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Forming & Building a Strong Board of Directors (With These 5 Strategies) - YouTube
Channel: Dan Martell
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- If somebody asked to be paid to be
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on your board of directors,
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I want you to run away, like--
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(upbeat music)
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(upbeat music)
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Hey, there.
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I'm Dan Martell, CEO, Investor
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and Creator of SaaS Academy.
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In this episode,
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I'm gonna share with you
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how to assemble a board of directors
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that is productive and
supports you as the CEO
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and be sure to stay till the end.
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We're gonna tell you how to get access
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to my Dream 100 framework.
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That is a process for building kind of
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a network to support
you in all your dreams.
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It's what I do.
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Every time I start a new company
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I build the same 100 people list.
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It takes me a while to curate,
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but if you do it, literally,
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your success will be guaranteed.
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So be sure to stay at the end for that,
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but let's get into it.
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So boards, boards, boards.
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Here's the crazy part is,
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I do not like sitting
on boards of directors.
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I do it.
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I'm gonna share a little bit about that.
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But I personally think
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and I heard this from Richard Branson.
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I had the privilege of spending
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a week with him in Switzerland.
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And I asked him how
many boards he sits on,
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cause he has 400 companies
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and he said, "Zero or very few."
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He may sit on a few non-profit boards.
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The reason why he then said to me
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is, "Boards are boring."
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People kinda have all this
process they go through.
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And I honestly,
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for my experience has been the same.
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I think if you know how to run them right.
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Which is not the topic
of this conversation
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but they can be fun.
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But here's the deal, I've been on boards.
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I've sat on non-profit boards
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like an accelerator called Propel ICT
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that was built by the community.
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I did that for two or three years.
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I've had my own boards
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for my last two venture back companies.
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So I had investors
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and co-founders sit on that board.
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I currently sit on the board today
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of an incredible company
called Pela Case or Pela.
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Pela is one of the top 10
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fastest growing companies in Canada.
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They make an incredible phone case
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which I will absolutely pimp out.
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Check out this their new model.
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That's flaxstic, it's a biopolymer.
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So go check out pela.earth.
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If you wanna go check
out their product lines.
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But I've helped many
of my coaching clients
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create the perfect board.
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Cause if not,
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you'll absolutely have politics show up.
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You'll have people that add no value
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and you'll wanna feel like every time
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you're gonna get an anxiety attack
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trying to deliver to the board meetings
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if you don't set them up right.
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So I'm gonna walk you through
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exactly how to think through them
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in this five strategies.
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Number one, fight for the biz.
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So rule number one for me,
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if you're gonna add people
to your board of directors,
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they need to be there to represent
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the best interest of the business.
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They need to be there to support
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the shareholders and the corporation.
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Now I know that you would love for them
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to be your friend
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and to say yes to everything you do.
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But the truth is this if you ask somebody,
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cause they're financially
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responsible for their advice.
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Like essentially there's...
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They're responsible for...
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There's a fiduciary responsibility
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to the corporation as a whole
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than the shareholders that trust them
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to help guide the CEO.
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I absolutely love actually
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the concept of a board
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where if somebody is the CEO
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you need some oversight and
you need separate people.
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So there isn't one bad actor.
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I mean, if you're the founder today
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and you're putting together
your own board of directors.
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I think that's an...
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And you're not doing
it because you have to,
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it's a very mature move to do
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because it shows to the rest of the world.
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It's like, "Hey,
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I wanna hold myself to higher standard.
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I'm willing to have people
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around me that are gonna challenge
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and provide guidance
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and fight for the best outcome
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for our customers and everybody else."
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And sometimes there's gonna be blind spots
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that I don't see these opportunities.
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And having people be able
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to bring those to my attention
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is a very mature thing and amazing.
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But just understand
the board of directors,
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number one, they're fighting for the biz.
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Not necessarily for you as the CEO.
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Number two, keep it small.
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So rule of thumb for most boards
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is you wanna have an odd number.
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The reason why is you need a tie-breaker.
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There's nothing worse than
having some kind of motion
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some decision that's just being delayed
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because you don't have
an odd number of votes
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so that you can
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kinda keep business moving forward.
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At the end of the day,
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momentum is how we win in this game.
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I think the smaller, the better.
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Like when I look at my boards
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that I've created myself,
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three to five people
three in the early days,
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if you've raised kind
of a Series A funding,
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Maybe see it, I think it
could be a little early,
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but your Series A you might have
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an investor or two and
a couple of co-founders
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or maybe just you and it's three.
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I mean, I would only allow
personally, one investor,
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you and then pull in an independent.
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But three is a great
number cause then really
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you're just like kind of reviewing
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you're running the business.
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Most board of directors just so you know,
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they don't know enough context to be able
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to help you run the
company, nor should you.
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I actually had a friend of mine,
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his first board meeting,
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he raised over $10 million
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for his company Series A.
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First board meeting, he jumps in there.
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He lists a bunch of
stuff in the PowerPoints.
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These are the things that
I want your advice on.
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They go through the board meeting.
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Two hours later, they wrap up,
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they're finishing up.
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One of the board members pulls them aside
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and says, "Hey, just so you know,
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if you don't come
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into the board meeting with decisions
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and you just want our
feedback on your decisions
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we're gonna find somebody else
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who can run this company."
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And he was blown away.
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He was like,
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"I thought I was doing the right thing.
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I was getting optionality.
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Here's some things I
wanted their feedback."
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But the truth is,
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people want you to run the company.
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So if you have three to five board members
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come prepared, come ready to go.
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And they're just there
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to give you context, insights
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help you see things a different way.
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But three to five is the perfect amount.
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If you have a lot more
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then there's some weird dynamics
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or different dynamics
I'm just not aware of
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that might be true for your circumstance.
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If it's a nonprofit board
or a family business.
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But man, I seen some photos
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of some board of director meetings
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with like 16 people.
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To me, I just feel like
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you're not gonna be able to actually do
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something meaningful and thoughtful.
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Try to keep it small as you can.
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Number three, value adders.
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So there's this natural tendency
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to think of like, "Oh
I'm gonna have my lawyer
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be on my board of directors
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cause then I'll get free legal advice."
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Probably the worst thing
you could possibly do
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because they're not gonna give you advice
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and having them not add value.
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Like if you need a lawyer on your board,
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you can just pay somebody
to be your lawyer.
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Like, that's what I do.
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I have a tonne of lawyers.
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I just pay them
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to solve problems, to set up stuff.
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But I do not need them in...
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Like lawyers are risk adverse.
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Accounts are the exact same way.
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But most people by default,
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they will have let's say
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their investors or other people.
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I like asking myself,
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"Who's somebody who's
been to where I wanna go
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and how do I get them
involved on my board?"
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And I think,
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that's a really powerful
way to look at it.
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And you wanna make sure
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you don't just have it,
a bunch of investors
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and you, especially if
you're a solo founder
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and you've raised a lot of money.
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You don't have a lot of control.
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You wanna make sure that
you structure the board,
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so that you have a
little bit of influence.
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Yes, they're there to
fight for the business,
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the corporation, the shareholders.
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But don't put yourself
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into a bad position through decisions
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and negotiations you can have upfront.
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So yes, investors are gonna be there.
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That's usually the case,
but try to keep it small.
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And then also bring in your co-founder
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and other people that you
trust to make it work.
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Number four, balance the board.
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So the balancing of the board for me
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is having an independent
director on the board,
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ideally the tiebreaker.
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So on one of the boards I'm involved in,
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there's two investors, two co-founders
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then I'm the independent.
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And my job there is not
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to just side with the founding team
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as a blanket kind of yes-man person.
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And I told them that,
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don't ask me to be on your board
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if you're expecting me
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to just say yes to everything you do.
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But I also know that like
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sometimes investors have
a short-term horizon
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and entrepreneurs have
a long-term horizon.
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And I'm trying to represent
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the best outcome for the shareholders
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over a long period of time being willing.
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Again, that's my style
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is being willing to be
misunderstood by the market.
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Making investments into the future
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not into the quarter
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that are gonna be successful.
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So, find an independent directors
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that ideally shares your values,
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your approach to business
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that you don't feel would be
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easily swayed by your investors.
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But obviously there'll be influenced.
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So that you have some balance
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on your board of directors.
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Number five, equity not cash.
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So the question always comes out, "Well,
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how much do I pay these people?
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You know, it sounds expensive.
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Well, here's the reality.
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If you have investors,
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you don't pay them anything.
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Yeah, you'll offer up
to cover their expenses
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but you're not gonna actually pay them.
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If somebody asks to be paid
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to be on your board of directors,
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I want you to run away.
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Like those people,
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the professional board member.
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That's not what I'm talking about.
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For most companies I coach,
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SaaS founders, technical founders
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people that are building
high growth companies.
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Investors are gonna sit on the board,
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they don't require compensation
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but you can cover their
expenses reasonably.
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So that's on that side.
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If you have independent directors ,
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you wanna use equity.
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And the way it usually
works to think about it.
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And I got this from Brad Feld,
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incredible person in the venture world.
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But Brad talks about like
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the equivalent of what a VP level
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would get compensated in equity.
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So you can think about it kinda like 0.2%
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to maybe 1% and typically half that.
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That'll be depending on the experience
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and the stature and the pedigree
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that person might bring
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an independent board member or et cetera.
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You wanna use equity.
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You never wanna...
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I mean, as a company, cash is key.
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You wanna reinvest it in growth
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and you wanna leverage equity
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to create more value as a pool.
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So that's the way I think
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about compensating board members.
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Equity is always preferred over cash.
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Quick recap.
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Number one, fight for the biz.
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That's the focus of
the board of directors.
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Number two, keep it small.
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Number three, value adders only.
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Number four, balance the board
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and number five, equity not cash.
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As I mentioned at the
beginning of this episode
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I wanna share with you
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an exclusive resource
called the Dream 100.
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It is the 100 contexts.
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The list of people,
[602]
I research and I put together.
[604]
The 10 mentors, the 30
advisors, the 60 peers
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that are on this journey
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to support me and my business.
[612]
You can click the link below
[613]
to get access to that training.
[615]
It is how I've been able
[616]
to start new companies, new projects
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and get to traction as quickly as possible
[620]
using the Dream 100 framework.
[622]
So be sure to click the
link to check that out.
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If you like this video,
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be sure to subscribe to my channel
[626]
be sure to smash the like button
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and leave me a comment
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or share with somebody that you care about
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that you think it could serve.
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As per usual,
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I wanna challenge you
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to live a bigger life
and a bigger business
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and I'll see you next Monday.
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(upbeat music)
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