Sometimes the difference between success and failure in a business lies not with the management, but with its board of directors. Venture capitalist and consultant George Abraham has seen boards make or break multiple companies over his career and thinks that many companies underestimate the importance of having a good board.
Abraham will speak at a New Jersey Entrepreneurial Network event on Wednesday, February 15, from noon to 3 p.m. at the Princeton Marriott on recruiting, compensating, and using directors and advisory boards. Tickets are $50. For more information, visit www.njen.com or call 609-688-9252.
Abraham has about 25 years of experience working with businesses in one capacity or another. He grew up in Tenafly, where his father was a tool and die maker who owned a machine shop, and his mother was a research lab technician. He studied accounting in college but delayed his career to spend a few years being a ski bum in Colorado. “I really liked living in Colorado, but the ski bum lifestyle wasn’t going to take me where I wanted to go, so I started my own accounting practice,” he says.
While running the accounting practice in the 1990s, Abraham got working with technology entrepreneurs, and it wasn’t long before he joined their ranks. Since then he has served on the boards of eight private companies. In the early 2000s he founded a venture capital fund that raised $40 million investing in technology transfer spinouts from university labs. After selling the fund in 2008 for $80 million, he began a practice advising and counseling entrepreneurs and tech companies. Today he is president of his own firm, Rhodium Strategies.
Abraham has grown to appreciate the value of advisors and directors. He believes they make their biggest contributions at the strategic level and should focus on the big picture rather than the day-to-day concerns of a company. “Unless you’re really lucky, at some point you’re going to hit a roadbump that a CEO doesn’t have the experience to deal with,” Abraham says.
Abraham recommends that boards spend their time in meetings talking strategic issues and only devote a few minutes to such matters as operations. The CEO should advise board members beforehand of any strategic issues he wants help with to give them time to research and think about solutions.
An experienced board of directors can help find solutions to those unexpected problems. They can also help find opportunities that may not be apparent to management.
For example, Abraham was once on the board of a New York City company called Techserve. The business was well known for its retail stores, but a significant amount of its revenues came from enterprise software. Taking the advice of the board of directors, the company took two years to develop its own technology product that it could sell to the companies it did business with. The product was a success and was eventually spun out into its own company, Groundcontrol Solutions, resulting in an excellent return on investment for Techserve.
“The founders were conservative and cautious people, which is a good attribute,” Abraham says. But they didn’t understand the opportunity that lay before them. The board, which had a few technology entrepreneurs on it, persuaded them to make the investment. “We helped them have the courage of fortitude to actually invest in new technology,” he says.
But how to find the right kind of board members?
“I think most companies take too casual an approach in finding directors and advisors,” he says. “When I advise my clients who are looking to fill boards, I tell them to think strategically about what kind of big-picture gaps you have in the company, not on an operational level, but with the big picture. You should almost write the resume of the person that you would want to have help you fill that gap at a strategic level, and systematically work through your network to try and find the person who fills most of the spots on the sample resume you have built.”
Secondly, Abraham advises companies to bring a prospective board member into a room with the others in order to see if they would be a good fit. “Invite them to a board meeting as a guest participant, but not actually have them on the board yet, to see how they react and how they work with the other folks that are in the room,” Abraham says. “Boards are very interesting living organisms. You can’t just introduce somebody willy-nilly.”
The wrong board members can lead to disastrous outcomes. Abraham remembers one company he funded during his venture capital days where the board was a hindrance. The company management came to the board with a proposal for a merger, but, Abraham says, the board did not appreciate management’s expertise and turned down the request. The company went downhill and was later sold for a 25 percent return.
“I think entrepreneurs don’t think about boards and advisors often enough,” he says. “They are an extremely powerful resource if used well and useless or worse if not.”