Putting together the right Board of Directors for your company is an important but frequently postponed task when you are trying to scale up your company.
But if you have received an investment from a venture capital fund chances are you will need to put together a decent Board sooner rather than later if for no other reason than because it is a requirement in the investor agreement.
While there is no one definition of a good Board or a high quality Board member, in general what you need are a set of people who have high levels of integrity and commitment and who collectively bring to the table enough of the right kind of experience in business, finance, corporate governance, marketing and other relevant areas.
Boards can add real value. Many early or mid stage Indian entrepreneurs have a black and white view of a Board – either it should be totally pliable and simply sign off on what the promoter wants or else it will become a pain in the butt putting up obstacles along the way. Therefore they are cagey about Board expansion, restricting it only to family members and very close associates. The right Board however adds value in several ways – it brings together the collective wisdom and networks of a number of very good people leading to better governance of the company and hopefully better strategic choices being made. So seek out and appoint high quality Directors who are genuinely independent.
Appoint Board members carefully. It can be awkward to ask someone to step off your Board. Therefore a wrong appointment can create serious difficulties given the influence a Director wields in the company. Also no really good Director would wish to serve on the Board of a company which has one or two poor quality people. So recruit a Board member carefully – even if it takes more time than you had anticipated. Get to know him or her really well and do a thorough reference check before taking the decision. And set the bar high.
Don’t appoint a Director for name value alone. This is a trap that entrepreneurs in India often fall into. They go after big names assuming that this will add credibility to the company. While that is true, well known people usually have many demands on their time. Also they often have a halo around them which makes their reputation larger than life – their real ability to contribute may be a little less than your expectations. You need Directors who will be able to give you time and mindspace when you need them.
Do it at the right time – not too early and not too late. Putting together a good Board is something you will need to do at some point of time as you grow your company. It is important to do it at the right time. If you do it too early you will end up spending too much of your time managing the Board and too little building the business. If you leave it till too late you may have ended up building the wrong kind of company.
Invest time in working with the Board. Managing a Board and working with it does take time and it consumes your bandwidth. Any Board member worth his salt expects to be given an opportunity to contribute and that’s good for the company. What it means is that you will have to spend time engaging with Board members both during and outside Board meetings.
Choose the right mix of skills and experience. You need to get people with the right blend of diverse skills and experiences onto your board. At Naukri we got onto the Board people who collectively had experience in marketing, sales, engineering, product, venture investing and finance. At least two have been entrepreneurs in the past and have built companies. Several are independent directors in companies that are bigger and perhaps better than ours. Two have over thirty years experience of different kinds.
The chemistry must be right. It is important that you get along with your Board members and that you feel comfortable enough to level with them especially when there is bad news to give. At the same time they must not be your buddies or your cronies.
Remember a good Board is your ally and not someone whose only job is to police you. Often your Board of Directors can save you from yourself.
Thursday, 14 January 2010
Sunday, 1 November 2009
Selecting the right business partner
Many small businesses have more than one promoter. Frequently it is team of two or three partners – sometimes more.
As a start up entrepreneur managing your relationship with your business partner is one of the most important and yet the area you are most likely to ignore. You frequently take your partner(s) for granted.
Remember a partnership split is an extremely traumatic experience and can be a serious setback for the business and personally for the entrepreneur.
Why do splits happen and what can be done to prevent them?
Before starting out you need to examine why you need a partner in the first place. Most young entrepreneurs do a start up with a friend or a colleague or a classmate. It is usually not a rational selection of a partner – but simply because you feel a sense of bonding and camaraderie, the chemistry seems right, you have discussed the idea together hence you feel a certain joint ownership of the idea. You want to do it together with a friend. Young entrepreneurs may not acknowledge this but - most often you have an emotional and a social need for a comrade in arms since you are taking a risk and feel somewhat apprehensive of going it alone. And the most natural thing for friends and classmates to do in such a situation is to divide the stock equally among the partners without questioning who is bringing what kind of value to the table.
Of course there are other more tangible benefits of doing your start up with a partner. You get width and depth in the management team – without paying a salary. You are able to pool your meagre capital and share your ideas. You have someone to talk to – and you are able to keep each other’s spirits up in difficult times. You may even be bringing complementary skills to the table. You share the work and you share the risk. And of course you share the rewards and recognition.
So partnerships are natural – people do start ups with others because they feel a need to. It becomes important therefore to ensure that you are selecting the right partner in order to minimise the chances of a future split. Most entrepreneurs do business with people whom they know, trust and instinctively like.
Before deciding to do a start up with a partner you need to ask yourselves some hard questions – Do you have similar values? Do you share the same vision, passion and aspirations for the business? Do you have the same commitment to the business? Will you both quit your jobs and be full time on the business and stick it out without a salary for a couple of years? Do you have a similar work ethic – will both of you be willing to work 24 by 7 if required? How much capital will each of you invest into the business? Are both of you equally competent? Do you bring complementary skills and experience to the business? What will your roles be? Who will be the CEO? Will investors trust each of the partners equally? Do you have similar views on how wealth would be shared with employees and how customers and vendors should be treated? Will you agree on the kind of risks that are reasonable to take? Going forward when the business makes a profit would you agree on the utilisation of the profit? Most importantly are both of you good listeners and accommodative of each other’s views, needs and aspirations?
This may seem like over complicating a simple decision when you are starting out however most partnership splits have their roots in inappropriate selection of a partner in the first place. And you don’t want to learn this the hard way many years later?
Having said that - selection of the right partner does not alone guarantee that the partnership will endure in the long run. Right selection is a necessary but not a sufficient condition.
You need to continuously work on your relationship with your partner. Continuously communicate, keep each other fully informed, spend time together, give each other candid feedback, listen a lot and give each other enough space. It’s like marriage
As a start up entrepreneur managing your relationship with your business partner is one of the most important and yet the area you are most likely to ignore. You frequently take your partner(s) for granted.
Remember a partnership split is an extremely traumatic experience and can be a serious setback for the business and personally for the entrepreneur.
Why do splits happen and what can be done to prevent them?
Before starting out you need to examine why you need a partner in the first place. Most young entrepreneurs do a start up with a friend or a colleague or a classmate. It is usually not a rational selection of a partner – but simply because you feel a sense of bonding and camaraderie, the chemistry seems right, you have discussed the idea together hence you feel a certain joint ownership of the idea. You want to do it together with a friend. Young entrepreneurs may not acknowledge this but - most often you have an emotional and a social need for a comrade in arms since you are taking a risk and feel somewhat apprehensive of going it alone. And the most natural thing for friends and classmates to do in such a situation is to divide the stock equally among the partners without questioning who is bringing what kind of value to the table.
Of course there are other more tangible benefits of doing your start up with a partner. You get width and depth in the management team – without paying a salary. You are able to pool your meagre capital and share your ideas. You have someone to talk to – and you are able to keep each other’s spirits up in difficult times. You may even be bringing complementary skills to the table. You share the work and you share the risk. And of course you share the rewards and recognition.
So partnerships are natural – people do start ups with others because they feel a need to. It becomes important therefore to ensure that you are selecting the right partner in order to minimise the chances of a future split. Most entrepreneurs do business with people whom they know, trust and instinctively like.
Before deciding to do a start up with a partner you need to ask yourselves some hard questions – Do you have similar values? Do you share the same vision, passion and aspirations for the business? Do you have the same commitment to the business? Will you both quit your jobs and be full time on the business and stick it out without a salary for a couple of years? Do you have a similar work ethic – will both of you be willing to work 24 by 7 if required? How much capital will each of you invest into the business? Are both of you equally competent? Do you bring complementary skills and experience to the business? What will your roles be? Who will be the CEO? Will investors trust each of the partners equally? Do you have similar views on how wealth would be shared with employees and how customers and vendors should be treated? Will you agree on the kind of risks that are reasonable to take? Going forward when the business makes a profit would you agree on the utilisation of the profit? Most importantly are both of you good listeners and accommodative of each other’s views, needs and aspirations?
This may seem like over complicating a simple decision when you are starting out however most partnership splits have their roots in inappropriate selection of a partner in the first place. And you don’t want to learn this the hard way many years later?
Having said that - selection of the right partner does not alone guarantee that the partnership will endure in the long run. Right selection is a necessary but not a sufficient condition.
You need to continuously work on your relationship with your partner. Continuously communicate, keep each other fully informed, spend time together, give each other candid feedback, listen a lot and give each other enough space. It’s like marriage
Sunday, 4 October 2009
Entrepreneurship thrives in a recession
The Delhi chapter of The Indus Entrepreneurs recently concluded its flagship event – TieCon, its annual summit on entrepreneurship.
The conference was a sellout. Surprisingly, in a recession year, paid registrations were up by over sixty percent. Hundreds of people paid eight thousand rupees each to attend a two day schmooze fest on entrepreneurship. Clearly interest in entrepreneurship is thriving - never mind the state of the economy.
It is commonly said that some of the best companies in the world have been started or have grown during times of recession. This has been repeated so often that it has now almost become an adage. Examples that are often quoted are those of Google and Federal Express.
Logically any sane, rational person would prefer the security of a salaried job, during a downturn, to the uncertain world of entrepreneurship. After all during a downturn – competition has excess capacity so there is fierce price competition, customers buy less so there is soft demand, funding is very hard to come by and then if you do get it you get poor valuations, cash collection from clients becomes harder and so on. So it should be a bad idea to become an entrepreneur during a recession. The smart thing to do would be to hang on to your cushy, safe job.
The real world however is counter intuitive.
Why is it that great success stories come out of hard times. And why is it that interest in entrepreneurship is up despite a recession.
The reason is that while a recession causes pain it also creates opportunities for small, entrepreneurial companies to prosper and grow.
Take our own example – in the last recession Naukri grew sixty five times in sales during the last recession. It should not have happened – companies don’t hire during a recession. We should have been killed. So how did Naukri grow.
The point is that a recession causes companies to change the way they do things – it is a time of churn. In our case from 2000 to 2004 there was doom and gloom everywhere and companies were downsizing. However many companies that were firing were also doing some small hiring. IT services companies for instance were retooling their skill sets depending on the projects that they had. A company that was letting go of 2000 people because there was no project in hand for those skills was also hiring 200 because they had landed a project for which they needed those people. And because the project was already in hand they needed to hire really quickly – companies could not afford to maintain a bench. In the years prior to the meltdown there had been no firing – only hiring. It had been an era of large benches and excess staff. Now the downsizings made the news headlines but the smaller hiring that was taking place did not.
Added to this was the fact that during a recession companies are very careful about all costs including cost of hiring.
It was this opportunity that Naukri exploited – we went to customers and said “reduce your time and cost of hiring”. This pitch really worked with prospective clients in a recession.
Of course we supplemented this with some really smart new product development and we rolled out a network of sales offices and that really helped us grow too.
But if the opportunity had not existed we could not have grown.
Meanwhile our competitors downsized, they could not raise their next round of funding, some exited India. There was a lot of pain.
We were able consolidate our leadership and really became a dominant player in the last meltdown.
While the recession crippled some in our industry it actually helped us.
So the message is that if you read the tea leaves correctly and are able to spot the right opportunity during a recession and then execute well you can actually win big precisely because there is a recession. If however you are unable to do this you can get hit by a truck.
During recessions industries see a shakeout, a consolidation. Recessions show no tolerance for mediocrity and redundancy. Companies go back to their core and stick to the basics. All businesses that are “nice to do” and not “need to do” are dumped.
It is a time of cleaning up.
Recessions separate the winners from the losers.
The conference was a sellout. Surprisingly, in a recession year, paid registrations were up by over sixty percent. Hundreds of people paid eight thousand rupees each to attend a two day schmooze fest on entrepreneurship. Clearly interest in entrepreneurship is thriving - never mind the state of the economy.
It is commonly said that some of the best companies in the world have been started or have grown during times of recession. This has been repeated so often that it has now almost become an adage. Examples that are often quoted are those of Google and Federal Express.
Logically any sane, rational person would prefer the security of a salaried job, during a downturn, to the uncertain world of entrepreneurship. After all during a downturn – competition has excess capacity so there is fierce price competition, customers buy less so there is soft demand, funding is very hard to come by and then if you do get it you get poor valuations, cash collection from clients becomes harder and so on. So it should be a bad idea to become an entrepreneur during a recession. The smart thing to do would be to hang on to your cushy, safe job.
The real world however is counter intuitive.
Why is it that great success stories come out of hard times. And why is it that interest in entrepreneurship is up despite a recession.
The reason is that while a recession causes pain it also creates opportunities for small, entrepreneurial companies to prosper and grow.
Take our own example – in the last recession Naukri grew sixty five times in sales during the last recession. It should not have happened – companies don’t hire during a recession. We should have been killed. So how did Naukri grow.
The point is that a recession causes companies to change the way they do things – it is a time of churn. In our case from 2000 to 2004 there was doom and gloom everywhere and companies were downsizing. However many companies that were firing were also doing some small hiring. IT services companies for instance were retooling their skill sets depending on the projects that they had. A company that was letting go of 2000 people because there was no project in hand for those skills was also hiring 200 because they had landed a project for which they needed those people. And because the project was already in hand they needed to hire really quickly – companies could not afford to maintain a bench. In the years prior to the meltdown there had been no firing – only hiring. It had been an era of large benches and excess staff. Now the downsizings made the news headlines but the smaller hiring that was taking place did not.
Added to this was the fact that during a recession companies are very careful about all costs including cost of hiring.
It was this opportunity that Naukri exploited – we went to customers and said “reduce your time and cost of hiring”. This pitch really worked with prospective clients in a recession.
Of course we supplemented this with some really smart new product development and we rolled out a network of sales offices and that really helped us grow too.
But if the opportunity had not existed we could not have grown.
Meanwhile our competitors downsized, they could not raise their next round of funding, some exited India. There was a lot of pain.
We were able consolidate our leadership and really became a dominant player in the last meltdown.
While the recession crippled some in our industry it actually helped us.
So the message is that if you read the tea leaves correctly and are able to spot the right opportunity during a recession and then execute well you can actually win big precisely because there is a recession. If however you are unable to do this you can get hit by a truck.
During recessions industries see a shakeout, a consolidation. Recessions show no tolerance for mediocrity and redundancy. Companies go back to their core and stick to the basics. All businesses that are “nice to do” and not “need to do” are dumped.
It is a time of cleaning up.
Recessions separate the winners from the losers.
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