Board Director Best Practices for Young CEO Companies
In the early stages of 2016, one of the most discussed topics amongst local silicon valley entrepreneurs is the current downward reset going on to valuations for so-called Unicorns and the resulting trickle-down effect impacting valuations of all start-up businesses across the U.S. Having lived through several up-and-down market cycles of venture capital backed company valuations (which most times directly mirror public market sentiment), I can say with experience that the current valuation corrections will run its natural course and over time will return to yet another upward trend. I think the more compelling topic that is pushing its way to the surface of investor, board of director, CEO and even media discussions is the issue of Young CEOs. Unlike the ebb and flow of start-up valuations, however, the challenge of having and working with Young CEOs will likely become a permanent part of the company building landscape we’ll all be dealing with as board members for many years to come.
The current poster child for what could go wrong with a Young CEO at the helm of a start-up includes the former superstar company Zenefits – who, in three short years, grew from $1M in recurring revenue in 2013 to $20M in 2014 to a projected $100M for this past year ending 2015. The business experienced hyper growth on all levels – acquiring 10,000+ customers, its staff ranks having swelled to 450 employees and having raised $581 million dollars! Today, after its much-publicized missteps by their (now former) Young CEO, the Company is holding on to simply survive. There are many debates going on as to the real underlying problems that caused the company to get so very close to hitting the proverbial “third-rail” of start-up death which include: was it the result of hyper growth? Or, maybe it was the lack of an independent or sizable enough board? Or, more to the point, was it more likely the fact that neither the CEO nor the Board had in-place ample best practices for managing and working with a Young CEO?
Why should we all be thinking more adroitly about our board of directors working with these Young CEOs? Is this really a permanent issue that will not be going away anytime soon?
According to the Global Entrepreneurship Report (GER), as of 2014, a minimum of 13% of U.S. adults are starting and running new businesses- a staggering number. While the majority of new companies fail, the ones that do survive, and succeed, likely have fairly “young” CEOs –either age-wise, lacking of substantial experience, or both.
Many years ago a good friend of mine said to me that being a CEO is akin to participating in an extreme sport such as mountaineering. I think this is particularly true for our Young CEOs. The journey for this type of CEO in today’s world involves an ever-changing landscape where your footing is uncertain and constantly changing and is fraught with emotionally demanding situations that determine the difference between success and failure. At times, a mountaineer may be so physically and/or emotionally exhausted that in any given moment it’s tempting to take riskier paths to get to the top even faster. Most times these less certain paths lead to an almost certain death. However, in order to mitigate these moments of weakness a strong, experienced mountaineer journeying to an important expedition always utilizes best practices from previous journeys, well respected elders and mentors that have gone before them and particularly surround themselves with the necessary physical and emotional support systems in-place during their expedition to not only survive but to succeed in their journey.
It seems long overdue for board of directors to be proactively working amongst ourselves to ensure companies founded and/or led by Young CEOs are utilizing best practices to support their leader during a potentially treacherous climb that many of these Young CEOs don’t have previous CEO experience to draw from.
More Regular (informal) In-Depth Meetings
The Company doesn’t have to be experiencing hypergrowth for situations to be changing rapidly for these Young CEOs. As a Young CEO, everything is new – hiring, firing, business model pivots, board of director expectations, compensation issues, etc. These folks are drinking out of the proverbial firehouse and being forced to make decisions rapidly – many times with little to no prior judgment on critical issues. As such, more regular (even informal) meetings should be put in-place at least monthly and more likely every other week to check-in telephonically so as to support and understand key issues these Young CEOs are facing. This isn’t a time to be high-level. This is a time to intimately understand what your CEO is thinking, experiencing and feeling about the business – truly, the Good, the Bad and the Ugly as they say.
Encourage or Require Participation in CEO Networks
Being a CEO is often a very lonely existence. Highly encourage (and possibly even require) your Young CEO to participate in a CEO network. Over the past 10 – 15 years, CEO networks across the U.S. have exploded in growth (and popularity) as it gives CEOs opportunities to benefit from experiences of other CEOs around similar or same types of issues your CEO is currently facing. This will help our Young CEOs feel normal that they too are feeling and experiencing the same emotions and challenges. It will also allow them opportunities to practice, gain confidence and try-out their thoughts and ideas on others in-advance of board, employee or customer conversations.
Utilize 1:1 CEO Coach
A CEO network is a great way to support our Young CEOs with guidance and advice from current CEOs having faced similar challenges and provides trusted peers for guidance/advice. However, these networks typically meet either monthly or quarterly. Most times the challenges of running a company today in a globally connected 24/7 business environment will not wait for a CEO to obtain advice for an upcoming regularly scheduled CEO network monthly or quarterly meeting. A CEO Coach will meet more regularly (weekly, available by phone daily, etc.) with a Young CEO and will be able to support them with key operating and strategic challenges regularly faced with on a day-to-day and week-to-week basis. Many of the strongest Young CEOs utilize participation with both a CEO network and their own CEO Coach.
Bigger is Better
More independence. Companies with Young CEOs need more help and more time from their board of directors than experienced executives. Adding one or two more directors will further help your Young CEO to learn from more people and will lessen the time burden for each director of boards that are simply too small to handle the necessary time to talk to, teach and support these Young CEOs. Also, it’s critically important to have an ample number of directors that are considered independent so that the board and the CEO can benefit from current or former operating executives who will likely have substantial experience in hearing, understanding and appreciate potential upcoming risks that insiders, small investors and others may not be aware of or appreciate – thus, lessening the potential hazard and likelihood of systemic and even possibly catastrophic situations arising similar to that being faced currently by companies such as Zenefits.
Is this a complete list of best practices for Young CEO company boards? No. Hopefully it’s the beginning of a dialogue and effort for us to all proactively provide the necessary support and infrastructure necessary for these Young CEOs who are participating in an extreme sport and need the right and thorough team and infrastructure around them to compete, prosper and even survive.
About the author:: James Bergeron is a CEO Coach and founder and Managing Partner at 108 Partners, LLC. 108 Partners is committed to providing CEO Coaching to CEOs that need and want the necessary support, guidance, tools and approach that would benefit any “Young” CEO. In 2004, Mr. Bergeron bought Maverick Enterprises, Inc (www.maverickcaps.com) from wine industry veteran Charlie Sawyer and California Glass Company (subsequent purchased by Saxco, Inc., www.saxco.com) alongside The Riverside Company (www.riversidecompany.com) , his private equity sponsor and Babson Capital (www.babsoncapital.com), providers of debt and equity . Mr. Bergeron became CEO of Maverick Enterprises, Inc. in conjunction with this purchase. Subseqent to running Maverick Enterprises, Mr. Bergeron was Chairman and CEO of First To File, Inc. (acquired by CPA Global, a portfolio company of Cinven) and is current Executive Chairman of SportsPay Partners, LLC.