If Maslow Ran a Board Meeting: A Startup Hierarchy of Needs
Note from Ishan
I added Guests Posts as a new section to Scale It Up in 2022. As the readership of the newsletter has grown, it felt timely to add this section to bring occasional posts from our members, and share their experiences with the community.
The guest post this week is from Jules Maltz, a dear friend and fellow Stanford Business School alum, who is currently a partner at IVP. IVP is a leading venture capital firm which was founded in 1980s and till now has invested in more than 400 companies (of which 130 have gone public!).
Having known Jules for more than a decade, I have always seen him to be a very intentional investor, who is continuously figuring out ways to help his portfolio companies to scale up.
During my own job search last year, Jules offered me very thoughtful connections to his portfolio companies, where he sincerely believed that there could be really good mutual fits. And one such introduction turned into a full time role for me at Tala and fit very well with my own career goals. At that point, one of Jules’ fellow partners at IVP rightly summed Jules’ networking super power by saying “Jules is perhaps the best undercover executive recruiter in the Silicon Valley!”.
In this week’s newsletter, Jules has analyzed what it takes to run a great Board meeting. Having been a board member to 40+ companies, he has observed companies through different stages. He strongly believes that the needs of companies continue to change as they evolve and therefore their asks from their Board Members should continue to change as well.
The framework laid down by Jules is really a strategic way to think about the lifecycle of a company and its changing priorities, as the company company goes from stage to stage- something that every entrepreneur should be thinking about!
I hope you enjoy reading Jules’ take on how to get the Board to help scale up your company!
If Maslow Ran a Board Meeting: A Startup Hierarchy of Needs
- Jules Maltz
Almost every company struggles with Board meetings. The usual issues consist of: we didn’t get through the slides and it felt rushed; the Board wasn’t engaged enough; or the Board was too engaged and asked bad questions (What’s our web3 strategy, anyway?). The current, post-pandemic, virtual world compounds these challenges by making it hard to have a flowing group conversation and stay focused for hours.
I’ve been involved in over 40 Boards over the last 15 years and I know Board meetings can be frustrating, but they are also tremendous opportunities. You are gathering smart people from both inside and outside your company for a few hours to talk about the essential things in your business. Board members should leave the meeting understanding your company better, and you should gain new perspectives that help you make better business decisions.
So why do some Board meetings go off track? It’s not for a lack of recommendations. There are some amazing resources on Board meetings, including what should be in your Board deck, how not to surprise your Board members, and who should be in the meeting. But what’s missing from many of these recommendations is that each company differs in its stage of development and immediate challenges. Rather than a one-size-fits-all approach to Board meetings, the best meetings are tailored to each company’s specific needs and to where the company is along its hierarchy of needs.
In 1943, psychologist Abraham Maslow created a framework to understand human motivation. At the bottom of the pyramid are physical needs (food, water, shelter, etc.). Once a person has satisfied those needs, they can more easily move up to safety/security, then belonging/love and finally self-actualization and transcendence. It’s not a perfect representation, but it illustrates that until your basic needs are met, you can’t focus on your higher-level goals.
Similar to Maslow’s pyramid, startups have a hierarchy of needs. By understanding where your startup is on the pyramid, you can focus your Board meetings on the right topics and make sure you reach your ultimate goals. Here’s a proposed startup hierarchy of needs (starting from the bottom and going up):
Stage 1: Cash
“Cash is oxygen, and oxygen is life.” I will never forget this quote by Mark Leslie, former CEO of Veritas and one of my favorite teachers at Stanford. Startups don’t fail because they get the product wrong or hire incorrectly. They fail because they simply run out of money. Mark’s point is that as long as you have money (oxygen), your startup has time to fix its problems with the product or the team and live to fight another day. If you have a Board meeting and your startup has a short cash runway (usually less than six months), your #1 topic should be cash and how you plan not to run out of money (equity or debt fundraising, headcount reductions, pricing/product changes, etc.). Your head of finance should be the star of the Board meeting and your Board should help with funding intros and creative ideas to extend your cash runway. One company I worked with sold off an existing business line to fund the growth of its new burgeoning SaaS business. Cash is your food and shelter equivalent, and until you solve your liquidity problems, nothing else matters. Fortunately, given the plentiful capital environment today, most startups aren’t in Stage 1 for long, so you can hopefully move on to the next stage.
Stage 2: Product-Market-Fit
The concept of product-market-fit, coined by Benchmark co-founder Andy Rachleff, another one of my favorite teachers, means that you have built a product that meets the market's needs. Customers are pulling the product out of your hands because you’ve created something valuable that they want and are willing to pay for (with their time or money). Most startups are at this stage so most Board meetings should focus here. Achieving product-market-fit also means you are building a healthy business model with strong underlying unit economics. If you have poor marketing or sales efficiency (low LTV/CAC, high payback period, etc.), high churn, or low engagement/NPS, you likely have work to do on your product-market-fit. Your Board conversation should focus on diagnosing the problem and outlining your plan to fix it. One company I worked with that struggled with churn spent most of a recent Board meeting going customer-by-customer outlining the reason for each churned account, and specifically how changes in the product would address these deficiencies. Your Board meeting stars should be the heads of product/engineering who are building your product and/or the go-to-market leaders responsible for selling. Once you feel good about your product-market-fit and it’s scaling well, you can move up to the next stage.
Stage 3: Building Your Team
As soon as you have product-market-fit, it’s time to scale. Paul Graham , co-founder of Y Combinator, defines a startup as a company that is uniquely designed to grow fast. Growing prior to product-market-fit can be a great way to end up back in Stage 1, desperate for cash, but once you’re seeing market pull for your product in a large market, you usually want to grow as quickly as possible. As you start to scale, you’ll likely notice that some of your former star individual contributors are struggling to hire and manage teams. It’s time to think about bringing in outside leaders who have operated at larger companies beyond your startup’s current scale. A significant part of your Board meetings should focus on how your existing functional leaders are doing (ideally in an executive session just with your Board) and where you need to make changes or hire for new positions. Great CEOs rely on their Boards to help source potential candidates or provide search firm introductions, interview and assess candidates, and eventually convince them to join your startup. You should spend a meaningful part of your time (and your Board meeting) focused on open senior positions and report on your progress with the same urgency and accountability as you review your financial results. It’s also a great time for you to solicit feedback on your own performance and how you can improve (the best CEOs are constantly asking their Board for feedback). I see many companies at this stage get Board meetings wrong and spend too much time talking about Stage 2 or Stage 4 areas when scaling the team is the most critical open item. It’s also my favorite place to help, so enjoy Stage 3 and put your Board to work. If you don’t have the right Board at this stage, consider recruiting diverse, independent Board Directors to help. The star of the Stage 3 Board meeting should be your HR leader (who you have hopefully hired by now) or you as the chief executive ultimately responsible. Even the most successful companies rarely leave this stage completely as you are constantly building and upgrading your team. Once you have most of your future leadership team in place though, you can start to move up the pyramid again.
Stage 4: Finding Your Next S-Curve
Startups win because the technology landscape changes quickly, leaving legacy companies unable to adapt. Dominant historical companies like IBM, Yahoo, AOL or Nokia failed to adjust their existing technology and business models to new paradigms, creating room for startups to supplant them. In 1962, the sociologist Everett Rogers came up with a theory for the diffusion of innovations. Originally applied to agricultural technology, he postulated that the rate of adoption for new innovation starts slow, accelerates rapidly, and finally tapers off, creating the shape of the letter S (see image below). Startup growth is often similar. Once you’ve achieved product-market-fit, you’ll likely accelerate rapidly, but eventually slow down due to market size constraints, competition, or changes in your customers’ needs. The best companies aren’t complacent riding their existing S-curve, but instead quickly start searching for the next business line or innovation that will propel them forward. Many of the highest performing companies like Apple, Salesforce, Alphabet, and Meta have been focused on this stage for the last decade, unsatisfied with their current dominance and always searching for large, adjacent businesses. CEOs at this stage focus their Board meetings on product initiatives that will drive new S-curves, often giving them the same time and attention they did when they discovered product-market-fit in Stage 2. M&A can also play an important role as companies look for new business lines through acquisition. The stars of your Stage 4 Board meetings are again the internal product and engineering teams, as well as occasionally corporate development. I’ve also seen CEOs get personally involved by having new businesses report directly to them to make sure the company is focused on what will propel it in the future.
Stage 5: Nirvana
If your business has (1) plenty of cash; (2) clear product-market-fit with compelling unit economics; (3) an incredible and complete leadership team; and (4) is successfully building its future business lines, congratulations, you made it to the top of the pyramid! Nirvana is defined as a state of perfect freedom, the highest happiness, and liberation from all suffering. If you are here as a startup, you can spend your Board meetings doing whatever you like. Want to talk about naming rights for the new Warriors stadium? Sure. Get the Board’s input on changing your name and logo? Great. Listen to the band Nirvana during the meeting? Of course, and I recommend the MTV Unplugged album! Just remember that the only thing harder than making it to Nirvana is maintaining it. I hope you all make it and stay at this stage, and if you do, please invite me to the Board meeting!
The Startup Hierarchy Of Needs
Just like Maslow’s original hierarchy of needs, the startup hierarchy of needs isn’t perfect. Many needs overlap and intersect. Humans need food and shelter, but to get food and shelter, we depend on love and relationships with others. For startups to raise growth capital they frequently need to demonstrate product-market-fit, which in turn requires the right leadership team. While the relationship between stages sometimes goes in reverse, the more you master the lower stages, the easier it is to get to the top. Companies with adequate cash resources have more time to achieve product-market-fit and demonstrate compelling unit economics, which in turn makes it easier to raise more capital. Strong business traction then helps you attract top leaders from larger companies who can further scale your startup and expand into future business lines to ride new S-curves.
The startup hierarchy of needs is most useful for aligning your company and focusing your Board. You’ll have more productive Board meetings if you agree on what stage you’re currently in and spend time in the meeting accordingly. Board members should also follow the hierarchy and focus their questions on helping the company master its current stage (if the company is running out of money, it doesn’t matter that you don’t like the head of marketing). While your current stage in the hierarchy should take most of your meeting time, you can still cover content from other stages. Reviewing the cash position and key business metrics (if strong) at the start of the Board meeting is a great way to remind Board members that you have passed stages 1 and 2 and will spend most of your time on the leadership team and future business lines. You should also cover topics outside of the hierarchy of needs. Boards have an important legal function and shouldn’t neglect industry regulation, annual budgeting, employee NPS/culture, and diversity, equity and inclusion.
Remember, Board meetings can and should be fun. They are a great way to get incredible people together to help you solve some of the most difficult problems. You and your Board members should come into the meeting with an open and curious mind. See it as an opportunity to learn from each other, overcome the challenge at hand, and eventually make it to the top of the pyramid.
Jules Maltz is an investor at IVP and lives in San Francisco. He has been in venture capital since 2004 and has attended over 500 Board meetings. He currently works from a foldable desk in his basement spare bedroom and misses the free coffee and cookies from in-person meetings.
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