Dan Martell - How to Build a Strong Board of Directors (With These 5 Strategies)

00:00:00.080 If somebody asks to be paid to be on your board of directors,

00:00:02.600 I want you to run away, like.

00:00:16.560 Hey there, I'm Dan Martel,

00:00:17.600 serial entrepreneur, investor, and creator of SaaS Academy.

00:00:19.640 In this episode, I'm gonna share with you

00:00:21.200 how to assemble a board of directors

00:00:24.160 that is productive and supports you as the CEO.

00:00:27.960 And be sure to stay till the end,

00:00:29.200 We're gonna tell you how to get access

00:00:30.540 to my Dream 100 framework.

00:00:32.640 That is a process for building kind of a network

00:00:36.440 to support you in all your dreams.

00:00:38.040 It's what I do.

00:00:38.880 Every time I start a new company,

00:00:40.000 I build the same hundred people list.

00:00:42.920 It takes me a while to curate,

00:00:44.020 but if you do it literally,

00:00:45.740 your success will be guaranteed.

00:00:47.340 So be sure to stay at the end for that,

00:00:48.560 but let's get into it.

00:00:49.460 So boards, boards, boards.

00:00:50.920 Here's the crazy part is,

00:00:52.940 I do not like sitting on boards of directors.

00:00:56.820 I do it, I'm gonna share a little bit about that,

00:00:58.660 but I personally think,

00:00:59.900 and I heard this from Richard Branson,

00:01:01.360 I had the privilege of spending a week with him

00:01:03.460 in Switzerland and I asked him how many boards he sits on

00:01:07.100 because he has 400 companies and he said zero,

00:01:10.100 or very few, he may sit on a few nonprofit boards.

00:01:12.640 The reason why he then said to me is boards are boring.

00:01:15.320 You know, people kind of have all this process

00:01:17.560 they go through.

00:01:19.060 And I honestly, my experience has been the same.

00:01:21.800 I think if you know how to run them right,

00:01:23.700 which is not the topic of this conversation,

00:01:26.040 but they can be fun.

00:01:27.320 But here's the deal, I've been on boards.

00:01:29.100 I've sat on nonprofit boards

00:01:30.720 like an accelerator called Propel ICT

00:01:33.000 that was built by the community.

00:01:34.660 I did that for two or three years.

00:01:36.940 I've had my own boards

00:01:38.120 from my last two venture-backed companies.

00:01:39.680 So I had investors and co-founders sit on that board.

00:01:43.100 I currently sit on the board today

00:01:44.840 of an incredible company called Pila case or Pila.

00:01:48.040 Pila is one of the top 10 fastest growing companies in Canada.

00:01:51.520 They make an incredible phone case,

00:01:53.460 which I will absolutely pimp out.

00:01:55.020 Check out this, their new model.

00:01:56.160 That's flaxseed, it's a biopolymer.

00:01:58.820 So go check out pila.earth

00:02:00.620 if you wanna go check out their product lines.

00:02:02.820 But I've helped many of my coaching clients

00:02:05.600 create the perfect board.

00:02:08.000 Cause if not, you will absolutely have politics show up.

00:02:12.460 You will have people that add no value

00:02:14.480 and you will want to feel like every time

00:02:17.280 you're gonna get anxiety attack

00:02:18.640 trying to deliver to the board meetings

00:02:21.200 if you don't set them up right.

00:02:22.360 So I'm gonna walk you through exactly how to think

00:02:24.760 through them in these five strategies.

00:02:27.340 Number one, fight for the biz.

00:02:29.100 So rule number one for me,

00:02:30.480 if you're gonna add people to your board of directors,

00:02:33.540 they need to be there to represent the best interests

00:02:36.260 of the business.

00:02:37.120 They need to be there to support the shareholders

00:02:39.720 and the corporation.

00:02:40.880 Now, I know that you would love for them to be your friend

00:02:44.100 and to say yes to everything you do.

00:02:46.100 But the truth is, is if you ask somebody,

00:02:48.460 cause they're financially responsible for their advice,

00:02:51.760 like essentially there's, you know,

00:02:53.240 they're responsible, there's a fiduciary responsibility

00:02:57.740 to the corporation as a whole and the shareholders

00:03:01.000 that trust them to help guide the CEO.

00:03:02.900 I absolutely love actually the concept of a board

00:03:06.020 where if somebody is the CEO, you need some oversight

00:03:09.300 and you need separate people so there isn't one bad actor.

00:03:12.240 I mean, if you're the founder today

00:03:13.820 and you're putting together your own board of directors,

00:03:16.040 I think that's, and you're not doing it because you have to,

00:03:19.040 it's a very mature move to do

00:03:21.880 because it shows to the rest of the world,

00:03:23.480 it's like, hey, I wanna hold myself to a higher standard.

00:03:26.220 I'm willing to have people around me

00:03:28.060 that are gonna challenge and provide guidance

00:03:30.180 and fight for the best outcome

00:03:31.880 for our customers and everybody else.

00:03:33.120 And sometimes there's gonna be blind spots

00:03:35.240 that I don't see these opportunities

00:03:38.620 and having people be able to bring those to my attention

00:03:41.020 is a very mature thing and amazing.

00:03:42.880 But just understand the board of directors,

00:03:44.760 number one, they're fighting for the biz,

00:03:47.500 not necessarily for you as the CEO.

00:03:49.880 Number two, keep it small.

00:03:51.660 So rule of thumb for most boards

00:03:53.900 is you wanna have an odd number.

00:03:55.200 The reason why is you need a tiebreaker.

00:03:56.820 There's nothing worse than having some kind of motion,

00:03:59.720 some decision that's just being delayed

00:04:01.440 because you don't have an odd number of votes

00:04:04.000 so that you can kind of keep business moving forward.

00:04:07.520 At the end of the day, momentum is how we win in this game.

00:04:10.360 I think the smaller, the better.

00:04:12.580 Like when I look at my boards that I've created myself,

00:04:15.180 three to five people, three in the early days,

00:04:17.560 if you've raised kind of a series A funding,

00:04:20.700 maybe see it, I think it could be a little early,

00:04:23.260 but your series A, you might have an investor or two

00:04:26.120 and a couple of co-founders, or maybe just you,

00:04:28.000 and it's three.

00:04:29.160 I mean, I would only allow one, personally,

00:04:31.180 one investor, you, and then pull in an independent,

00:04:33.960 but three is a great number,

00:04:36.260 because then really you're just like kind of reviewing,

00:04:38.760 you're running the business.

00:04:40.120 Most board of directors, just so you know,

00:04:41.740 they don't know enough context

00:04:44.200 to be able to help you run the company, nor should you.

00:04:46.400 I actually had a friend of mine, his first board meeting,

00:04:48.660 He raised over $10 million for his company, Series A.

00:04:51.480 First board meeting, he jumps in there.

00:04:53.180 He lists a bunch of stuff in the PowerPoints.

00:04:54.760 These are the things that I want your advice on.

00:04:56.600 They go through the board meeting.

00:04:57.940 Two hours later, they wrap up.

00:04:59.720 They're finishing up.

00:05:00.820 One of the board members pulls him aside and says,

00:05:03.080 hey, just so you know,

00:05:04.960 if you don't come into the board meeting with decisions

00:05:07.680 and you just want our feedback on your decisions,

00:05:10.020 we're gonna find somebody else can run this company.

00:05:12.480 And he was blown away.

00:05:14.100 He was like, I thought I was doing the right thing.

00:05:16.840 I was getting optionality.

00:05:18.400 Here's some things I wanted their feedback.

00:05:19.940 But the truth is, people want you to run the company.

00:05:23.220 So if you have three to five board members,

00:05:25.840 come prepared, come ready to go.

00:05:27.540 And they're just there to give you context, insights,

00:05:30.700 help you see things a different way.

00:05:32.040 But three to five is the perfect amount. 0.76

00:05:34.700 If you have a lot more,

00:05:36.040 then there's some weird dynamics or different dynamics

00:05:37.960 that I'm just not aware of

00:05:38.860 that might be true for your circumstance

00:05:41.080 if it's a nonprofit board or a family business.

00:05:44.560 But man, I seen some photos of some board of director

00:05:47.760 meetings with like 16 people. To me, I just feel like you're not going to be able to actually do

00:05:52.780 something meaningful and thoughtful. Try to keep it as small as you can. Number three, value adders.

00:05:58.340 So there's this natural tendency to think of like, oh, I'm going to have my lawyer be on my

00:06:03.460 board of directors because then I'll get free legal advice. Probably the worst thing you could

00:06:07.300 possibly do because they're not going to give you advice and having them not add value. Like if you

00:06:13.820 you can just pay somebody to be your lawyer.

00:06:16.640 Like that's what I do.

00:06:17.480 I have a ton of lawyers.

00:06:18.540 I just pay them to solve problems, to set up stuff,

00:06:21.840 but I do not need them in, you know,

00:06:24.320 like lawyers are risk adverse, right?

00:06:25.860 Accountants are the exact same way.

00:06:27.320 But most people by default, they will have,

00:06:30.120 let's say they're investors or other people.

00:06:32.600 I like asking myself who somebody has been

00:06:35.380 to where I wanna go and how do I get them involved

00:06:37.780 on my board, right?

00:06:38.820 And I think, you know, that's a really powerful way

00:06:41.580 to look at it and you wanna make sure

00:06:43.140 you don't just have it a bunch of investors and you as,

00:06:46.220 especially if you're a solo founder and you've raised

00:06:49.660 a lot of money, you don't have a lot of control.

00:06:51.040 You wanna make sure that you structure the board

00:06:53.740 so that you have a little bit of influence.

00:06:55.600 Yes, they're there to fight for the business,

00:06:57.480 the corporation, the shareholders,

00:06:59.500 but don't put yourself into a bad position

00:07:02.180 through decisions or negotiations you can have upfront.

00:07:04.740 So yes, investors are gonna be there.

00:07:06.900 That's usually the case, but try to keep it small.

00:07:09.100 And then also bring in your co-founder and other people

00:07:12.540 that you trust to make it work.

00:07:14.160 Number four, balance the board.

00:07:16.200 So the balancing of the board for me

00:07:18.160 is having an independent director on the board,

00:07:22.180 ideally the tiebreaker.

00:07:23.880 So on one of the boards I'm involved in,

00:07:26.000 there's two investors, two co-founders

00:07:28.200 that I'm the independent.

00:07:29.480 And my job there is not to just side with the founding team

00:07:34.080 as a blanket kind of yes man person.

00:07:37.160 And I told them that, don't ask me to be on your board

00:07:39.500 if you're expecting me to just say yes, everything you do.

00:07:41.940 But I also know that like sometimes investors

00:07:45.380 have a short-term horizon

00:07:47.160 and entrepreneurs have a long-term horizon.

00:07:49.440 And I'm trying to represent the best outcome

00:07:53.380 for the shareholders over a long period of time,

00:07:56.020 being willing, again, that's my style,

00:07:58.360 is being willing to be misunderstood by the market,

00:08:00.760 making investments into the future,

00:08:02.500 not into the quarter that are gonna be successful.

00:08:04.720 So find an independent directors

00:08:06.860 that ideally shares your values,

00:08:08.560 your approach to business that you don't feel

00:08:10.600 would be easily swayed by your investors,

00:08:12.500 but obviously there'll be influence

00:08:14.140 so that you have some balance on your board of directors.

00:08:17.220 Number five, equity, not cash.

00:08:19.240 So the question always comes out,

00:08:20.420 well, how much do I pay these people?

00:08:23.400 You know, it sounds expensive.

00:08:24.560 Well, here's the reality.

00:08:25.660 If you have investors, you don't pay them anything.

00:08:28.000 Yeah, you'll offer up to cover their expenses,

00:08:30.460 but you're not gonna actually pay them.

00:08:32.260 If somebody asks to be paid to be on your board of directors,

00:08:34.840 I want you to run away.

00:08:35.800 Like those people, the professional board member,

00:08:39.180 that's not what I'm talking about.

00:08:40.540 For most companies I coach, SaaS founders,

00:08:43.260 technical founders, people that are building

00:08:45.100 high growth companies, investors are gonna sit

00:08:46.980 on the board, they don't require compensation,

00:08:48.860 but you can cover their expenses reasonably.

00:08:51.680 So that's on that side.

00:08:53.160 If you have independent directors,

00:08:54.920 you wanna use equity.

00:08:56.600 And the way it usually works to think about it,

00:08:58.540 and I got this from Brad Feld,

00:09:00.480 incredible person in the venture world,

00:09:03.260 but Brad talks about like the equivalent

00:09:05.700 of what a VP level would get compensated in equity.

00:09:08.920 So you could think about it kind of like 0.2%

00:09:11.780 to maybe 1% and typically half of that, right?

00:09:14.920 That'll be depending on the experience and the stature

00:09:19.300 and the pedigree that person might bring

00:09:22.460 an independent board member or et cetera.

00:09:25.360 You wanna use equity, you never wanna,

00:09:27.260 I mean, as a company cash is king,

00:09:29.100 you wanna reinvest it in growth

00:09:30.780 and you wanna leverage equity to create more value as a pool.

00:09:34.120 So that's the way I think about compensating board members.

00:09:36.800 equity is always preferred over cash.

00:09:40.040 Quick recap, number one, fight for the biz.

00:09:43.180 That's the focus of the board of directors.

00:09:45.580 Number two, keep it small.

00:09:47.340 Number three, value adders only.

00:09:50.040 Number four, balance the board.

00:09:51.900 And number five, equity, not cash.

00:09:54.880 As I mentioned at the beginning of this episode,

00:09:56.300 I wanna share with you an exclusive resource

00:09:57.980 called the Dream 100.

00:09:59.780 It is the hundred contacts, the list of people

00:10:02.340 I research and I put together.

00:10:04.560 the 10 mentors, the 30 advisors, the 60 peers

00:10:08.300 that are on this journey to support me and my business.

00:10:12.040 You can click the link below to get access to that training.

00:10:15.200 It is how I've been able to start new companies,

00:10:17.360 new projects and get to traction as quickly as possible

00:10:20.680 using the Dream 100 framework.

00:10:22.440 So be sure to click the link to check that out.

00:10:24.220 If you like this video, be sure to subscribe to my channel.

00:10:26.900 Be sure to smash the like button and leave me a comment

00:10:29.700 or share with somebody that you care about

00:10:31.240 that you think it could serve.

00:10:32.660 As for usual, I wanna challenge you

00:10:34.360 to live a bigger life and a bigger business,

00:10:36.320 and I'll see you next Monday.

Dan Martell - August 23, 2021

How to Build a Strong Board of Directors (With These 5 Strategies)

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