A founder’s relationship with their investors should be about more than just financing. Investors bring expertise from their prior careers as COOs, CFOs, or other operational roles. Also, multiple board seats give them insights into how best-of-breed companies scale. Tapping into this knowledge lets one spot operational inefficiencies that might otherwise be missed, enabling faster growth for the company.
However, navigating conversations with investors in their areas of operational expertise isn’t always straightforward. It’s not always clear where a board member’s responsibilities should start and end. Overlapping areas of expertise can muddy internal decision-making and confuse strategy. Egos also get in the way, keeping both sides from hearing each other’s honest feedback. I keep the following principles in mind to avoid these pitfalls and get the most out of investors’ operational knowledge and experience.
When it comes to tough feedback, put your ego aside
Too often, I’ve seen founders let their egos prevent them from being able to receive investors’ critiques. Rather than thinking about how the feedback reflects on you and your performance, focus on the broader goal of company success. You want your investors to poke holes in your assumptions because that’s how you’ll fix inefficiencies and proactively address concerns about scalability that will inevitably arise as your business matures.
For example, in the early days of Egnyte, my chief growth officer and I were the de facto sales leaders, and we both thought we were pretty good at it. We evaluated sales success based on quarterly revenue attainment and hit our goals quarter after quarter. Then, one of our investors asked us to dive deeper. What would happen if we broke down the percentage of our sales reps hitting 50%, 80%, or even 100% of their quota?
Too often, I’ve seen founders let their egos prevent them from being able to receive investors’ critiques.
While it’s hard to hear someone pick apart the sales numbers I was so proud of, I knew he had helped dozens of SaaS startups scale. He knew the pitfalls to watch out for that we’d never see coming. So, I swallowed my pride and pulled out the data he requested.
A handful of reps were carrying the majority of the sales load for our team, making 2x or even 3x their quota. Meanwhile, most of the other reps needed their targets every quarter. Our numbers looked good on paper, but unless we could democratize sales success, our efforts wouldn’t scale. By changing the structure of the sales team and educating the underperformers on how to improve close rates, we were able to close the gap. And now we include a slide with this rep-by-rep quota breakdown in every board presentation, named after the investor who asked about it.
Draw a clear line between advisers and operators
Just like you should respect your investors’ expertise, they should respect yours. They bring a wide breadth of knowledge from serving on other startups’ boards and might even have operational experience at other companies. But those skills aren’t necessarily transferable. Only you know your particular niche and focus full-time on your singular business. At the same time, you should always listen closely to your board’s opinions on the operational decisions you make the final call on.
That means you must maintain a clear division between advisers (your board) and operators (your team). While your advisers can (and should) meet and interact with senior members of your team, they aren’t your team’s bosses. You are. The more founders and investors can clearly define their respective swim lanes (and stay in them), the more they’ll keep a clear perspective and maintain a fruitful relationship.
In the early days of Egnyte, I was guilty of letting this line blur, especially in sales and marketing. That was until the day I overheard a board member brainstorming ideas directly with a marketing leader. I needed to set clear boundaries to clarify the chain of command and avoid confusion about who was running the business. Investors can advise and guide, but they should not be involved in day-to-day operations, no matter their expertise.
Make the final call, but share your rationale
When it comes to how your business operates, you have the final say — and that means you will sometimes go against your investors’ advice. When you do, it’s essential to move forward with full transparency so your board feels heard and isn’t left out of the loop on major decisions. Mutual respect and open communication are fundamental here.
For example, investors on the Egnyte board recently made the case that we needed to hire soon for a costly and specialized high-level role. I heard them out, listened seriously to their feedback, and made it clear that while I agreed with them in principle, the timing wasn’t right. Egnyte would wait to hire for this role and instead spend the cash on other, more pressing needs. My board may still disagree, but because I brought them into my decision-making process, they’ve respected my call and haven’t brought the issue up again.
Get the most out of your board
Investors’ operational expertise is an invaluable resource, especially in the early stages of your company. Effectively utilizing their help to spot inefficiencies in your business model early on prevents headaches when you scale later. However, you should never lose sight of the division of labor between the board, the founder(s), and the leadership team. The more each of these groups is clear on their role — and knows to stay within it — the more fruitful the relationship will be.