Tech Founder Thoughts: Part 2
New tech startup founders I meet are often obsessively concerned with a seat on their board of directors. Often the nature of the startup is such that it will need significant outside capital.
Founders who get kicked off their own boards usually do so for failing to understand that the minute they do take outside capital, the board ceases to be the steward of the founder’s vision and becomes the steward of shareholders’ investment.
The board’s fiduciary responsibility may, likely will, someday run counter to the inventor/founder’s dream for his or her tech.
In my experience, the founder board split is often exacerbated because most inventor/founders do not do enough work on the customer value proposition and product/market fit early on. As a result, they overestimate when profits will arrive. After that happens a few times, hard decisions need to get made because money doesn’t grow on trees.
Something the founder wants to do will be too expensive or impractical and the board will have to fix it or risk tanking the company. A big row ensues, someone resigns (or threatens it.) This might go on a few times over a few years. Eventually, the board gets tired of it and the founder finds himself off the board.
In general, these kinds of conflicts arise because the founder’s tie to the company is an emotional one. A good board member maintains a rational viewpoint and is willing to change course based on market realities. A good board member bears in mind her first responsibility is to the shareholders.
Many inventor/founders with ideas good enough to attract a team and investment are not going to quit inventing the day the company opens its doors.
The founder has a vision, perhaps of an ecosystem or platform, powered by her tech. This first product is just the beginning. But quite often, customers won’t pay money for much of what the founder envisions. When this happens, the company must make practical choices about R&D spending, what products to keep/what to axe, etc.
The board will have to require certain actions from management when the board deems that doing otherwise will harm shareholder value.
A founder on the board is inherently conflicted in this situation. They will often feel that “the board doesn’t get it.” In some really bad situations, a founder is so arrogant they are offended anyone could question their vision. The Theranos story comes to mind.
The board has no choice but to question your vision when all the money is gone. And here is where many founders fail to get it. It is not OK to lose money for a long time just because Amazon did it. Yes, you get some runway, few ventures can bootstrap with profits out of the gate. And, some ventures, medtech, biotech, and pharma come to mind, will certainly have to deficit spend for a long time.
Regardless of industry, a founder should work to avoid needing to defend a money-losing vision to shareholders losing patience. That means doing a ton of upfront work. Talking to many customers and other stakeholders and creating a clear-eyed picture of where and how the first product will be valuable and competitive. Founders always think they did enough of this and they pretty much never do.
Next, the founder needs to understand that until the company gets traction and has either cash flow from operations or a credible argument (and source) for funding of further losses, it needs to run lean and stay focused.
Lastly, the founder needs to (and this one can make all the difference) summon the self-discipline to park their ego and listen to the viewpoints of others.
If you do these things, then there is a much better chance that revenues and then profits will come. When profits come, it usually gets much easier for everyone — including founder and board — to get along (although not always.)