There has been much discussion around transformative innovation that explores new horizons and potentially disrupts business models, and whether this requires an entrepreneur mindset on the Board of Directors.
Recently, I was asked by Freeths LLP, an award winning and large UK legal firm, to share insights on ‘how to infuse boards with entrepreneurial spirit’ – an article that was included in their prodigious Winter 2018 edition of their Platinum Magazine.
The Freeths Platinum Magazine is sent to their top and private clients. You can read it online HERE (page 15).
This subject is increasing in board discussions and agendas, which has prompted me to continue the subject discussion, to take a deeper dive across the positives and repercussions of adapting and entrepreneurial approach to business.
If you are leading a start-up business or involved in a scale up business with potential for high growth, one of the most valuable things you should do early on is to set up an board of advisors.
Scaling an enterprise is hard work, and you only stand to benefit from drawing on perspectives, experience, and networks that augment your own.
A group of advisors committed to your success not only provides a sounding board to test and strengthen your ideas, it gives you access to important competencies and resources.
But many entrepreneurs, especially those in the early stages, find the task of building an advisory board daunting.
Whose strengths would complement their own and counter their weaknesses?
Who might bring an insight to the table that would otherwise be missed?
It can feel like an exercise in knowing what you do not know. Moreover, most people who have not formalised such a board before have not given much thought to what it takes to keep one running effectively.
Board members tend to have immense experience in at least one of these three areas: financial expertise, industry-specific knowledge, or operational management.
Over the past couple of decades, though, companies have become more interested in diversifying their boardroom both in race and gender as well as in expertise.
Today, you’ll find individuals with backgrounds in marketing, IT, and human resources in addition to the “classic” board member tracks.
The latest trend, however, is adding someone with an entrepreneurial background to your team of directors.
Boards are constantly being pulled between short term goal-oriented oversight and long term, strategically focused planning.
Entrepreneurs are generally going to default to strategic thinking and will help pull your board out of conversations that should be left to your company’s C-suite.
Entrepreneurs are often “visionaries” in the business world and offer a complementary element to boards that already favour members who are well-versed in risk management or short term, operational guidance.
This is not to say that an entrepreneur will always be right about their theories or suggestions, but their presence alone will force more conservative members to tackle some out-of-the-box thinking.
The boardroom is not generally thought of as the ‘nerve centre’ of entrepreneurism within a company, particularly a company trading on the stock exchange.
The role of a typical director is often more about audit, risk reviews and compliance, and directors may see ‘entrepreneurship’ as a risk element.
Often this means keeping one or even both eyes on the rear-view mirror, and yet maybe the biggest threat is ahead and not yet fully visible in the headlights.
Most directors have little experience or understanding of the risks posed by disrupters and technological changes. With many directors on stock exchange companies being recruited from large and established companies, few of them can boast about any entrepreneurial experience. This raises a number of questions:
Do boards need to be more entrepreneurial to detect and counter modern-day risks?
Could a board that is more diverse in terms of experience, age or culture help address this?
We live in a fast paced and rapidly changing world. Even just a decade ago, changes to markets and business challenges were slower paced. However, since the dawn of global connectivity, big data and the maturing of the World Wide Web, companies are encountering threats at a much faster pace and competition is global.
Companies face modern-day risks associated with the ‘Sharing Economy’, cybercrime or even the IoT (Internet of Things).
The threat posed by disrupters can be catastrophic and quickly bring down what was a very successful company.
The board needs to anticipate changes and be innovative in relation to these modern day risks; that is, it has to become more entrepreneurial.
Yet, though the environment in which companies now operate is constantly changing, the behaviours of directors and the majority of boards are not.
Boards spend significant time on compliance and on examining historical data on company performance and comparisons to budgets, yet the strategic role sometimes remains an annual event completed, printed and filed away for 12 months.
Directors spend limited time considering strategy at a typical board meeting, and may regard innovation as a change of state and, therefore, a risk factor.
Directors have a duty of care to their shareholders and are responsible for determining the company’s growth and survival strategies. But do boards spend enough time discussing competition, or new developments in technology, or even possible changes to regulations that may in the future impact the business?
For many boards, these areas are never discussed.
In the business world, will we ever forget Kodak and its devastating collapse, after being a highly successful business that neglected the need to change when digital photography was first introduced.
The irony is that the technology was originally developed by Kodak in 1975 and was effectively discarded because Kodak feared it threatened its photographic film business.
The digital and, at the time, much smaller companies took it on, and everything else is now history.
Although this is a classic example and a tragic one for Kodak’s shareholders and staff, there are many other examples and are likely to be increasingly many more to come.
The new disruptive technologies of the Sharing Economy such as Uber and Airbnb are having a significant impact on the market value of companies in transport and hospitality.
We should also consider the changes that have occurred in print media, including the retrenchment of many journalists because of the impact of digital media and resulting decline in advertising revenue.
Also consider the decline of Blockbuster video and the rise of Netflix. These types of disruptions in other industries could have staggering implications across many markets.
In the area of banking and finance, for example, people are starting to collaborate to exchange money and bi-pass the banks’ foreign exchange departments with the high rise of high growth and disruptive fintech companies.
Directors need to better understand threats and also assess more innovative growth strategies if their companies are to compete in the rapidly changing world in which we live in.
This means a different set of skills are needed at board level, in addition to the more traditional skills.
Business survival requires boards and directors to be more agile and predictive, particularly in relation to disrupters that could be catastrophic for their business.
Technological advances and customer behaviour can turn the business fortunes of companies around very quickly. For the modern-day director, it is necessary to be constantly aware of the external environment so that potential disrupters can be quickly detected and countered.
As a result, more effort is needed to create an entrepreneurial approach at the director level through properly managed processes and structures. This may include extending the current standard board committee structure to include a standalone innovation committee, providing leadership in innovation, and to bringing in a structured process to manage and assess opportunities and threats.
Many classic-minded board members are extremely risk averse and for good reason!
They are tasked with a great amount of responsibility to shareholders and to the overall success of an organisation.
Unfortunately, this can sometimes lead them to fear failure in such a way that it stifles success.
Many successful entrepreneurs are known for embracing small failures in order to reach large triumphs.
This attitude in support of both flexibility and evolution brings a unique and forward-thinking element to any boardroom
For the modern day director, it is necessary to be constantly aware of the external environment so that potential disrupters can be quickly detected and countered.
As a result, more effort is needed to create an entrepreneurial approach at the director level through properly managed processes and structures.
This may include extending the current standard board committee structure to include a standalone innovation committee, providing leadership in innovation, and to bringing in a structured process to manage and assess opportunities and threats.
With the growing need for businesses to fend off disruptions, as well as to create their own disruptions, it is time to consider how board meetings can evolve so that instead of spending so much time on backward looking and historical data, boards do a little bit of creative forecasting and consider the future of the business and the market.
Some suggestions are:
• Create an Innovation Committee. Increasing the time spent considering innovation will make an enormous difference to many companies.
• Spend some time discussing ‘what if’ scenarios to facilitate innovation discussions.
• Develop an opportunity management focus at the board level, instead of just a risk management focus.
• Place on the board’s agenda an item for competitive trends and behaviours and possible disruptions to the business model. Look to other industries for examples of how disruptions have been addressed.
• Encourage management to look to untapped knowledge in the staff pool (e.g. users of the ‘sharing economy’ might have a good understanding of disrupters).
• When it comes to funding a company, maybe consider other innovative methods to raise funds.
The future is bright for those who direct their focus to the headlights and away from the rear-view mirror. Being forewarned of an impending risk or threat may provide the opportunity to develop strategies and so mitigate that threat before its impact is catastrophic.
Keeping an eye on what is coming may help enable your company to be the disrupter, not the disrupted. Maybe we all need to reflect on that ‘Kodak Moment’ to see how quickly things can change.
Final thought, to achieve substantial and continued growth in the 21st century, companies will have to look beyond improving the existing business model or simply launching new products. These actions just will not generate enough growth anymore.
Growth will come from more ambidextrous organisations that excel at improving their established business model (exploitation) and excel at inventing tomorrow’s growth engines at the same time (exploration).
As Peter Drucker once said discussing Innovation and Entrepreneurship – Practice and Principles:
“This defines entrepreneur and entrepreneurship – the entrepreneur always searches for change, responds to it, and exploits it as an opportunity.”Peter Drucker