To research this series, co-author Rick Spence and I talked to business owners across Canada to learn why more and more entrepreneurs are using advisory boards, how to build a board and how to create a “knock it out of the park” board.
But sometimes you can learn more from a single example than a national survey. So, this final column focuses on the exemplary advisory board of Armstrong Partnership LP, a Toronto-based marketing firm. Armstrong makes an ideal model, for at least three reasons. First, in six years its board has gone full cycle, from startup to shutdown. Second, I was involved at the beginning, so I can now share my insider’s view. And, most important, the board developed some excellent practices that other entrepreneurs should adopt.
At its first meeting, in 2001, John Armstrong confided his overall goal to the newly minted advisory board: to achieve an enterprise value of $25 million. At the time, the firm was valued at $6 million to $9 million. In 2006, John sold 80% of his business to Newport Partners Income Fund — based on a company valuation of exactly $25 million. John believes his board played an integral role in reaching this objective: “For the amount of investment in my advisory board in time and money, I got a 20- to 30-times return.”
How did this all happen? Here’s the process that made all the difference.
In the beginning
I first met John in 2000, when I recruited him to the board of Trinity College School in Aurora, Ont., for which I sat on the board and governance committee. After a few discussions about the value of governance, John asked if I could help set up a board for his firm. As managing partner of a venture-capital fund, I had become familiar with boards and good governance — and from the advisory board I had created at my first firm, College Pro Painters — so I knew the value they can bring when done right.
John and I had a couple of “flip chart meetings” at my house, at which we sussed out what he really wanted. Two key themes soon emerged. John’s part-time CFO, Sandra Lemon, had suggested he needed more rigorous financial reporting and would be more likely to develop it properly if he had a board to report to. As Sandra put it, “You don’t want your first line of accountability to be your banker.” As well, we did a grid of John’s strengths and weaknesses. He wanted a board with the skills and experience to shore up his weaker areas. Plus, he wanted to bring in a formal process of accountability and a second set of eyes and ears that would allow him to get the most from his management team.
One potential problem area was John’s propensity for risk. I knew I couldn’t help balance him there, as I’m a bit of a risk-taker myself. So, I suggested we involve one of my partners, ex-CEO and consultant Walter Shaw, in a steering committee to develop the board. With John, we created a working mandate for the board and a list of six candidates to interview to fill the two remaining slots.
Since trust is the most important ingredient in advisory boards, we leaned heavily toward people who John already knew and trusted: John Fielding, who owns a business in a related field; and corporate lawyer Mike Woollcombe. John agreed, so we set up that fateful first meeting at which he laid out his goals. Yes, we considered it far-fetched, but we were full of piss and vinegar and thought we could conquer the world. Business psychologists call this “uninformed optimism.”
Making it work
Looking back, John divides his board’s history into three eras:
Stage 1 — Discipline: getting timely and accurate reporting, working on focus and building trust.
Stage 2 — Guiding hand: the board assists John with strategic planning to help the business grow — and it does!
Stage 3 — Liquidity event: helping John manage the sale of the company while still running the business.
As an entrepreneur and investor who had long studied the processes of strategic planning and making meetings work, I became board chair. We created a series of quarterly, half-day meetings that forced John to identify and work on his most compelling problems. “The board created the discipline that got me to work on the business instead of in the business,” he says.
But it wasn’t a question of magic, just applied focus. “I would pick one major issue that I needed to face, such as my U.S. growth strategy or an investment I needed to make in technology,” says John. “There it would be, sitting on the agenda, staring me in the face as the meeting got closer and closer. Preparing for the meeting forced me to face the issue. Half the value of the board for me was preparing my thinking for the meeting.”
The rest grew from the open discussions in which board members probed John’s issue. “The net result is that our decision-making process gradually improved, and so did the quality of decisions,” he says.
How did the board create better decisions? It started with slowing the process down. Instead of John making snap decisions, such as “Let’s open an office in New York,” he learned to say to his people: “Let’s take that decision to the board.” He would analyze the pros and cons and costs/benefits for the next board meeting, which meant more rocks got turned over and more issues examined, leading to better decisions. John started to inculcate this kind of thinking into his own internal decision-making, and slowly it seeped into the daily workings of the business.
The board’s other key contribution, he says, was to give him “a safe place” to tackle thorny issues such as assessing his team and interviewing new talent. That came as a huge relief: “It was no longer so lonely at the top.”
The board provided one other major benefit. At John’s request, it conducted annual reviews of his performance, allowing him to learn more about himself, his strengths and his weaknesses than he could have ever done otherwise. What doesn’t kill us makes us stronger, wroteNietzsche. John took the medicine seriously, and became much stronger.
The liquidity event
As the benefits of feedback and accountability multiplied, Armstrong Partnership grew substantially in its sales and profits, customer base and management professionalism. John was soon looking for a strategic investor to take his business to the next level, and found the board a huge help in this area. Particularly helpful was Mike Woollcombe. Now that the experienced M&A lawyer knew the firm inside out, he was able to help match it with a deep-pocketed institutional investor that would leave John in charge of operations and add value through its know-how and contacts.
Having a functioning advisory board provided a further unexpected benefit: it made things more attractive for the purchaser. It found Armstrong Partnership clearly more professionally managed than similar firms of its size, especially in itsreporting and management practices. And since the company was already reporting to a board, the buyer knew a shift to a formal board of directors would not be much of a leap.
What went right …and not so right
After the company’s sale, I identified two special ingredients that had made this board successful. First, we had a CEO who really wanted feedback and discipline; he was willing to explore any new processes and ideas that would make his firm better. The other element was his unique relationship with Walter Shaw, who replaced me as board chair in 2003. John made use of Walter’s experience as a business owner, scheduling wide-ranging monthly discussions, usually over dinner. John says Walter was especially helpful in getting to know his senior managers, then helping coach John to bring out the best in them.
So, what would John change if he could do it all over again? “The biggest problem for me was the need to constantly educate the board,” he says. “They needed not only to learn about the industry and the company, but it was crucial that they learn about me, my management style and my motivation. If I had to do it over, I would probably spend more time and money up front on this education, to get them up to speed faster.” He thinks a two-day bootcamp, preceded by hefty background papers and attended by his entire management team, would have enabled his board members to make a bigger and earlier impact.
Not all boards will match Armstrong’s outcome — meeting the original “big hairy audacious goal” right down to the penny. But almost 100% of the CEOs interviewed for this series credit their boards with making substantial contributions to their firms. Four, five or six heads are better than one. The advisory board is clearly a business tool whose time has come — if you are serious about your own success.
Greig Clark (email@example.com), the founder of College Pro Painters, now runs the Horatio Enterprise Fund in Toronto. He researched and wrote this article with assistance from Rick Spence (firstname.lastname@example.org), a Toronto communications consultant, writer and producer of the Canadian Entrepreneur blog at http://canentrepreneur.blogspot.com.