Subscribe
Share
Share
Embed
Demystifying the conversations we're already here at RRE and with our portfolio companies. In each episode, your hosts, Will Porteous, Raju Rishi, and Jason Black will dive deeply into topics that are shaping the future, from satellite technology to digital health, to venture investing, and much more.
Jason: There’s only between three and five board meetings that really matter to the eventual outcome of a company, and you don’t know which ones is it—
Will: [laugh] So, you better show up.
Jason: Yeah, you got to show up, you got to be prepared.
Will: Welcome to RRE POV—
Raju: —a show in which we record the conversations we’re already having amongst ourselves—
Jason: —our entrepreneurs, and industry leaders for you to listen in on.
Will: Maybe I’ll offer you guys an observation, which is that I think if you look at the continuum of some pretty colossal crises over the last four or five years, or going back even further, if you look at the Theranos governance debacle, the lack of governance at FTX, and just the, for lack of a better word, the governance circus at OpenAI over the last ten days, I think it raises some fundamental questions about, kind of, governance in the venture-backed company ecosystem in the present era. And certainly, in some of those situations, participation in the investment was something that a lot of people saw. A lot of people wanted to invest in those companies at certain points, and the founders were able to hold investors at arm’s length, dictate terms, and basically not form a board in the case of FTX. And if you turn it forward to OpenAI, there’s clearly some stuff that’s not in the public domain about what happened, although some of that, perhaps, is coming out. But no matter what, you have this circus of a CEO being fired, and employees rebelling, and threatening to leave, and a board try to walk back that decision, and then rehiring the CEO.
And I just, I feel like we’re living in an era where certain investors and certain firms have found a way to get comfortable with not being on the board, not having a role in some pretty high profile companies where there’s a lot of money at stake. And I wonder what that says about where our industry is, I wonder what our perspective on this is a firm, and I wonder what [LPs 00:02:25] are thinking right now.
Jason: Yeah. I mean, it’s just interesting because I think there was like, you know, over the frothy times leading up to the eventual reset that we’re going through, kind of still going through and has taken a long time to work its way through the snake, there was this kind of general sense that, like, oh, VCs are the, kind of, enemy, the people that you want to, like, pull out all their teeth and make sure they have no say. And obviously, there’s extreme examples on both sides of that [laugh], right? And we tend—you know, they tend to be pretty dramatic, where either the board or the CEO, is kind of, drastically overreach, right? You have Sam Bankman Fried just doing whatever he pleased with very little oversight, and then you have the OpenAI board as the kind of counterpoint where it’s like, the board completely, you know, maybe not overstepping because they’re like, technically allowed to do all these things, but just going in the exact opposite direction.
And it feels that the actual lesson that needs to be learned is that [laugh], you know, there is a cohesive and harmonious way to run a board, and those are rarely the examples that make the headlines. Like nobody’s actually talking about the incredibly well-run board and governance structures. It’s just the ones that go crazy awry, and when they go crazy awry, they’re these big blowups when there’s tons of money on the line. Like, I’m sure there have been plenty of blow-ups at a smaller scale, but they’re just not in such important companies.
And so, it’s such an interesting way to, kind of, examine where do the boundary conditions lie? Like, where’s too far in terms of board oversight and power, and vice versa, right? When is there not enough insight into all these things? And I know you guys, I mean, I’ve been fortunate to be on ten-plus boards—as an observer—from basically, like, my first day here, just shadowing Stu and a few of the other partners, and now I’m serving on the board myself. You guys, even longer period. I’m just curious, like, in the context of all the boards that you guys have been on and served on, like, what are the big takeaways that you have [laugh] from the OpenAI case and the Theranos and FTX ones, if it helps kind of serve the point?
Raju: Yeah, I mean, I think there’s actually more fundamental evolution of boards that I think people are just not cognizant of when they construct boards. I think, just like they’s staging of companies: you have a company that’s trying to figure out—they have an idea, and they’re trying to figure out whether they got—the idea is going to work [laugh], you know? Is there a market for it? You know, can I get one customer, or can I get 10,000 people to download a consumer app?
And then you evolve to another stage where you’re, like, “Okay, let me see if I can get repeatability,” you know? Now, they got one customer, enterprise customer, I got 10,000 downloads, how do I get to 100,000 downloads, and [unintelligible 00:05:19] there are 15 customers. And then you go through scale, you know, where you’re scaling, and it’s all about the knobs and dials and, you know, put a dollar into marketing and you get this many leads. You put a dollar into sales and this, you get this much revenue. And a dollar into customer service, and you get this much turn reduction.
And then it’s about orthogonal scale, which is, how do I add product lines? How do I globalize internationally? And I think, you know, the reality is, that’s a well understood mechanic, but boards need to evolve through all of those stages. I don’t think people actively construct boards. I think what winds up happening, in the venture world at least, is you get a lot of duplicative board members. You have three or four people in the board that have very identical experiences, and very identical thought processes.
You’re not sitting there saying, like, “Well yeah, you know, I want this investor in here,” but you don’t necessarily say, “I want this level of—I have a gap in my financial acumen,” or, “I have a gap in my sales and marketing acumen.” “I have a gap in my HR acumen. How do I get a board member in here that’s helped, you know, scale businesses?” So, I think companies fall into this stuff because they’re just looking for, you know, quote-unquote, “Top-tier investors” or highest valuations, and they’re not thinking about the board as a long-term play, one where you want different skill sets, so you don’t have three or four people chiming in it only during the budget and never any other time. And so, you know, that’s my opinion. And I do feel like, you know, just, like, you have a roadmap for your company, you got to have a roadmap for your board, to some extent.
Jason: And, like, philosophical alignment. That seems to be kind of like, the underlying piece here—a bit—is just, like—you know, and we don’t have all the info; I’m sure there’s probably going to be stuff that comes out over the coming weeks, just given the drama—but you know, philosophical alignment among board members. Like, what are we all trying to achieve here? And, you know, you definitely want to have a diversity of skill sets, but you also want to make sure that all those skill sets are, kind of, heading towards a common goal, which is easier said than done. Like, you have a lot of, like, vestigial board members, sometimes, where it’s like, you know, it’s like, people kind of jump on this—on the ship and grab an oar at different times, and you know, sometimes your early investors invested in a dramatically [laugh] different thing.
Like, I remember—you know, you’re on the board of Bitly, Raju, where was like, this is originally a consumer company, and [laugh], you know, ended up really taking off in the B2B side, but it meant that, like, all of the early investors might specialize in a completely different, you know, go-to-market motion, and, you know, expectation of what their outcomes would look like. Then, you know, seeing all that take off on the B2B side, obviously, you want to see that everybody is aligned, you know, quote-unquote, “Philosophically” around making money, but you know, that might be the last thing that they’re aligned on is, like, kind of, a difference in, you know, which direction should we take this, and what should the company look, like?
Raju: I agree.
Will: And I think a lot of those differences only come out when a board has to get active. You know, boards are inherently pretty passive until they have to act, and very often that’s—it’s—they’re in a very reactive posture. When we were doing some of the board development work for two of the public companies I’m involved in, we focused a lot on, okay, what is the role of a board. And one of our GCs has this wonderful phrase. He said, “Boards need to be nose in and fingers out,” in the sense that the board’s smelling kind of what’s going on, but they’ve got to keep their hands outside. And that’s true… until it’s not true, when the board has to act to intervene—as the OpenAI board felt that they did—they suddenly have to become an organization. A board suddenly has to step into an active mode, and unless people have really done some team-building, and made a commitment to that board as an organization, and have a clear understanding of their role, it’s probably going to be really messy.
So, one of the things I’ve really focused on a lot with my companies over the years is thinking about how a board becomes an organization when it needs to make a decision, like a CEO transition and how that’s going to be run and managed. Because people have to take on new responsibility, and they have to accept their role. Not everyone can lead a CEO search, not everyone can handle the details of the transition, and moving into a mode where you are an active board, I think, signals a moment obviously in the life of the company, but in the life of that group of people. And if you’ve never been through that before—and all of us have been through it many times—if you’ve ever been through it, it’s a novel, weird experience, and people are probably going to make mistakes. And particularly when you have a situation and I think this is the case with the OpenAI board where the directors just, by and large, didn’t have that much experience of other boards, it’s not surprising.
Jason: Usually the active mode is a shock to the business, not you shocking the business [laugh].
Raju: [laugh] I know.
Jason: It’s like, Covid is usually the—a shock to the business where you have to really jump in, make—you know, help the team look after the long-term success of the business, and all of the—you know, for the shareholders, and employees, and all of the constituents that are involved. This was—seemed like fairly poor judgment on, kind of, all fronts. I mean, I think there was a bit of, like, you know—and Ben Thompson was talking about this—that it was like, there was this immediate thing where all of a sudden, Sam Altman was, like, the world’s best CEO, and he was the next Steve Jobs—or, like, the existing Steve Jobs. And, you know, there is a little bit of controversy around Sam. He was, you know—there was, you know, reports about Paul Graham having to, you know, remove—not remove Sam, but basically, you know, took Sam out of [Y-Combi 00:11:13].
And, you know, we don’t know all the details, I’m not speculating, it’s just that we don’t—it’s not that Sam was removed, and therefore he is the best thing to happen to the world. It’s more that it clearly was a decision made, kind of, in this fantasy world of isolation where this was like, clearly going to work out, and this was going to be the, kind of, best decision because the board knows best. That [laugh] clearly [laugh] didn’t end up being the case. I think OpenAI is an amazing company. I want to see them succeed. We are, unfortunately, not investors.
But you know what I don’t want to have happen is, like, the reaction to a shock tends to be, like, the opposite is true, and I don’t believe that’s the case, right? Like, great board governance isn’t at one end of the barbell or the other. Because, you know, you get to the thing where it’s like, you know, you get the Theranos and FTX, which were different in a lot of instances. Those are both fraud cases, as well. There’s no indication that there’s fraud going on or any nefarious things going on at OpenAI, so we shouldn’t bucket them too much. But that’s—you know, it is kind of like, two ends of the same spectrum where you can have these, like, massive blow-ups, which is unfortunate.
Raju: I, you know—and funny thing is, like, [unintelligible 00:12:20] what’s the board’s responsibility, right? It’s like, there’s only a handful of things that they’re really responsible for, right? Basically, the strategy of the business alongside the company, make sure that we’re executing around it, right, you know, build a budget, make sure you’re executing around it. And then the big responsibility is you’re trying to protect shareholders, you know? That’s your job, right? Your job is to represent and protect shareholders.
And when you first create companies, most of the shareholders’ sitting around the table [laugh], which is—so you’re just, like, working cooperatively, right? Okay, so, you know, [are we in debt? 00:12:59] and, you know, there’s another venture investor, and there’s a bunch of founders. And, yes, there are a bunch of employees that have common stock and stock options, but they’re really represented by some of the founders in many cases. And then you grow, and you know, you have some shareholders that aren’t sitting around the table, and then you get public, and your job becomes protecting those shareholders’ interest, and so you’ve got to do different things, right?
And that’s the problem, like, boards tend to just grow with the business, as opposed to sitting there saying, like, “Now, we have very different sets of shareholders, and we’ve got to make sure that we’re protecting their interests as much as we’re protecting the sort of VCs that are effectively invested.” And I think when you look at the FTX situation or Theranos situation, it’s obvious, right? Like, there’s a fraud [laugh] situation. You have to make—and I think there is, like—when you have fraud or lies in a board, that’s where the show stops, and the board, you know, needs to figure out whether it’s legitimate, as oppo—you know, you are still innocent until proven guilty, but you know, if there is guilt, then you have to be radical about it, as you figure out—and I’ve been through this, frankly, you know, so I’m on public boards and private boards, and there has been situations where either the board has been lied to, or is it fraudulent activity, and, you know, that’s it, you know?
Buck stops there. You kind of step in, you, you know, basically take over, you know, some level of operations in the business at that point, and determine what’s going right and what’s going wrong. But, you know, besides that it’s, you know, the other three things. It’s, you know, are we executing on a strategy, are we hitting plan, and you know, are we effectively, you know, protecting the interests of the other shareholders that aren’t represented in the table?
Jason: And this was such a—I mean, to be clear, like, such a weird case anyway. It’s not like this—obviously OpenAI, I started as a nonprofit, and there’s a lot of, like, you know, kind of hangover from originally being a nonprofit. Elon Musk pulls out his funding and says, “I’m not going to fund this thing anymore.” So, they had to become a for-profit company, and so, you know, they kind of transitioned from an old structure to a completely different structure. And, you know, we had the instance where, like, Microsoft doesn’t serve on the board, you know, and is mostly, you know, contributing a huge amount of their $11 billion investment via cloud compute costs.
And, you know, also it’s been made public that Thrive doesn’t have a board seat, you know, despite investing huge sums of money as well. So, you know, it is such a crazy edge case. Like, I don’t think there are probably many, you know, startup boards that [laugh] have all of those incredible, unique characteristics, but it is a time to think through governance, and what does it mean, when can it come into play? You know, ideally, how does it serve the best interests of all involved, right? And having a cohesive and a harmonious board that, you know, is involved, to the right level, is helping the company become the best company it can be, and working with the team, not against the team.
Will: Yeah.
Raju: I’ll disagree with the harmonious, Jason, just for—
Jason: That’s fair.
Raju: Argument’s sake.
Jason: Maybe it’s the wrong adjective.
Raju: Yeah. I mean, definitely cohesive.
Jason: Yeah.
Raju: I love the cohesive word, right? Like, the best boards I’m involved with—the best—you know, the board talks outside of the company, they have worked together before, you know, it’s just a pleasure to work with them, you know what each board member is good at, and you’re kind of like, and you trust them. Like, you know, like, hey, you—blocking and tackling, [Bill Bell Effect 00:16:47], right? Like, do your job, right? If each board member has, kind of, a task, and you know they’re good at it, and you trust them, man, that works. But harmonious doesn’t always work because there is this tendency—
Jason: You need some conflict. That can be healthy, right? I agree with—I think that’s what you’re getting at, right?
Raju: Yeah.
Jason: It’s like, that it can’t always be just about happy-go-lucky—
Raju: Yeah.
Jason: And it’s not going to be, right? And you’re actually bad if you are always agreeing. Your job isn’t to agree all the time.
Raju: I wouldn’t use that expression, Jason. What I would say is that there’s a tendency for board members to go along with the rest of the—you know, like, the herd instead of speak up, you know? And that’s where, you know, you want board members when they do disagree to speak up. And I think it’s important.
Jason: No, it’s important. That’s a good clarification.
Will: I think it’s worth highlighting the fact that for us as a firm, certainly for our primary investments, there’s an expectation that we will likely be on the board. In many cases, we end up serving in a lead director capacity. In all cases, we’re active and engaged and doing things to try to support the growth of the company, whether it’s—all the myriad things we do, you know, helping plan the next round of financing, recruiting people, dealing with questions of strategy and sequencing, and asking hard questions about burn rates, and that sort of thing, and bringing all that pattern recognition that we have. But it’s worth saying, you know, there’s another school of thought out there, which is to leave that hard work to other people and to just invest in growing technology companies, and assume that governance will sort itself out over time. And I think what’s, sort of, shocking to me—and just to sort of bring us full circle in this discussion—is to look at the scale of some of the companies we talked about earlier, the scale of the dollars involved, the scale of the commitments made by certain firms, and to wonder how they got comfortable with not having any meaningful governance.
Jason: Wow. That’s pretty clear, to me, at least. I mean, like, I think, in times of exuberance—and you know, I was talking to another venture friend about this recently—it’s like, just in times of exuberance, like, this stuff seems to always happen. You go through the crypto hype, and there’s all sorts of wiring money to anonymous Ethereum wallet addresses, and get I—you know, it’s like, you know, when there’s just a huge swing in upside potential, you tend to have this kind of frenetic behavior and a way that’s just, like, you know, it’s more important that I’m in than I think too much [laugh] about, like, how am I managing my risk.
You know, I don’t think, like, this was as crazy, right? Like, I think, you know, it’s a real company of 750 employees like a—you know, I’m just talking specifically about OpenAI—but I think there’s, yeah, these times when you know, there’s these massive technological shifts, and you know, the venture markets become a lot more professional, has a lot more money to, you know, to slosh around, and invest. And you know, we’re going through a little bit of a reset as it is, and AI is, like, this brand-new thing that will transform the future of technology. Like, there will be a pre- and post-transformer world, you know? The “Attention is all you Need” kind of paper. But yeah, people are desperate to be a part of that.
Raju: I agree. But there’s also another thing that happens, which, like, Theranos is a great example of, right? It’s almost, like, yeah, like—“Oh, RRE is on the board, so… you know, they got it, you know, and I don’t need to be on the board,” right? And so—or, “Hey, man, this, you know, Secretary of State is on the board, so therefore, it has to be good, right? It has to be well run, well executed, well”—or whatever. And so, people just, like, kind of assume [laugh].
Jason: It’s the transitive property of diligence.
Raju: Yeah.
Jason: It’s like, well, you know, you [laugh] got this, kind of, stack of trust, where it’s like, “Well, if they invested, then it’s got to be—” you know? I totally get what you’re saying.
Raju: Yeah. And just—so for clarity to our listeners, we do our homework, you know? And, like, it’s because we’ve been in business for 30 years. You’re not going to stay in business for 30 years as a venture firm if you don’t sit there and say, like, you got to do some diligence to—you know, primary diligence, your own diligence, and your own thinking, and your own [support 00:21:11] of the board, and your own… but yeah, a lot of firms, they’re young, they’ve only been around in the heyday, and they’re like, “What can go wrong?” You know what’s crazy about that expression?
If you look at the, you know, amount of investment that happened the last 15 years and the amount of positive outcome that happened, there were very few just destroyed, company-destroying events, and so people got comfortable with that. Like, if I don’t have a board seat, what are the odds? Even if the odds are low, you know, it’s an acceptable risk. And the reality is, you know, it’s not an acceptable risk [laugh]. Really isn’t. Yes, you will move a little slower, but you know, at the end of the day, you’re doing the right thing by all your shareholders.
Jason: Well, and also—and I agree. And I mean, they’re kind of like my generation of VCs who are all now, you know, a lot of them GPs or starting their own firm. There’s a certain amount of, like, you also got to see what great looks like. And that means, like, there’s not a—despite this being an amazing podcast on board mechanics—like, there’s not a good way to learn it without just, kind of, seeing it first, and then doing it. And the only way you do that is joining boards, and then really realizing that one of—you know, if you’re going to be a lead investor, that one of the key things of your job is to be kind of a student, like, a lifelong student of the board, of, like, what it means to be a great board member, and how to help companies.
At least, that’s the way I think about it. And, you know, I’ve had great fortune to be on a number of very functional, very effective boards with some really sharp board members, and I’m always thinking, like, “Oh, wow, they had this insight that I didn’t come up with or think about to ask, but it actually revealed this really interesting strategic question that we need to think about or potential roadblock down the road that we should talk about that’s going to take a lot of preparation.” You know, it’s really, you don’t kind of get that through an HBS business case. Like it’s, you know, you can only read so many of them until you’re looking at it. And the unfortunate reality is that I think a number of boards are mediocre or bad, and that’s made it—we should probably try to open-source [laugh] a little bit more, like, how to be a great board member, and what a great—because people don’t talk about that, right? They’re always talking about the tech and the—which obviously, is the most exciting part, not the board mechanics—but there’s a certain amount of, like, what do great board members do? How do they think about their company? How do they engage with their company?
Will: You’re so right, Jason. You know, I feel really lucky that early in my career, I was on boards, both with some really interesting characters, and with some great board members. And I think you—from those experiences—and you’re right, I think it’s only through the time spent, that you learn what really great work as a director looks like. I remember listening to Steve [Kraus 00:23:59], who is at [USVP 00:24:02]—still is at USVP—I remember listening to Steve Kraus early in my career when he was giving a management team feedback, and he was so good at telling them in the most constructive way possible, “You’re doing well, but not as well as you could be doing.” And he was able to do this in a way that didn’t make them feel bad, didn’t diminish their achievements, but kind of helped point them in the right direction.
And, you know, I think we—this is still truly an apprenticeship business where boards are concerned. I also realized from a few characters I met early in my career that that part of the job of a good director is at times to protect the company, and to protect the management team, and to make sure that, you know, that the right things happen in board meetings, and that the wrong things don’t [happen 00:24:53]. And I got further in my career in starting to help people plan their next financing, being attuned to those sorts of dynamics, particularly with new people joining the board, I think it turned out to be really important.
Jason: Well, Raju has got that great line. If you remember—and do you remember the line that you always say, Raju? I have so many of your lines because I—
Raju: [laugh].
Jason: —spend too much time with you—about the lifecycle of a company and board meetings?
Raju: No, I can’t remember.
Jason: There’s only between three and five board meetings that really matter to the eventual outcome of a company, and you don’t know which ones is it—
Will: [laugh] So, you better show up.
Jason: Yeah, you got to show up, you got to be prepared. And, like, for the rest of it, it’s not about phoning it in. It’s just about, like—it’s kind of the nose in, fingers out, right—it’s like, you know, you’re not running the company. These—you know, the team that you invested in is running the company. They are the experts in the company. They’re the—you know, like, of their domain and their customer set.
And, like, you know, to a certain extent, I’ve kind of compared being, like, what is the value of a board member? You know, one aspect is, kind of like—I don’t know if you guys have ever written, like, a hundred-page essay of, like, Comparative Literature. I remember, I had to write one in college, and I, you know, read these books, like, three times each, and wrote a, you know, a hundred-page paper comparing these two books. And I remember, you know, you’re writing so much, and you know, it kind of at the end, it was like, “Am I—like, did I even say anything?” You know, like, “Does this make sense?”
And I needed—it’s going to your friends who are willing to go through your hundred-page [laugh] thing and, like, just say, “Well, you know, yeah, you made it. This is your point. I think it would be strengthened if you move this a little bit around.” And it’s just, like, you’re not an editor necessarily, but it’s just giving feedback. Because these teams are just throwing themselves at this problem or at this tech and their customers, and living, eating, sleeping, breathing their company, and as Will says, like, pouring their life force into this company.
You know, to a certain extent, I think, like, the board is, like, just coming up for, like, a little gulp of air, before you just re-submerge back into your own little world, and you want to get, like, great feedback, and kind of like, you know, are we on track? And is this good? And is this tracking to whatever? Like, that’s like—I feel like is part of the role. And it’s not every time that you’re, like, you know, have these massive strategic things where we got to go do this, or, you know, double down on this area, or completely cut this area—those, like, critical boards you’re talking about, Raju—but I always thought that was a great phrase.
Raju: I’ve lived it. I’ve lived it. You know, and it’s hard because, you know, there’s micro adjustments and macro adjustments that you can make at the board level. You don’t want to do a lot of macro adjustments. You do—you really don’t. And that’s the problem, right? Like, what Will was talking about is absolutely true, like, protecting the company.
Sometimes you get into a situation where it’s like, there’s a handful of board members that just want a head, you know? You step back, and you’re, like, “Guys, like, let’s just relax. This isn’t a head-taking opportunity, or a moment,” you know? This is—you know, we’ve gotten, you know, let’s get more data, let’s figure out whether we’re really at a stopping point with the CEO, or you know, the product line is really not working. Radical decisions, sometimes you have to protect the company, allow them to do the work to figure out whether it’s the right answer or not before the board just kind of just, you know, “Off with his head,” or you know, guillotine. I do think you’re right, though.
Jason: Which to be clear, like, I think there’s a sense that it’s like, oh, this happens all the time, right? There’s, like, everybody’s, like, bloodthirsty, like, out for blood. And there’s, you know, there’s a lot of time negotiating, you know, term sheets, where it’s like, well, you know, like, [laugh] just making sure that I can’t be removed. And it’s like, “My goal—I’m investing in you.” Like, you know, unless you are outwardly lying, or, you know, like, actively destroying the business, you know, that these things, like, they really—they don’t… they don’t really come up. And they shouldn’t, right, if we’re all doing the right thing. But I think there is this fear.
And they see it, you know, like, my—that was, to my comment a little bit earlier, is like, the overreaction in the opposite direction is also not good, right? And I think a lot of entrepreneurs just got their fears very validated. They’re like, “Oh, man, a board can just remove you out of nowhere.” And I think the reality is, like, that’s incredibly, incredibly, incredibly rare.
Raju: And nobody wants to, right?
Jason: Absolutely not. Absolutely not. This is the team. Like, you build a rapport. It might not be necc—you know, it’s like, that rapport is so important. And you were talking about this a little bit earlier—I forget if it was you, Will, or you, Raju, but—oh, I guess it was Raju—but the—like, it’s not about harmony. And I think that’s, you know, to a certain extent, about our—I think our partnership’s great because we have such a long history together that, like, we can push back on each other without pushing against each other. And I think that’s, like, kind of what you’re looking for as well, where you can have a critical conversation that might be uncomfortable, but it’s not, like—you’ve invested a bunch of time into understanding where that comes from, and that—
Raju: Yeah.
Will: Yep.
Jason: —and rebuilding that takes a long time.
Raju: I got to be honest, like, the best thing boards can do—and I think very few of them do it—is spend time with the management team and learn their predispositions. Because the reality is, every board is different, you know? Certain companies, you’re sitting there [unintelligible 00:30:04], like, and this is a [unintelligible 00:30:06], you know, management team, their tendency is to, sort of, be very hopeful that there’s—you know, they’ve got a silver bullet here in something that’s marginal. Others are really, really [low 00:30:18] to scale. You know, they just want to—they’re perfectionists, if you will, you know? And then there are others that sit there and say, you know—they just, they’re not exploratory. They’re not exploring how adjacencies can, you know, help build this business or their go-to-market.
If you know the board, if you know the management team, and you know the CEO, it’s the only way that you can effectively, you know, manage the board, manage the company, and be a good board member. That’s the reality. And I think, you know, we all like to say, “One size fits all.” Like, you know, we’re just—
Jason: That’s my favorite phrase. I love it. I say it hundreds of times a day. “One size fits all.”
Raju: [laugh] You got a lot of gloves from Uniqlo? Because you can just, like, all day, one size fits all, you know what I mean [laugh]?
Jason: Sorry, I—it just struck me a little bit. Go ahead, Raju.
Raju: Yeah. But that’s the trick. I got asked—and I’m sure you do, too, Jason and Will—really, do we have to get into, like—do you have to meet the management team, you know? Like, how much diligence is required here? And we don’t do extraordinary [unintelligible 00:31:24] of diligence, but the whole point of diligence, in my mind—well, there’s two points, right? One is to figure out where you can make the investment, to dig holes in the company, or like, something that we’re not looking at right.
But the second is to prepare you to be a board member. That’s the whole thing. It prepares you to be a board member so that you go in sitting there saying, “Okay, this company is really gun-shy about scaling,” or they’re aggressi—they’re, you know, [unintelligible 00:31:47] starvation; they’re trying to do too many things. They’re defocused, you know? So, they have something good here. You know, my job is to help them do X, Y, or Z. It’s tricky.
Jason: It’s tricky to get right. You know, during this conversation, it properly occurred to me that there really isn’t a great way to learn how [laugh] to be a great board member.
Raju: No.
Jason: Which is kind of surprising because it’s pretty important to our industry, and our jobs.
Raju: Well, so the—and the thing is, if you could sit there and select the three or four boards that are so different from one another, you could learn it in a year or two, right? Because these are the five kinds of boards there. But the problem is, it might take you 20 years [laugh] to experience those differences, weirdly.
Jason: And I think that’s also, like, a lot of why you see, you know, successful founders, like, just go back to the same group. I mean, there’s a certain amount of, like, oh, you know, reputation of the brand of the firm, but you’ll see successful entrepreneurs who had, like, you know, their early investors were kind of like, maybe not as recognizable brands, and they go right back, right? And that, you know, I think, like, there’s a certain amount of, like, “Yeah, well, I have that working relationship. I know that they’re good board members, looking out for the company, I have an existing relationship with them, I know how they work, I know that they’re going to push me where I need to be pushed, and let me run the business in the areas that they’re not experts in, you know, unless there’s something massively wrong comes up.” So.
Raju: Well, I don’t know what this statement is, but I think I heard this once, which is the average quality board lasts longer than most marriages. [laugh] So, you better pick the right people that are sitting around the table. You know what I mean? So—
Jason: Yeah. No, absolutely.
Raju: Yeah. Seven to ten-year journey with somebody, man. Ugh.
Jason: Yeah.
Raju: You’ve had a [crosstalk 00:33:31].
Jason: Yeah, it’s a lot. It’s a lot. It’s a lot. But it’s fun. It’s honestly—it is my—it is the most fun part of the jobs. People are like, “Oh man, you got so many b”—I was like, “No, I actually really enjoy the board meetings.” It’s great.
Will: Thank you for listening to RRE POV.
Raju: You can keep up with the latest on the podcast at @RRE on Twitter—or shall I say X—
Jason: —or rre.com, and on Apple Podcasts, Spotify, Google Podcasts—
Raju: —or wherever fine podcasts are distributed. We’ll see you next time.