- If somebody asked to be paid to be
on your board of directors,
I want you to run away, like--
(upbeat music)
Hey, there.
I'm Dan Martell, CEO, Investor
and Creator of SaaS Academy.
In this episode,
I'm gonna share with you
how to assemble a board of directors
that is productive and supports you as the CEO
and be sure to stay till the end.
We're gonna tell you how to get access
to my Dream 100 framework.
That is a process for building kind of
a network to support you in all your dreams.
It's what I do.
Every time I start a new company
I build the same 100 people list.
It takes me a while to curate,
but if you do it, literally,
your success will be guaranteed.
So be sure to stay at the end for that,
but let's get into it.
So boards, boards, boards.
Here's the crazy part is,
I do not like sitting on boards of directors.
I do it.
I'm gonna share a little bit about that.
But I personally think
and I heard this from Richard Branson.
I had the privilege of spending
a week with him in Switzerland.
And I asked him how many boards he sits on,
cause he has 400 companies
and he said, "Zero or very few."
He may sit on a few non-profit boards.
The reason why he then said to me
is, "Boards are boring."
People kinda have all this process they go through.
And I honestly,
for my experience has been the same.
I think if you know how to run them right.
Which is not the topic of this conversation
but they can be fun.
But here's the deal, I've been on boards.
I've sat on non-profit boards
like an accelerator called Propel ICT
that was built by the community.
I did that for two or three years.
I've had my own boards
for my last two venture back companies.
So I had investors
and co-founders sit on that board.
I currently sit on the board today
of an incredible company called Pela Case or Pela.
Pela is one of the top 10
fastest growing companies in Canada.
They make an incredible phone case
which I will absolutely pimp out.
Check out this their new model.
That's flaxstic, it's a biopolymer.
So go check out pela.earth.
If you wanna go check out their product lines.
But I've helped many of my coaching clients
create the perfect board.
Cause if not,
you'll absolutely have politics show up.
You'll have people that add no value
and you'll wanna feel like every time
you're gonna get an anxiety attack
trying to deliver to the board meetings
if you don't set them up right.
So I'm gonna walk you through
exactly how to think through them
in this five strategies.
Number one, fight for the biz.
So rule number one for me,
if you're gonna add people to your board of directors,
they need to be there to represent
the best interest of the business.
They need to be there to support
the shareholders and the corporation.
Now I know that you would love for them
to be your friend
and to say yes to everything you do.
But the truth is this if you ask somebody,
cause they're financially
responsible for their advice.
Like essentially there's...
They're responsible for...
There's a fiduciary responsibility
to the corporation as a whole
than the shareholders that trust them
to help guide the CEO.
I absolutely love actually
the concept of a board
where if somebody is the CEO
you need some oversight and you need separate people.
So there isn't one bad actor.
I mean, if you're the founder today
and you're putting together your own board of directors.
I think that's an...
And you're not doing it because you have to,
it's a very mature move to do
because it shows to the rest of the world.
It's like, "Hey,
I wanna hold myself to higher standard.
I'm willing to have people
around me that are gonna challenge
and provide guidance
and fight for the best outcome
for our customers and everybody else."
And sometimes there's gonna be blind spots
that I don't see these opportunities.
And having people be able
to bring those to my attention
is a very mature thing and amazing.
But just understand the board of directors,
number one, they're fighting for the biz.
Not necessarily for you as the CEO.
Number two, keep it small.
So rule of thumb for most boards
is you wanna have an odd number.
The reason why is you need a tie-breaker.
There's nothing worse than having some kind of motion
some decision that's just being delayed
because you don't have an odd number of votes
so that you can
kinda keep business moving forward.
At the end of the day,
momentum is how we win in this game.
I think the smaller, the better.
Like when I look at my boards
that I've created myself,
three to five people three in the early days,
if you've raised kind of a Series A funding,
Maybe see it, I think it could be a little early,
but your Series A you might have
an investor or two and a couple of co-founders
or maybe just you and it's three.
I mean, I would only allow personally, one investor,
you and then pull in an independent.
But three is a great number cause then really
you're just like kind of reviewing
you're running the business.
Most board of directors just so you know,
they don't know enough context to be able
to help you run the company, nor should you.
I actually had a friend of mine,
his first board meeting,
he raised over $10 million
for his company Series A.
First board meeting, he jumps in there.
He lists a bunch of stuff in the PowerPoints.
These are the things that I want your advice on.
They go through the board meeting.
Two hours later, they wrap up,
they're finishing up.
One of the board members pulls them aside
and says, "Hey, just so you know,
if you don't come
into the board meeting with decisions
and you just want our feedback on your decisions
we're gonna find somebody else
who can run this company."
And he was blown away.
He was like,
"I thought I was doing the right thing.
I was getting optionality.
Here's some things I wanted their feedback."
But the truth is,
people want you to run the company.
So if you have three to five board members
come prepared, come ready to go.
And they're just there
to give you context, insights
help you see things a different way.
But three to five is the perfect amount.
If you have a lot more
then there's some weird dynamics
or different dynamics I'm just not aware of
that might be true for your circumstance.
If it's a nonprofit board or a family business.
But man, I seen some photos
of some board of director meetings
with like 16 people.
To me, I just feel like
you're not gonna be able to actually do
something meaningful and thoughtful.
Try to keep it small as you can.
Number three, value adders.
So there's this natural tendency
to think of like, "Oh I'm gonna have my lawyer
be on my board of directors
cause then I'll get free legal advice."
Probably the worst thing you could possibly do
because they're not gonna give you advice
and having them not add value.
Like if you need a lawyer on your board,
you can just pay somebody to be your lawyer.
Like, that's what I do.
I have a tonne of lawyers.
I just pay them
to solve problems, to set up stuff.
But I do not need them in...
Like lawyers are risk adverse.
Accounts are the exact same way.
But most people by default,
they will have let's say
their investors or other people.
I like asking myself,
"Who's somebody who's been to where I wanna go
and how do I get them involved on my board?"
And I think,
that's a really powerful way to look at it.
And you wanna make sure
you don't just have it, a bunch of investors
and you, especially if you're a solo founder
and you've raised a lot of money.
You don't have a lot of control.
You wanna make sure that you structure the board,
so that you have a little bit of influence.
Yes, they're there to fight for the business,
the corporation, the shareholders.
But don't put yourself
into a bad position through decisions
and negotiations you can have upfront.
So yes, investors are gonna be there.
That's usually the case, but try to keep it small.
And then also bring in your co-founder
and other people that you trust to make it work.
Number four, balance the board.
So the balancing of the board for me
is having an independent director on the board,
ideally the tiebreaker.
So on one of the boards I'm involved in,
there's two investors, two co-founders
then I'm the independent.
And my job there is not
to just side with the founding team
as a blanket kind of yes-man person.
And I told them that,
don't ask me to be on your board
if you're expecting me
to just say yes to everything you do.
But I also know that like
sometimes investors have a short-term horizon
and entrepreneurs have a long-term horizon.
And I'm trying to represent
the best outcome for the shareholders
over a long period of time being willing.
Again, that's my style
is being willing to be misunderstood by the market.
Making investments into the future
not into the quarter
that are gonna be successful.
So, find an independent directors
that ideally shares your values,
your approach to business
that you don't feel would be
easily swayed by your investors.
But obviously there'll be influenced.
So that you have some balance
on your board of directors.
Number five, equity not cash.
So the question always comes out, "Well,
how much do I pay these people?
You know, it sounds expensive.
Well, here's the reality.
If you have investors,
you don't pay them anything.
Yeah, you'll offer up to cover their expenses
but you're not gonna actually pay them.
If somebody asks to be paid
to be on your board of directors,
I want you to run away.
Like those people,
the professional board member.
That's not what I'm talking about.
For most companies I coach,
SaaS founders, technical founders
people that are building high growth companies.
Investors are gonna sit on the board,
they don't require compensation
but you can cover their expenses reasonably.
So that's on that side.
If you have independent directors ,
you wanna use equity.
And the way it usually works to think about it.
And I got this from Brad Feld,
incredible person in the venture world.
But Brad talks about like
the equivalent of what a VP level
would get compensated in equity.
So you can think about it kinda like 0.2%
to maybe 1% and typically half that.
That'll be depending on the experience
and the stature and the pedigree
that person might bring
an independent board member or et cetera.
You wanna use equity.
You never wanna...
I mean, as a company, cash is key.
You wanna reinvest it in growth
and you wanna leverage equity
to create more value as a pool.
So that's the way I think
about compensating board members.
Equity is always preferred over cash.
Quick recap.
Number one, fight for the biz.
That's the focus of the board of directors.
Number two, keep it small.
Number three, value adders only.
Number four, balance the board
and number five, equity not cash.
As I mentioned at the beginning of this episode
I wanna share with you
an exclusive resource called the Dream 100.
It is the 100 contexts.
The list of people,
I research and I put together.
The 10 mentors, the 30 advisors, the 60 peers
that are on this journey
to support me and my business.
You can click the link below
to get access to that training.
It is how I've been able
to start new companies, new projects
and get to traction as quickly as possible
using the Dream 100 framework.
So be sure to click the link to check that out.
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As per usual,
I wanna challenge you
to live a bigger life and a bigger business
and I'll see you next Monday.
(upbeat music)