Original Column https://www.nikkei.com/article/DGXKZO73137460S1A620C2XY0000/
In this article, I will discuss about “the agenda for board meetings” that I recommend and address to the startup entrepreneurs who are working to achieve rapid growth. It is prerequisite that you as the startup entrepreneurs, while raising funds externally, aim to go public in due time and have the will to grow further.
The number of external members who attend your board meetings will increase as you move forward with the fundraising rounds. You may host a board meeting monthly or perhaps quarterly, and no doubt you will discuss a large variety of topics on the agenda, but there are two topics on which I would like to focus here: (1) of the performance of the company, and (2) of “people”.
(1) Every company gives reports on the performance, but a good meeting has good meeting materials, and good meeting materials should include quantitative comparison tables of the main figures of profit and loss statement as well as the important KPIs. More specifically, “Budget/Actual Ratios”, which show the rate of actual achievements in comparison to the budget (target); and “Current/Previous Year Ratio”, which compares the performance of the current year to that of the previous year. Make a synoptic table with the headline items of profit and loss statements and KPI, highlighting any discrepancies from the initial expectations with comments added.
Whether you make comparisons monthly or quarterly depends on the type of business and the growth stage. If your company is in Series B or thereabout, yearly comparison may be more meaningful than budget/actual comparison, while monthly reports of budget/actual comparison become increasingly more important as IPO date approaches.
The benefit of this table is that everybody in the board meeting will be able to get a stereographic view of the progress of business. I have met some management teams which embarrassed themselves by saying, “uh, that will have to wait. Can we send it over to you later?” However, it is very important to agree on the recognition of issues there and then by all members. It will enable the management to plan the next funding, and the time will be well spent and productive for both the management and the investors.
Producing these materials would not be a very cumbersome work since the numerical data should already exist. Surprisingly though, we hardly see these “budget/actual comparison” and “current/previous year comparison” provided as a set of information. Even more surprising is that few investors ask for the information.
Let me give you a caution, though. It is not just the numbers that are important, but examining the underlying reasons is equally important: “what is (are) the cause(s) for deviating from the initial plan?” and “why so?”, because it is in these examinations that both the management team and the investors will find full of clues for what measures to take.
(2) Next, I will talk about “people”, encompassing information on recruiting, starting the work, and leaving the work. For startups, no business plans would be achieved without attaining human resource planning, but I know of surprisingly few cases where human resource planning is explicitly discussed in the board meeting agenda.
Recently I came to recommend adding actual numbers to the “recruitment funnel”, which shows the flow of the recruitment steps from the state of job applications received, to the first round of job interviews, final interviews, job offers, and whether the applicants joined the company. This will help create visualization of the company’s inclination for recruitment, and thereby provide an instant insight into which step(s) require strengthening.
Knowing why the employee left the company provides a number of clues for identifying the problems of the company. Did this employee leave the company because the management failed to convey its visions? Was it because of a problem of objectivity in employee assessment? Or perhaps there were no quantified goals specified for the employee and that he/she could not gain the sense of achievement or of self-development? Or possibly, the remunerations for the job were outcompeted by the rival companies? The “matters of human resources” are the subject common throughout the world, and it could cause crippling damage if not dealt with properly, a signal for the management team to make an all-out effort to put necessary measures in place and draw on the wisdom of external members who are conversant with the cases of other companies.
With this information, the investors, present at the board meeting, may find it easier to give advice by making comparison with other companies of similar size. They may also find it easier to give more essential and specific advice in plainer terms but with precision, advice such as “by my experience, this is the solution which was effective…”, or “let me introduce you an expert/potential clients”, etc.
These are the two topics of agenda I wanted to discuss. Let me tell you about a few companies in which we invested. Right after the start of business, it was a struggle for them to present the information on these topics. But their presentation skills improved rapidly as they carry on with rounds of capital increases. They discussed problems internally in advance of the meeting in order to work out measures and present them to the board meeting, which enabled them to draw on the support of the meeting members and consequently achieved rapid acceleration of business growth.
In my own business, too, I examine closely the discrepancies in the ratios of budget/actual and current/previous year, and spend time to explore what should be done and how. It is a continuous, dedicated effort of trial and error with the aim to achieve the goals.
