Personas & Zero-Based Strategic Thinking

Incremental change is dangerous, particularly come planning time for your business. Left unchallenged you can suffer a slow death, or be taken out by a gorilla in your market. Here are two ways to break your normal incremental thinking.

Personas at the Boardroom Table:

What would Steve Jobs, Richard Branson, or John Key be saying in your strategy day if they were on the board of your company? This is the power of personas.

Edward de Bono first popularised this method with his “Six Thinking Hats”. User experience design people adopt a similar approach to ensuring real users can utilise modern software applications. There is a great article on “The Power of Personas” for user design in the MSDN Magazine.

Create some imaginary board members to your company, they come cheap, and give them a seat at your boardroom table. Then listen to what they would be saying if they were in the room.  To balance the big thinking of a Jobs or Branson, you may want someone else at your board table to balance out their big budget thinking.

If you are known to dream big, perhaps you need the conservative ‘black hat’ thinker at your table to question the reality of your plans.  This is a great way to break with conservative limited thinking, beliefs that exist in many boardrooms, whether your problem is not dreaming big enough or you need a hand break. Do not invite too many imaginary friends too frequently or your friends and family may think you are going nuts!


Zero-Based Thinking:

Accountants often refer to zero-based budgeting. This is the method of creating your budget from a clean sheet of paper, rather than simply modifying last year’s budget by X%.

The same goes for business planning: take the stance if you were starting your business over again, but with the resources and capabilities that you have now – what would you do? Invite your new board members (personas) to the table as well to help you with this exercise.

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The Entrepreneurs Guide To No – test your last decision

Being in business is addictive and just like alcoholics, business owners loose objectivity –wasting too much time on the wrong idea or activity.

It’s my ambition to accelerate the growth and failure of NZ companies by removing clutter and simplifying business growth. For most business people I speak with, it’s not a lack of ideas or things to do, it’s about deciding what NOT TO DO.

Do not end up being a great jockey, riding a lame donkey.  Success is just as much about keeping an objective eye out for distracting activities or ideas, as it is about finding opportunities. Don’t overdose on the “go hard or go home” attitude; make sure you are applying some rational thought to your venture.

After reviewing thousands of NZ business ideas, by far the biggest success factor is focusing on stuff that generates revenue and its beautiful cousin profit. Without profit you at best have a great hobby, something you are passionate about and good at.

So before you leap into your next venture or addition to your existing business, test your idea against my “GMC 6 reasons to say NO”:

1: Does it solve a problem or desire big enough for some one to pay money for it?
your value proposition

2: Can you differentiate your product or service from the competition?
    – your sustainable competitive advantage

3: Can you make money from this venture?
     – your business model

4: Do you have a team with enough skills to make this idea –  venture work?
– your talent

5: Is it fun?
– Your culture – motivation

6: Will it stack up against some non-emotive challenge
– Governance

This rule set works whether you are starting a new business or simply trying to improve your current business, use it to test your ideas so you can grow or fail fast.  It’s amazing how many great craftsman we have in NZ creating solutions for problems that don’t exist or are not big enough to warrant someone outside your mother and mates to open their cheque book and purchase.

So Test you last three decisions against the 6 rules….

Simon’s tips on boards

Some great blog posts by Simon Telfer (co-founder of  Springboard NZ)  – on boards that are worthy of a read.

Words for the wise – some great quotes from experienced board members … I like this one best

“Good news is written succinctly. Bad news is wordsmithed.”      read the rest here>

Finance on Full Beam –  “It’s like you’re speeding down a country road at midnight with only your park lights on”, Simon commented to a client.  Scary thought.

The problem was their internal accounting team, who were ill-equipped for the requirements of a rapidly growing, idea rich and cashflow poor organisation.

This is not unusual. Some of the quickest and most enduring gains he has implemented with his clients, has simply involved upgrading their internal finance function… read the rest here >

When should you not set up a Board?  and extract from Who’s on Board?

Here you have to be true to yourself. If in all honesty you have no desire to let go and have others involved in guiding your business then there’s no point. Similarly if you as the owner are happy with the status quo and have little appetite to grow your business or to seek a change of control then the time, effort and cost involved in establishing a Board may be questionable. Engaging someone to monitor risk and compliance issues would still be prudent but this could be achieved through your professional advisors rather than via a formal Director… read the rest here>

Finding Your First Advisory Board Member

Selecting your first board member can be a challenge, so how do you go about it?

I always recommend business owners establish and work with and advisory board setup first, before committing to formal directorships. This can often be a good win-win situation for both business owner and board  member.

Work out what are your immediate needs?  Do not confuse specialist professional advice from what you want and will get from an advisory board member. They have two separate functions and purposes.

I personally believe that you need a generalist for your first non-executive board appointment. Someone who is going to challenge and support you and is capable of working across all disciplines from Finance to HR to Sales and Marketing.  See my earlier blog posts on this subject

Chosen correctly an advisory board member will be able to help you select and get the best out of specialist professionals such as lawyers and accountants.

As a side note: in many cases I have found as an non-exec advisory board member the first task often is to help companies review their current professional service providers (legal and financial services). To often companies have gone for “cheap” “rear vision looking” providers, who are great at documenting what has gone on in the past and ultimately deliver poor value.

All of your service providers need to add value well beyond their fee. As an example, accountants who do annual compliance accounts for $600 a year typically add no value other than recording history and ticking a box for the IRD.

So where do find a board member?

 If you are on a super tight budget (most SME’s are) and are looking at establishing an advisory board I would recommend:

  1. Put the word out around your network. Ask around fellow business owners who you have respect for. They will have recommendations or if you are on a super tight budget – use a “quid pro quo” arrangement with them.
  2. Springboard NZ – is a great network of “young” emerging directors, that has a pool of great executive experience and full of people looking to build board portfolios.  You can post your request directly on their linked-in group. Linked-in Networks are a great place to find talented people and aid with reference checking.
  3. Ask your accountant lawyer to recommend: while in most cases I would not recommend using a lawyer or accountant as your first board member they will have connections and networks of great people.

For those of you with a recruitment budget formal placement services such IOD and specialist placement services – may help you out if you do not have access to an established network. The IOD first boards web site is also worth a visit

Warnings:

  • Make sure you create a wish list for the characteristics of your most wanted board member and be open to how you meet it.
  • Make sure you select people who “get” businesses of your size and culture. Experience on the board of Telecom could well be a hindrance to your $2M a year turn over company.
  • Personally I have a dislike for brand names, franchises etc – please reference check the actual person you are going to be dealing with.  See how they measure up and what real in business experience they have had.
  • Don’t sign locked in contracts – if they do not work you need to be able to quickly exit them.
  • Don’t pay by the hour – you need to feel comfortable the relationship is not being measured by the clock.

Other blog posts by Mark on Governance – Advisory Groups etc for SME’s

Desirable Personal Attributes Of Board Members

What characteristics do you look for in a potential board member?

To effectively address the needs of an emerging enterprise, the most effective board members will exhibit the following personal qualities:

  • Emotional stability – with EGO in control
  • Strong interpersonal communication skills
  • Pattern recognition skills – “ability to sense trouble ahead of time”
  • Ability to partner
  • Investment and hands on operating experience
  • A strong network of business contacts
  • Ability to mentor the CEO
  • Ability to view problems from multiple viewpoints include the “customer point of view”

This list came from a great paper I have just read from Levensohn Venture Partners (LVP)website entitled “After the Term Sheet : How venture boards influence technology companies” a link to the full paper is here, its worth a read.

Another great extract from this insightful document was a list of why boards fail.

10 Common Pitfalls of Boards

1. Complacency – Inability to confront difficult issues
2. In-Decisiveness
3. Distraction and over-commitment
4. Divisiveness on the Board
5. Paralysis over liability issues
6. Board Member role confusion
7. Leadership vacuum
8. Loss of trust –respect in the CEO or other board members
9. Resolution to fail
10. Misalignment of interests between Board Members and investors

 

They also have a great agenda item for your next board meeting : “what are the 3 top issues facing your business?”, often boards can fall into the trap of just ticking the boxes and following the standard agenda

LVP  have another great white paper on their web site  ”Rites of  passage: Managing CEO transition”. Both these papers come from the angle of a VC backed company but work for any emerging business and a worth a read.

IOD Directors Course Good Value

Review of Companies Directors Course – IOD
Becoming an Informed Board Member – a $6500 Investment

For the week of Nov  7 – Nov 12, I subjected myself to  the IOD Companies directors course.  Everyone, including my sponsors, The EDANZ- Deloitte Partnership (Escalator), wants to know was it worthwhile?

The real test of this will only be proven by my performance: both as a CEO –GM and as a value add board member.

It’s a big commitment by any one in a senior role to attend a week-long residential course and clear enough mind space to maximize your attendance.

So my highlights of the week:

  • The fellow attendee’s – I was privileged to attend with a great bunch of peers from a variety of backgrounds and experiences. Everything from VC’s, Fontera sponsored farmers, SFO, SOE CEO’s to tourism operators.
  • When you need to nominate board members, its ideal to have worked with them  before . This week created a great opportunity to experience people in action. A large percentage of the co-attendee’s I will recommend into future fellow board seats.
  • The debate a rigor my fellow attendee’s gave the presenters – challenging the bounds of traditional governance and relevance for new world post GFC and potential directors in “the gallows”
  • Case study work – “yes I am usually not a fan of this learning style”, but working on our fictitious “pacific pies ltd” and other companies, with no perfect answers, created great debate and enabled the various knowledge from fellow attendees to be shared.
  • Most of all it reinvigorated my belief in what high performing problem solving team can achieve with complementary skills.

So what about the content and delivery?

  • It would be easy to be overly critical – some of it could do with a major refresh and more creative flair – but it achieved the desired end result. (ok -the power point sucked – happy to help IOD here if they want)
  • The caliber and relevant experience of the majority of presenters was bang on – we all loved being given a “rally up” by an experienced chair and the frank and honest answers to probing questions by the pragmatists.

Would I recommend it?

  • Hell yes, I have come away more confident on my fudiciary responsibilities, a greater respect for risk and confident in adding more value to my clients as a result of it and more capable of maximizing the value from boards I report to.

Tips for potential attendees:

  • Verify with IOD what sort of background other attendees have. It sounds like not all courses have senior experienced commercial practitioners attending.  Auckland has a reputation for gathering a better crowd than some other locations.
  • Get involved and ask presenters challenging questions – it was the question and answer time that generated the most learning.

 

There is no doubt that IOD hold the body of knowledge as far their heritage and credibility. My hope for 2011 is that they can find ways to work with the growing Springboard Network to lead a charge in establishing benchmarks for effective boards for emerging SME’s as well as serving the big end of town.

Thanks to the EDANZ-Deloitte team for sponsoring my attendance. I plan on merging the learning from this informative week with my previous knowledge and experience to continue my personal quest to  help the emerging business talent of NZ succeed.

Other blog posts by Mark on Governance – Advisory Groups etc for SME’s

Staying out of Jail

Your fiduciary responsibilities as a director

For SME’s the focus of your Board should not be compliance and risk management – however, you cannot avoid your legal responsibilities in this area.

Many people ask me what are your basic legal responsibilities in this area and what are the major gotcha’s.  So here is my interpretation of your basic responsibilities – with a MEGA big disclaimer – I am no lawyer. If you what the definitive advice on this contact the experts such as the institute of directors (IOD)   www.iod.org.nz http://firstboards.iod.org.nz/home

Basic legal responsibilities as a director:

  • The company does not “trade recklessly” i.e operates a “a going concern” (is solvent) – i.e  You as a board do not agree, cause or allow to carry on business in a manner likely to create a substantial risk of serious loss to the companies creditors.
  • You act in good faith and belief that you are acting in the “best” interests of the company
  • You operate with the skill, care and diligence of a reasonable director in the circumstances – ignorance is no excuse!

Some gotchas:

  • Abstaining or voting against a decision does not absolve your responsibility as a board member. The board is jointly responsible for all decisions
  • Absence equally does not excuse your responsibility.
  • Risk and audit committees can not decide – they can only recommend t o the board
  • Make sure you have adequate information to make decisions and if in doubt seek external advice.
  • Trading outside the banking covenant’s
  • If you act like a director you may be “deemed “ by the courts to be a director

 

What is the difference between an Advisory Group and a Board?

 

–       Advisory group: is a group of people who provide advice and have no decision making power.

–       Board: is a decision making committee appointed by the shareholders and holds ultimate responsibility for the legal requirements of a company:

  • Board of Directors Section 128(1) of the Companies Act 1993 states that “The business and affairs of a company must be managed by, or under the direction of or supervision of, the board of the company”.  A board is composed of directors elected by shareholders.

Professional directors will not accept directorships without performing due diligence on the company first.

Due to fiduciary responsibilities many advisors will offer to become Advisory board members on a trial basis before you establish your first board.

For business owners establishing an advisory group gives you the chance to learn what it is like to work with a team of professional advisers before handing over the reigns and control to an external board

My closing comment:

For Business Owners: “Make sure your board members are aware of their responsibilities – get them to attend the week-long IOD Companies director course. But most importantly make sure their legal responsibilities are not a permanent stuck hand brake on your business.”

For Directors: “As a director develop you own personal risk mitigation plan (more on this later) then get on with adding value to the company”

Other blog posts by Mark on Governance – Advisory Groups etc for SME’s