Being conned by non-execs Tuesday, February 27, 2007
During a chat this morning with the founder of a tech startup that sells to corporates I asked about their sales process.
He described how he was expecting his non-execs would be key in this because of their great connections into big companies.
So I asked how they were being rewarded, to which the answer was they'd received shares for cash.
Here's what's wrong in this scenario
- as a rule non execs don't sign up to be sales people. Some mentoring & a few intros perhaps but not sales. They will also be cautious about calling their contacts in a sales mode because you can only do that so many times & that's not necessarily how they will wish to be perceived. Moreover most non-execs usually have several companies in their portfolio.
A further difficulty is introduced if they do a sales role, namely it compromises their ability to provide an external & more abstract/disciplined view at board level.
- everyone gains if the company is successful, which sadly includes non-execs who may choose to freeride and actually sit back. You can't take shares off them, albeit you might be able to dilute them down the line. Freeriders include non execs who fail to show up for meetings.
So the guidance is
- don't rely on your non-execs for your sales pipeline; if they bring some its a bonus
- don't allot shares up front unless the non exec is simply a financial investor. If its to be as a reward for performance, then agree they be allotted at a future date provided agreed criterion are met or sell them options based on an uplift of the curent price.
- At 12:31 PM, Raj said...
I think I know who you are referring to here. Its always recommended to confirm things before blogging it.
There is a difference between the only strategy and one of the strategies.
Its a commonly known fact that non-executives are not primarily meant to open doors but give advice. So thanks for your thoughts on greatapps
- At 8:22 PM, John Wilson said...
Raj, I'd be surprised if you did unless you happen to be based in Kew, Surrey. But I guess the situation can sound similar to others you know - many companies follow this line of thought.