Tl;dr - The role of a private company board is oversight and governance. Those are not always welcome in privately held businesses which prefer to operate according to tradition and lifestyle requirements. However, if a company can structure a board to include adequate independent directors with important domain expertise in areas including talent management, cybersecurity, marketing, M&A transactions, sales and global growth, a board can be a strategic asset.
Nose In, Fingers Out of Marketing and Sales
Directors walk a fine line. The old saw advising nose in, fingers out may be cliched, but it's persisted for its wisdom.
While it's easy to understand the principle behind the admonition, numerous factors combine to make it more challenging for directors to follow today. Directors face heightened regulatory and shareholder scrutiny, even in privately held firms. Rapidly changing market and social trends threaten to whipsaw boards between strategy and tactical response.
Further, effective oversight increasingly demands a team of directors strategically assembled to codify multiple critical skillsets and perspectives into a group of executive, independent, and often family directors.
Yet, often, the role of a private company board is established backward; as a byproduct of the expertise and culture of the company. The board is frequently a reflection of management (often founder) skills and preferences. That means that the boards of most privately held middle-market industrial manufacturers are heavy in finance, engineering, and business management but often missing HR, M&A, cybersecurity, marketing, sales, emerging technology, global, and other critical skills and perspectives.
A board simply can't provide adequate oversight in areas in which it doesn't have contemporary skills and expertise. Even when they run their fingers out, it's impossible for them to properly oversee and evaluate senior management without consistent board familiarity and awareness.
Consultants can help in certain cases, but boards must proactively implement self-governance policies to manage longevity, skills, and other criteria. (That's the power of a properly constructed board skills matrix.)
In my experience, marketing and sales are two critical business functions that are frequently missing and limit the effective role of a private company board of directors.
Boards of privately held industrial companies are generally poorly prepared to offer meaningful oversight and guidance in the critical revenue growth function.
Challenges for a Private Company Board of Directors Providing Revenue Growth Oversight
It's no secret that boards, particularly independent directors, face an uphill battle in many family-owned companies where family members and other long-time employees hold lifetime sinecures in critical positions.
Many of these companies are doing OK. They often don't measure performance in terms of return on equity. They only entertain acquisition offers skeptically, struggle with succession planning, and seek growth only as it's required to support a lifestyle business rather than specific business goals.
Companies like this also (correlation? causation?) often lack a disciplined marketing and sales culture. The B2B marketing budget is typically based on tradeshow participation and a few ads. Reporting, and therefore accountability, are generally pretty loose.
And that usually includes the CEO who isn't interested in being managed by an active board.
All of that is the prerogative of ownership. If they're happy and comfortable, that's their call. If they're aware but unconcerned about quantifiable missed opportunities, threats from rising competitors and changing buyer expectations, and they're adequately financially cushioned from economic downturns, good for them.
However, if family, owners and execs assume naively and incorrectly that things are optimized, they may miss attractive strategic opportunities and unknowingly oversee the decline of a storied business. The gradual deterioration is often pernicious - happening imperceptibly at first, accelerating gradually and misunderstood as routine market fluctuation, and often well underway by the time awareness increases.
Realistically a strong private company board of directors is often hard for management to embrace. And even when they do, the board and particularly independent directors may be hamstrung.
But...it doesn't have to be that way. For progressive companies willing to adapt, a strong board with capable independent directors who bring critical domain experience can drive performance that will help ensure decades of outperformance.
Manufacturing Marketing and Industrial Sales Disruption
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ai generated image by Dall E (prompt = "stained glass image of a company's board of directors falling asleep" |
Today's market is fundamentally different than that of a decade or two ago. Competition, buyer expectations, purchasing teams, capital approvals, and technology have all changed. Revenue growth tools, tactics and strategies must too.
In response to market changes, every company has adapted its manufacturing process and products over the last 20 years. In the machine world, that means multi-axis servos, toolless changeovers, connected machines, remote diagnostics, and more.
Production is rigorously measured and managed. Each step is carefully process engineered.
That contrasts sharply with sales and marketing which are essentially unchanged from 2000 (with the addition of email and Zoom.) There are often no analogous metrics for steps in the revenue growth system. Results are measured in revenue - as if production was only managed by units shipped.
Sales process is often an outdated BANT or similar model, rather than a sophisticated analog to the tight tolerances of the manufacturing process. Hiring, recruiting, pipeline management, prospecting, and other basic sales functions often still look like they did in Y2K.
Marketing for manufacturing companies typically lacks the sophistication and technology that is not only necessary for success with information-deluged prospects, but doesn't meet the expectations of buyers who have grown accustomed to rich B2C experiences.
While companies adapted to manufacturing disruptions of the 80s and 90s, they often haven't done the same for the front end of the business.
The good news is that most competitors haven't either. So there's still time to implement important changes.
The bad news is that companies don't know what they don't know. So there's rarely a pending initiative, nor is there often requisite expertise in-house that's in a senior enough role to drive change.
And worst of all, if the directors and board don't include folks with the necessary experience and perspective to oversee management in revenue growth, then the company is flying blind from the perspective of marketing and sales.
Questions Board Can Ask
It's important for industrial manufacturing companies to embrace strong, effective board oversight. A skills matrix will help to optimize for the best role of a private company board. Important skills and perspectives must be included. Marketing for manufacturing companies and industrial sales are two critical functions.
But that's a big, uncomfortable step for many companies. So in the interim there are some questions that directors can ask to begin to poke the bear. In many cases the answers will be uninformed. The reactions will be equally important to observe as well.
Examples of questions that independent directors might ask include:
- What business function skills and expertise do we have on the board? What gaps do we have? (Talent management, cybersecurity, marketing, sales, emerging technologies, global sales, M&A, geography, diversity) Can we plug those with consultants engaged by the board?
- How was the B2B marketing budget set? How much does it vary from a best practice of 3-5% of revenue? Who owns that budget? What's the marketing headcount? What's the ratio of marketing to sales headcount? (Remember that buyers are 70% of the way through their buying journey before they want to talk to a rep. That doesn't mean that the ratio should be 7:3, but too often it's a traditional 1:10 or 15!)
- What percent of the sales team has missed quota for two consecutive years? How many reps are on a PIP? Does the company even use PIPs?
- How much time do our sales managers spend coaching reps? What topics do they focus on? How many pre-call/post-call meetings and role plays does each rep have each week?
- Are reps accountable for certain activity targets? (meetings, calls, emails) How do we measure and track? What happens if they miss?
- What's our sales rep turnover rate? Is that too high? High enough? How many reps have been fired in the last two years for non-performance? How long were territories empty? What does our new rep onboarding plan look like? Do we continuously recruit reps?
- What revenue growth dashboards does senior management receive daily? Weekly? Monthly? Why doesn't the board have access to these? What predictive or leading KPIs are tracked for revenue? How much advance notice do they provide?
- When was the sales process last revised? What is the process? Does everyone know it? Follow it? Is it reiterated in routine meetings? How tightly is it integrated into the CRM sales pipeline?
- What percent of deals are lost to no decision? What's the length of our sales cycle? What percent of deals close within 30 days of forecast? What's the win rate? How many quotes are issued for each won deal?
- Is every dollar of revenue accurately attributed to marketing activities? If so, have we adjusted the investment accordingly (e.g. increased in areas that drive results and decreased in others)? If not, why not?
- What do we spend on marketing technology? Sales technology?
- How often do marketing and sales meet together? What's the org chart relationship? Is marketing as consistently recognized as sales? Do they present independently to the board? What metrics are included for each function in the board meeting packets?
- When did non-executive board members last meet with members of a trade association? Customers? Prospects?
- Is there a team selling culture in place? Does the board support "top-to-top" sales movements?
- What new logo acquisition targets do we have? What happens if we don't meet them? What percent of revenue comes from existing customers vs. new customers?
You'll have many of your own. These are representative questions to prompt conversation and highlight areas in which management may be slow to adapt to current market conditions. They're not directive, but rather diagnostic. Therefore, while some are granular, they help directors insert their nose without their fingers.
A capable CEO will be prompted by the questions to dig in deeper.
A Cautionary Case Study - When an Independent Director is Unwelcome
The value of independent directors is clear in theory. Of course it can only be realized in companies where:
- the CEO accepts board oversight
- executives are accountable to the CEO as (s)he implements the directives from, and strategy approved by the board
- family/owners accept that board's oversight role rather than overriding/countermanding it
- there's a clear vision for corporate growth that motivates the change management required
And those elements aren't always present.
That's the quandary presented in this case study which I wrote and explored with a group of independent directors assembled by Marianne Peabody and Larry Stybel for their "Seat at the Table" group.
It's available to read, watch the discussion, or explore in more detail.
