Monthly Archives: August 2013

Strategy in a Venture-Backed Firm

Most of the start-ups I have had connection with have had great ideas and passionate founders working to bring those ideas to fruition. Yet many of these firms fail – either to get to market or even to get financing. It’s not usually because they lack smarts or heart. In fact, those are probably the most common things that founders of start-ups have. A contributing factor to firm’s lack of success and under-performance is connected to how strategy is developed and executed in the firm (otherwise known as decision-making process and implementation).

Whose responsibility is strategy in an early venture – founders, management or board? We think that at the end of the day it’s really the joint responsibility of the Board and CEO to set strategy, relying on strong recommendations and information gathering by the founders and management team. So what are some of the common strategy development mistakes at venture-backed firms? We think there are four key areas to look at:

1. Lack of Role Clarity – Often Boards are not clear on what their role is in determining strategic direction of the firm. It’s common that Boards of Directors rely on the CEO and his or her team to develop and implement strategy with the result that Board meetings are about communicating pitfalls and progress. While this approach is common and not without merit, it doesn’t take full advantage of the Board’s knowledge or of their responsibility for strategy development and decision-making. If thoughtfully selected, the Board will have members with deep industry knowledge, or at least deep knowledge of the issues the firm will face. Boards should focus on developing the strategic direction of the firm with significant input from the management team. All should be involved with the process in order to surface the best ideas, gain a diversity of perspective and maximize buy-in to the strategic plan. Strategy development should ideally be viewed as a partnership between the Board and Management.

2. Limited Board Agenda – Boards at private companies tend to meet six times a year. The time together is valuable and it’s often under-utilized. At one firm we have worked with the CEO sets the agenda for the Board meetings and is the driver of discussions. It seems he is trying to prove how smart he is to the Board, rather than engaging the Board with an open mind toward higher level strategic decisions. The exchange is primarily uni-directional, rather than more even among all the Board members (not a good sign, by the way). More importantly, the quality of information focuses on reporting what has happened (financial reports, progress on business development and the like). This information is important, but it should take about one-third of the meeting at the maximum with two-thirds of the time spent on strategic issues (how should we grow, which product or service do we focus our efforts on, should we expand our geographic footprint now or wait?). Effective Boards spend most of their time on strategic issues and direction for the firm.

3. Lack of Strategic Information – This can particularly haunt start-ups as access to strategic information may be limited or inaccurate. Much information can be private or not easily accessible. Many of the industries move rapidly and strategic information changes at a fast pace. Nonetheless, it’s imperative that the Board get the appropriate information they need to help set strategic direction. This is where it’s really imperative that people with industry knowledge are on the Board. Ideally, it’s good to have several people with deep knowledge. Early stage venture-backed firms are often dominated by venture capitalists. While many VCs have great industry knowledge, most have not been operators of businesses. Make sure to get independent directors with operational experience and a working network that can access the right strategic information (what are the alternate solutions trying to solve the same problem(s) your firm is trying to solve, where is the regulatory climate going and how will that affect your firm’s strategy, which financing strategy will best match the firm’s business strategy?)

4. Dysfunctional Boardroom Dynamics – We can’t underscore how destructive a dysfunctional board can be to a company’s success. We are not talking about low level dysfunction where people are talking too much or not fully engaging due to over-commitments. No, we are talking more about second-guessing the CEO after strategy has been agreed at the Board level, being overly critical about personal quirks and withholding ideas as a result of being scared to sound dumb or being criticized by others on the Board. Let’s be clear: the Board meeting is intended to air ideas from diverse thinking individuals so that ALL the realistic options can be considered in strategy decision-making. Any activity that supports that process is welcome. Trust and respect for people on the Board (and in management) are the foundational elements for a high functioning Board. Work towards that goal in every meeting and the Board will set the stage for high performance.

Five Key Areas for Wealth Management Firms to Focus on for High Performance in Current Environment

In the financial advice business, a key success factor in the business development process is the degree to which advisors make an accurate assessment of themselves, others and situations. So it was a surprise to find advisors and prospects see things differently in some meaningful ways on certain elements in the business development process. At least, this is the result of joint research by our organization, Atherton Consulting Group, and Upside Consulting Group based in Toronto.

The groups collaborated on a recent study comparing how advisors market services with what prospects seek in a financial advisor. They developed a survey examining advisor and prospect perspectives on the sales process as two sides of the same coin. Specifically, advisors were asked “what are the most important elements of your sales process?” and prospects were asked “what are the most important attributes that you look for in an advisor?”

In the post-financial crisis climate, wealth management clients are more circumspect about advisor capabilities and motivations. Trust has to be earned, rather than advisors assuming it is there to be lost. Clients are also paying closer attention to the value received for fees they incur. New business models, a movement toward passive investing and improved online investment and financial planning information all threaten the way traditional wealth management businesses operate. With this as the backdrop, our collaborative research pointed to five key areas firms should prioritize for high performance in the current environment:

1. Listen. It’s not about the advisor, it’s about the prospect. Capabilities are irrelevant unless they relate directly to a need that has been clearly articulated by the client. Develop and master questioning strategies and listening skills aimed at understanding and creating an emotional connection. Write questions in advance and practice paraphrasing, validating, appreciative inquiry and other active listening skills with prospects.

2. Substance is more important than form. Focus on the concrete value of the service. Personal relationships are earned over time by delivering results that are important to the client. Go into detail on what tax-sensitive investment management means (e.g., .25%/year improved after tax returns). Keep an on-going log of results to show clients as the relationship develops (e.g., investment returns compared to benchmarks, tax savings, total fees, referral to mortgage broker).

3. Tackle the fee structure openly and early with prospects. Be transparent and specific about how you’re paid and how this aligns with the value received by the client. Firms must ensure incentives are aligned with client results. Probably more than any other business, the private client relationship is centered on trust. Transparency around all sources of fees (asset management, underlying manager, redemption, incentive fees) will help solidify that trust.

4. Do not shy away from showing investment performance. It seems to have been lost by many in the wealth management industry that investment performance matters to prospects. Prospects are clearly saying it matters. While no industry standard for communicating private client investment performance has emerged, advisors have the opportunity to differentiate themselves through appropriate historical performance analysis communicated in a way that matters to prospects.

5. Continually ask clients and prospects what products and services they are interested in and figure out a way to offer them, directly or through collaboration and partnership. Being in the dark about what clients and prospects seek is an invitation for other advisors to convert them. Periodic on-line survey tools and questionnaires at quarterly or annual reviews can help with this process. Assign and make accountable a highly skilled team member to collect data, develop client recommendations and create new solutions-focused services specific to client needs.