April 3, 2019 -- The CEO is the boss; he doesn’t answer to anyone, right? Not true.
The Board of Directors (BOD or ‘Board’) is usually even more powerful than the CEO because the purpose of any company’s Board is to oversee management and help ensure the company's prosperity. The Board holds the CEO accountable and oversees the job he’s doing, thus serving the best interests of shareholders, customers and employees.
Depending on the culture of the company, the history of the Board itself and their established way of conducting business, the individuals on the Board might play a very active role or a rather passive role. No two Boards are the same. Their varying levels of involvement, however, do not change the Board’s ultimate responsibility to guide the company toward success. Effort is made to form a Board of highly experienced professionals helping the company succeed, navigating around obstacles and away from icebergs to ensure smooth sailing and long-term profitability.
That’s so much easier said than done. Almost 90% of Silicon Valley’s technology companies fail in the first five to seven years. Does that mean that the Boards of those companies have failed them? It might. Let’s take a look at why small companies don’t succeed. Then we’ll take a look at how Boards are formed and I’ll show you how a new approach to Board recruitment might be helpful.
Why Young Companies Fail
We’ve all heard the statistics that the vast majority – between 8 and 9 out of 10 young companies fail in the early years. But why? According to recent articles in Forbes and on CBInsights.com, here are the top ten reasons:
THE TOP 10 REASONS STARTUPS FAIL
Based on an Analysis of 101 Startup Post-Mortems
These top ten reveal that most startups fail for reasons that are largely marketing-related. Having worked with about 50 different startups and small companies in Silicon Valley, I can attest to the fact that most Boards don’t even realize they have a marketing problem(!) As a result, they are not armed with the perspective or the expertise needed to address and correct the issue.
By far, the primary reason that small companies fail is “No market need”: they are building a business around something for which there is no demand. If there’s no need for the product or service they’re making, it’s doomed from the start. That’s not as straightforward as it might initially sound.
To be sure, most VCs do some due diligence that includes market validation, but it tends to be cursory, not as thorough as they should be. A surprising 42% of young companies learn the hard way that there is not a significant market for the product they’ve created, and close their doors. The cost in venture capital, time, energy, and missed market and career opportunities is staggering.
The Value Marketing Brings to the Board
My very first consulting client in 2001 wanted to empower customers with web services management software so they could build their own web services infrastructures, and use the power of web services to deliver faster application interoperability and integration. Sounds like a great idea. The VCs who chose to fund that company had validated the existence of a market for web services. The problem? Customers did not want to build their own web services infrastructure and did not place significant value on the incremental speed improvements gained from doing so. The investment and learning curve associated with buying the infrastructure was too great compared to the marginal benefits gained in application interoperability and integration. The company tried to force their model on customers with little success until finally, in 2006, the company was acquired by WebMethods -- a full five years later. That same year, Amazon Web Services (AWS) went to market with its offering aimed at delivering the benefits of web services without the huge investment and learning curve.
If that seems like a highly nuanced difference, it’s not. It’s the difference between offering something that people want to buy and use, compared to something that’s simply too much work. Whereas the company that could have been first in this market was sold for $38M, AWS spent years studying the market and developing its offering, and today is a $25Billion revenue company.
Good marketing is so much more than just social media and events. Good marketing strategy, positioning, product launch timing, and a truly customer-centric approach can ensure that your company is on track to offer an identified group of target customers a product or service that will be useful to them at a price they want to pay, along with the features and functionality they need.
How the Board Selects the Individuals to Serve
Most companies follow a very simple process when it comes to selecting their BOD: they look for people who have served on similar Boards. If they are willing to consider first-time-Board candidates, they look for veteran executives who have operated billion-dollar divisions of large corporations. Boards still overwhelmingly seek very senior executives who have been responsible for a significant P&L, who know how to read a balance sheet and are qualified to serve on one or more of its committees.
There are three required committees on every Board: audit, compensation, and governance:
● The audit committee oversees the integrity and compliance of the firm’s financial reporting.
● The compensation committee focuses on human resource policies and procedures, most notably the compensation of top executives.
● The governance committee recommends new candidates for the Board and other top executive positions and sets general governance procedures.
Board directors with those backgrounds serve in these predetermined roles. Committee meetings (not the board meetings) are where most board activity takes place. If the foremost responsibility of the Board is to oversee the CEO and the company, then it would follow that the Board is overseeing the company’s overall strategic direction. But the typical committee structure does not address the leading reasons why young tech companies fail in the early years. In fact, if the Board work is divided into only audit, compensation, and governance committees, when will they address strategic marketing? Exactly. They don’t.
Most companies don’t include marketing expertise on their Boards. They aren’t seeking marketing guidance and don’t even realize that their company is struggling because of marketing-related issues.
And here’s where the traditional structure of the Boards of Silicon Valley companies, both public and private, should take a different approach. When it comes to staffing the Boards of Directors for critically important direction, add marketing to audit, compensation, and governance. If not a full committee, it could be just one person with expertise in technology marketing who could make a monumentally significant impact on the future growth trajectory of the company. Marketing analysis and expertise is a critically-needed viewpoint for Silicon Valley companies taking disruptive technologies to market and hoping to win significant market share.
In spite of Silicon Valley being the innovation center of the world, innovation has not yet come to the Board recruitment process. The traditional approach to Board member selection is not serving our companies well, especially in the fast-paced, volatile environment of technology startups. It’s time for Silicon Valley companies to rethink their approach to Board recruitment, and having marketing expertise on the Board is the best way to ensure that the company has a viable market focus and, ultimately, improved chances of success.
About the Author: Theresa Marcroft is a CMO and B2B marketing expert who has built brands and increased revenues to grow market share for pre-IPO startups, as well as small- and medium-sized public companies. Her consulting for almost 20 years had led to over a dozen clients’ successful exits: three IPOs (BLZE, ACRU, SSTI), five acquisitions, and four client companies who are still privately held and doing well. She specializes in marketing network security and enterprise software, services and SaaS solutions. Working with Silicon Valley companies for three decades, she has built a consulting business as an “interim CMO” for young technology companies, and has observed many of them meet these business growth challenges -- or not.
She has also mentored some of Silicon Valley’s rising marketing stars. As a B2B marketing coach, Theresa’s strategic executive experience and presence has helped groups to achieve more together , guided teams to ‘go to market,’ successfully pivoted business models, and re-branded and re-launched products to become more successful and boost market share.
If you need an experienced marketing veteran on your Board team, contact me to discuss.
Call 408.656.1876 or email TMarcroft@Market-Savvy.com