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Don't grow it alone afbp final 2017.12.06

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Don't Grow It Alone—How Advisory Boards Drive Success

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Don't grow it alone afbp final 2017.12.06

  1. 1. Austin Family Business Program Don’t Grow It Alone – How Advisory Boards Drive Success December 7, 2017
  2. 2. Business Family
  3. 3. Range of Advisor Options Grow It Alone Independent Board
  4. 4. Range of Advisor Options Grow It Alone Independent Board Non-Profit Resources Trade Associations Sponsored Resources Paid Consultants Board Advisors Paid Board of Advisors CEO Peer Advisory Informal Friends
  5. 5. Control: What’s the Difference? Board Advisor Peer Advisors Informal Friends Statutory Board Board of Advisors True Board of Directors Meetings Attends Family Council Meeting, maybe board Monthly Meet occasionally over coffee or meal Meet 1x per year Meet 2x-4x per year Meet 4x per year Control Owner controls Owner attends Owner controls Owner likely controls Owner controls Owner likely controls Prep No additional prep Some prep No prep No additional prep Additional prep Additional prep Expertise Specific expertise Broad expertise General or specific expertise No expertise Specific or general expertise Specific or general expertise Duty Competence in area of expertise Duty of confidentiality, participation None None Duties of care and loyalty Duties of care, loyalty, good faith, oversight Cost Hourly fee Monthly fee Drink or Dinner No additional cost $1K-$25K per $50K+ per Committees None None None None Ad Hoc Audit, Compensation, Nominating/ Governance Task Facilitate culture/ value discussions Comment on culture/ values Comment on culture/ values May mention culture/ values Must understand culture/values Sets “Tone at the Top” for culture/ values Management Compensation Only if compensation specialist Not likely discussed May discuss Sets compensation May comment on compensation Sets compensation Topics Family function Any you want Any you want Finance/Strategy Any you want Finance/Strategy
  6. 6. 2015 Survey of 200 NW Companies • Average 46 years in business • 22%>60 years, 14%<20 years • 31% 21-50 FTEs, 38%>50 FTEs • 77% have estate plan • 53% have succession plan • 52% believe family member, 25% non, 23% undecided • 64% have Board of Directors • 50% 1-2 family members, 33% 3-4 family members • Most businesses have non family members on board • 27% have formal/legal board • 37% have Advisory Board • 33% have no board Older/Larger Companies More Likely to have
  7. 7. 2016-2017 Private Family Business Survey
  8. 8. Do You Know Where You’re Going To?
  9. 9. There Are 7 Forces to Align
  10. 10. Business Accelerants™ Inverted Pyramid Values/Culture MissionWhy does this business exist? >3 Years Vision What, Where, When is the business? 3 Strategies How will we operate? >3 GoalsWhat do we want to be? 3 ObjectivesWhen will we get there? >1 ActionsWho will do What When? 1
  11. 11. GreenLawn Corporation Example Strategies SALES—focus on clustered, high-end homes, apt complexes & business parks. Expand to Mexico OPERATING EXPENSES—negotiate multi-yr supply agreements, consolidate blogs., call center BinC RETURN ON ASSETS—efficient on-board equip, fuel-efficient trucks, lease vs. own building NEW ACCOUNTS—emotional ad campaign, separate sales teams for apt complex & biz park bundled service WINDOW CLEANING—focus on ext, large apt complexes, off truck design, purchase quality equip CUSTOMER CALLBACK—industry best customer satisfaction, exceptional amps on, best chemicals ORDER DELIVERY—implement CRM/ERP, routing software, off vehicle employee tracing EMPLOYEE SALES CAPABILITY—product training, Skills+ train the trainer, ride alongs tech/s1 RECORDABLE ACCIDENTS—SEA Change-Safety Everywhere & Always, health program, OSHA compliance Green, Clean & Healthy Homes & BusinessesMission By the end of 2018 grow GreenLawn into a $500 million North American service business providing lawn care, tree/shrub care, carpet cleaning, indoor pest control, and window cleaning to executive homeowners, apartment complexes, and commercial businesses. Be recognized nationally for the most professional and courteous employees. Vision Values/Culture Sustainable, Clean, Healthy, Safe Actions SALES—Focus areas decided Q1, Mexico plan approved Q2 (John) OPERATING EXPENSES—Call System implemented Q2, Consolidation decision Q3 (Tony) RETURN ON ASSETS—Lease/own plan approved Q1, Truck decision Q2 (Andy) NEW ACCOUNTS—Approve ad campaign Q1, approve bundled services pricing Q2 (John) WINDOW CLEANING—Sales/marketing plan append Q2, Truck design proposals Q1, Truck capital append Q2 CUSTOMER CALLBACK—Satisfaction program append Q2, review results quarterly (John) ORDER DELIVERY—Implement CRM/ERP Q1, vehicle/employee tracking Q2, routing Q4 (Ext IT) EMPLOYEE SALES CAPABILITY—Training cgms approved Q1, 30% completion each quarter (Mary) RECORDABLE ACCIDENTS—Launch SEA change Q2, OSHA inspection Q3, health cgms Q4 (Susan) Improve annual SALES from $228MM to $275MM/2016, $350MM/2017, $500MM/2018 Reduce 2016 OPERATING EXPENSES from 18% of sales to 14% of sales Increase RETURN ON ASSETS from 5% to 8% Add 450K NEW apt ACCOUNTS in 2016; 300K in 1st half, 150K in 2nd half Generate 100K initial product trials in 2016 for WINDOW CLEANING Reduce CUSTOMER CALLBACKS/reword from 5% to 2% of total job orders Improve DELIVERY OF ORDERS within 10 working days of first call from 92% to 95% Increase # of EMPLOYEES CAPABLE of SALES from 1K to 1.8K Decrease number of RECORDABLE ACCIDENTS from 5/district/year to less than 2/district/year Objectives Goals
  12. 12. Toppled
  13. 13. Business Accelerants™ Inverted Pyramid Actions Objectives Goals Strategies Vision Mission Values/ Culture Why does this business exist? >3 What, Where, When is the business? 3 How will we operate? >3 What do we want to be? 3 When will we get there? >1 Who will do What When? 1 Years
  14. 14. Exercise—Understand Values Individual, Family, Business http://www.threadsculture.com/threads-guide-to-creating-your-own-core-values-list-download.html
  15. 15. What Does the Board Do? What?
  16. 16. What’s the Board Do? What?
  17. 17. What?
  18. 18. Who Do You Need? Yes Men? NO GE Housecleaning Will Alter Board’s Makeup Company hasn’t decided which nine of 18 directors will lose their seats A housecleaning at General Electric Co.’s board will remove many long-term associates of former Chief Executive Jeff Immelt and aims to create a board that is more closely aligned with CEO John Flannery’s strategy to streamline the industrial giant. Outdoor guide versus outside director Think of it as outside guide Who?
  19. 19. Who Ya Gonna Call? • Look beyond current consultants and advisors Who?
  20. 20. Ulven Company Casting Call Who?
  21. 21. Fit—Values and More Who?
  22. 22. Where to Find the Right People • NACD • www.nacdonline.org • The EXECRANKS • www.execrank.com • Employing Network • www.employing.net • Trusted peers • Trusted advisors • Existing board • Former CEO in your industry • Executive search Where?
  23. 23. When Should You Start a Board • Owner/leader transition • Disruption (think medical directive) • Provides continuity • Big expense • Capital infusion needed • Liquidity event needed • Business model changing • Sooner rather than later When?
  24. 24. Highlights from NACD 2016 survey • 54% on board of company smaller than $250 million • 7-8 board members typical • Trends/Issues • significant industry change, global economic uncertainty, increased regulatory burden, competition for talent, business model disruptions, shifting workforce demographics, technology disruptions Why?
  25. 25. Best of Both Worlds • Family business • Public but family controlled/influenced • Public business • Better performance for the middle section • Long term perspective plus governance • Managed professionally • Looks better to future investors Why?
  26. 26. Benefits of a Board—More Money Why?
  27. 27. Boards & Family Work Together Effectively • Separate company/family NoW—Needs or Wants • Help CEO look beyond tactical • Accountability • Tennis coach, mother • Risk management • Objectivity and independence • Planning/advising CEO succession • Talent management • Business first, not family first • Safe Harbor for employees to lodge complaints • Advise on exit strategies • What am I missing? Better solutions result • DTNA “board meetings” Why?
  28. 28. How to Run a Board • Look out 3-6+ years • 1-3 year terms How? 161 hours
  29. 29. Director Compensation $200 Million Revenue Not profitable according to 10K filing 959 employees COB/CEO/President owns >90% of stock $15-$20 per share in 2017 How Much?
  30. 30. Forbes—How Much Should I Pay? How Much? https://www.forbes.com/sites/bernietenenbaum/2016/11/26/how-much-should-i-pay-the-directors-on-my-board/#e1f7050aa306
  31. 31. Director Compensation https://www.execrank.com/board-of-directors-articles/how-much-should-you-pay-an-advisor-for-your-company • Startup • 2-6% equity set aside, split among advisors • 1/2-1% per advisor • Small Private Company • Per meeting fee, annual retainer, equity • $1,000-$10,000 per year • Middle/Large Private Company • $12,000-$26,000 per year • Public Company • $50,000-$150,000+ per year How Much?
  32. 32. Should You Have a Board (of Advisors)?
  33. 33. Multiple Boards of Advisors/Directors http://achatespower.com/our-team/technical-advisory-board/
  34. 34. Take Aways and To Do • Boards are good • Advisors are easier • Get ducks in a row • Culture/Values • 7 Forces • • NoW • Single Sheets
  35. 35. Thanks, I wish you a Merry Christmas and faster profitable growth. More money from your business, and more time for your life. May you work more on your business and less in it.
  36. 36. One of the most important lessons I learned in business was that if all you're getting from your team is a single point of view -- usually your point of view -- you've got to worry. You can get your own point of view for free. Lee Iacocca, auto executive It takes a village—It takes a team Remember the story of The Emperor’s New Clothes— Find advisors you can trust Read the lyrics of two songs— You’ve Got a Friend by James Taylor With a Little Help sung by the Beatles, written by Billy Shears
  37. 37. Are you mentally equipped to depend upon others? Posted on September 7, 2017 by Dave Berkus . . . I found from experience – after investing in many other entrepreneurial businesses over the years – that this stage typically occurs first at about twenty employees or $3 million in net revenues (or gross profit) for most any kind of company.   In future weeks, we will dissect this $3 million-dollar phenomenon separately. https://berkonomics.com/?p=3113
  38. 38. Further Reading Governing the Family-Run Business http://hbswk.hbs.edu/item/governing-the-family-run-business Organizing the Family-Run Business Part Two: The intricacies of creating a board for the family-run business. http://hbswk.hbs.edu/item/organizing-the-family-run-business The Three Components of Family Governance http://hbswk.hbs.edu/item/the-three-components-of-family-governance What Is a Board’s Role in a Family Business? https://corpgov.law.harvard.edu/2014/07/30/what-is-a-boards-role-in-a-family-business/ WHY SHOULD YOU FORM A BOARD OF DIRECTORS? https://www.familybusinessmagazine.com/why-should-you-form-board-directors Don’t Run Alone https://odb.org/2017/09/02/dont-run-alone/ Everyone needs a coach - Bill Gates & Eric Schmidt https://www.youtube.com/watch?v=8R1pHd4niLI
  39. 39. Further Reading The five attributes of enduring family businesses https://www.mckinsey.com/business-functions/organization/our-insights/the-five-attributes-of- enduring-family-businesses Finding Great Directors For Your Board https://www.forbes.com/sites/bernietenenbaum/2017/02/13/finding-great-directors-for-your- board/#626d8dd43f87 Boards Drive Profit: The Diesco Story https://www.forbes.com/sites/bernietenenbaum/2017/03/14/boards-drive-profit-the-diesco- story/#8ceb6775e8ba Who Do I Want On My Board Of Directors https://www.forbes.com/sites/bernietenenbaum/2017/01/26/who-do-i-want-on-my-board-of- directors/#36efaf697d65 Building a Successful Family Business Board: A Guide for Leaders, Directors, and Families (2011). Jennifer Pendergast, John Ward, and Stephanie Brun de Pontet, Palgrave Macmillan
  40. 40. Further Reading Family Business Governance: Maximizing Family and Business Potential (2010). John Ward & Craig Aronoff, Palgrave Macmillan The Family Business Guide: Everything You Need to Know to Manage Your Business from Legal Planning to Business Strategies (2010). Frederick Lipman, Palgrave Macmillan

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