re taking your business seriously. You’ll wonder: ‘’Is this a worthy investment with probable payback in revenues? Will this campaign reach the audience I intend?”
  5. You’ll Have the Opportunity to expand your market with niche success. You won’t be wasting large amounts of time and money early on.  When you do connect with your niche, you will have resources to expand and alter your message for the next niche and then the next.

How to Find Your Niche?  So now I hope I’ve convinced you. But you have no idea what to do next. Think about your product or service.  Is there anything you could do to emphasize benefits that are unique to the niche? Competition is good, but – if there are hundreds of businesses out there that already have gotten to and penetrated this niche – you’re going to find it hard to get through the marketing noise.  So, narrow your message.

Emphasize features and benefits not addressed by others if possible.  Find a marketing or advertising outlet that is not saturated with other messages for nearly identical offerings.  Create social media posts with links to your site that drive search engine scores and increase search traffic.

Whatever product you’re trying to market, be sure to create at least an outline of a marketing plan and test your targets (niches) before jumping into the effort. You can do that by creating a small subset of the niche, and testing that segment before expanding to even the niche you’ve selected.

Keep your customer in mind. No need to race from unproven plan to large ad placement or social effort.  If targeting the small portion of your niche doesn’t yield expected results, revise the call to action, and try another subset. And most of all, never give up!

Here’s a quick nod to the folks at Colour Graphics for urging me to write this insight. – Dave


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Are you ready to take on an office lease?

Rent your first office with caution. 

Several years ago, I became involved with a Southeast Asian company looking to expand into the United States.  During the discussions with the CEO about hiring North American managers, he made it clear that he wanted us to find a first-class office facility from which to start the search process, and proceeded to name cities that attracted him.  Even after discouraging him from this backwards method of infrastructure-building, he kept bringing up the subject in subsequent months as new senior managers and sales people were hired, each starting with an orientation week at the Asian headquarters then returning to work from home.

With audio and video conferencing and all the tools for communication and collaboration available today, each of these four new employees felt empowered, connected and enthused to work from home for the first time.  The CEO was still talking about finding an office when the natural progression of growth made it obvious that two of the four needed to be replaced.  These two worked from homes in widely scattered cities.  Had the office been located to accommodate either one, the company would have had to find replacements in the same geographical area as the office.  Without that restriction, outstanding replacements could be located based upon skill and experience, not location.

[Email readers, continue here…]  Very early stage businesses, start-ups, actually benefit from the establishment of a virtual environment. The flexibility in hiring decisions, reduced fixed costs, forced highly specific communications and better definition of job responsibilities that most often result from need, almost always give a virtual startup the edge financially and flexibly.

So, can a startup exist for a reasonably long time as a virtual company?  A decade ago there was a stigma that prevented many CEO’s from thinking it possible.  Today, virtual offices are accepted at all levels of many organizations of all sizes.

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How to make a small problem into a big one.

Allowing small problems to escalate into big ones is simple.  Just ignore the signs for long enough and the job is done.  It takes far more energy to review regularly the key performance indicators you’ve established for each individual and yourself.  But a small excursion caught early and corrected saves massive corrective resources later.

Take for example the manufacturing company with a small quality problem in one component, resulting in a test failure rate above the norm.  You can just reject the components, especially if coming from an outside supplier, or you can get to the root of the problem by examining the cause and re-engineering the process or product quickly, saving you and perhaps your supplier time and cost.  Such a culture of quality engineering has an additional benefit in creating a higher bar for all to see, making the public statement that quality is a top priority.

[Email readers, continue here…]  The same careful management applies to virtually every person and process in the organization.  If there are ways to measure successful output or execution, find them and use them regularly.  If one person or department is not pulling its weight, others notice and if no action is taken, often others are discouraged because of the lack of management interest and control.  The variant of “one bad apple” holds true in corporate cultures that to a degree entrepreneurial managers and young CEOs rarely credit – until a late correction is made and a collective sigh of relief can be heard company-wide.

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Even a taste of ownership motivates employees.

How about employees all the way down the line and through the corporation? How do we align them to the goals and strategies of the enterprise?  Obviously for the appropriate individuals, a bonus program aligned to the department’s goals is appropriate. But how about awarding stock options for all employees?

I discovered the power of ownership early in my management career, establishing an employee stock ownership plan (ESOP), once popular as incentive compensation as well as a tax write-off for corporations and even a way to slowly transfer ownership of a company from the founders to the employees.  These plans are not as popular today because of their complexity and difficulty to manage, lost in favor of simple stock option plans.

Each month, at the monthly company lunch for all, I’d greet everyone with “Hello shareholders”, and proceed to show the assembled throng slides of high level financial statements, pointing out progress against plan.  That form of open book management surprises many, but if the employees are stakeholders with a taste of equity, why not underscore the value of that equity by treating them as cohorts?  Yes, sometimes the news is not good.  They should know this, and from you not from the rumor mill.

[Email readers, continue here…]  Your fear that the confidential information may get out to the industry competitors should be tempered by the fact that you are not giving out the secret sauce, just the results of the past period’s performance.  All public companies including your public competitors must do this in greater detail each quarter, and it rarely damages their ability to sell into the marketplace.  Would bad news drive your best employees out the door?  Perhaps. But it is my experience with many companies that empowered employees, treated with respect and shared knowledge, will go far beyond expectation in remaining loyal to their associates and their employer.

And think of the time saved around the virtual water cooler if there are far fewer rumors to pass among your employees.

Posted in Depending upon others, Surrounding yourself with talent | 4 Comments

Why cash is only one measure of employee happiness

In 1981, Herb Cohen wrote and published “You Can Negotiate Anything”, an excellent guide to great negotiating.  I’ve read and reread the book a number of times and find myself using the techniques often in many areas of my life.  One of his lessons remains clearly on my mind and is a variant of the old “You name the price and I’ll name the terms” challenge that works so well in negotiation.

Cohen sets up an example where a senior position job candidate is stuck on a salary twice as high as the CEO is willing to pay, leading to a standoff between the two.  Cohen goes on to point to twenty five non-cash items that the CEO could have used to narrow and eliminate the gap, many of them untaxed perks worth more than face value because of the employee’s tax savings.  They include an expense account, company car, profit sharing, 401k contributions, medical coverage for dependents, free life insurance, educational payments, extra vacation, relocation expenses, paid trips to industry association meetings, or a small override on revenue from new products developed under the candidate’s watch.

[Email readers, continue here…]  One of the items on Cohen’s list of twenty-five was stock options.  That of course jumps to the top of the list for young, fast growing technology companies.  Many skilled, experienced executives have jumped from mature companies to more risky positions in smaller, fast growing enterprises primarily for the options.  In a previous insight, we explored the common percentage of a company’s fully diluted stock that is often granted in the form of options for new employees.  (See insight here.)

Many an executive has made much more than any cash compensation from exercise of “in the money” options after taking the leap to a smaller, fast growing company, attracted by just this form of incentive compensation.  When used in combination with several of the twenty five additional non-cash forms suggested by Cohen, salary alone does not seem to be the barrier most people believe it to be.

Posted in Depending upon others, Surrounding yourself with talent | 1 Comment