The “Board of One” Concept

Introduction and Overview

Preamble

Conceived in 2003 and developed in cooperation with the Wharton School of Business at the University of Pennsylvania, and noted Lauder Professor Emeritus, Dr. Jerry Wind and Ephor Group, Inc., and its Managing Partner Garry E. Meier; this relatively new (over the past 17+ years) and emerging concept within the strategic management and governance arena has become a “defacto” standard and in many instances a prerequisite for wealth creation, especially for small emerging service business models.  

The “Board of One” Concept has become even more prevalent of recent and even more of a critical success factor, due to the COVID-19 Pandemic “reset and restart” of the economy in 2020, combined with the post-election uncertainty of recent. This accelerating need and utilization of this concept is and will be driven by:

• The Pandemic & Election Hangovers: The hard facts are: it is expected that nearly 4.2m small businesses, representing greater than 30% of all small businesses with less than 100 employees, will fail or file bankruptcy in the USA in the 2nd half of 2020 and throughout year 2021. The data suggest that the most common reasons for failure include:

• Founders/Entrepreneurs often “surround themselves” with people who make them feel good or tell them what they want to hear versus tell them what “They Need to Hear!” Therefore, they remain in their isolated “bubble”.

• Lack of Business & Contingency Financial Planning: all business should plan for some level of “What ifs?” i.e. cash reserves

• Excessive Business Risk Levels:  i.e. industry & customer concentration risks, economic risks, execution risk issues etc.

• Excessive Debt Levels: where the leveraged funds, generally with debt levels beyond appropriate levels, were used to expand to rapidly, increase Founder lifestyle or spending to prove “I am successful”.

• Skill & Leadership Deficiencies in the Leadership team functional skills combined with the Founders being ineffective managers and leaders.    

As we march towards all the uncertainties of 2021 and beyond, what is certain is that due the increasing complexities of globalization, rapidly changing markets, increased competition, increased regulatory influences post-election,  the tightening of the credit and capital markets, combined with potential significant tax increases:

Success and in some instances, Survival will be a result of more knowledgeable, experienced and increased skill competencies illustrated by the Founders and their Leadership Teams.

The “Board of One” Concept” , simply stated, augments the gap between the skills that today's complexities, market requirements, and the many other vicissitudes require and those that generally reside in the Founder and/or Leadership Teams in most small and emerging services businesses. The simple reality is:

The CEO/Founder role now has evolved into an almost impossible task!

It is well known, and statistically proven, by numerous academic and institutional studies, when businesses commit to “Board of One” type concepts, the results include, lower risk levels, increased revenue growth rates, improving EBITDA performance, and institutional-level shareholder returns, and more importantly, during disruptive times the failure rates approach nearly zero.

At a micro level, for example, just within Ephor’s limited “book of business”, over our past 17+ years, concepts of this nature have yielded approximately $1.6B of shareholder wealth being distributed to stakeholders and institutional investors.

What is more important, is that of the approximate 55 service businesses that Ephor monitors or have been involved with over our 17+ years, and who have deployed concepts of this nature, we know for sure that they will not only Survive “the disruptive year 2020” but no doubt will Thrive in 2021 and beyond.

Successful Applications & Utilization of the “Board of One” Concept

Furthermore, historically experience guides us to state that, concepts of this nature provides the highest probability of success for stakeholder wealth creation when utilized in environments that exhibit the following attributes:

• Organizations with revenues generally <$15M.

• The stakeholders have made the commitment to be a growth-oriented business, versus exclusively a “lifestyle” business.

• The history of the company has been “Founder-Centric”. The stakeholders have committed to partially “surrendering the sovereignty” to a knowledgeable and proven outsider expertise and creating stakeholder balance. The truth is most Founders illustrate the “want to, but not necessarily the “how to”!

• The Founders/stakeholders generally are a “family team” or a “husband & wife team”, where historically there has been zero to limited separation between the business and the household. Therefore, the risk profiles of both entities increase simply because they become combined. The statistics advise us that family team oriented leadership results in a 8x increase in the failure and bankruptcy rates.

• The business illustrates a “Concentration Issue” such as a one industry focus; 1-2 customers make up most of the revenue, or skill concentration issues by the leaders. “Execution” risk issues of this nature almost always promote failure during disruptive times. (i.e. pandemics, elections, exogenous threats, etc.)

• Internal operating management is unproven in high growth environments. Operationally, the company does not illustrate the concepts of operational leverage and scalability. As such the answer to every business problem is “hire somebody” or “hold a family meeting”!

• The company has historically failed to create scalable marketing, direct sales, and alternative distribution venues, beyond the “rolodex” and the “sales” capabilities and personality of the Founders.

• liquidly initiatives in the near-term to reach its desired objectives.

The “Board of One” “Near Perfect” Candidate Profile

The career attributes of the “Near Perfect Candidate” that have led to successful outcomes when implementing “Board of One” Concepts include:

• Strategic knowledge of the sector, the required market differentiators, and value proposition needs to satisfy current & future demand curves.

• Proven experience in understanding and managing exogenous factors that influence a small business and its sector. (i.e. government regulations, economic cycles, exit value attributes, etc.)

• Multiple Board of Director assignments in private small emerging entities that have illustrated effective stakeholder balance and created institutional level wealth.

• Functioned successfully in a “Board of One” or as an “Executive Chairman” role on more than one assignment.

• Illustrated CEO or C-level success in strategy development and implementation that led to exponential revenue growth, operational scalability, resulting in institutional EBITDA levels, and has successfully raised institutional debt & equity capital.

• Needs to illustrate proficiency in strategic finance, corporate finance & corporate development initiatives.

• Illustrates strong and committed values and principles, and the “highest professional standards”.

• Must have been institutionally bankable in a minimum of 2 institutional endeavors.

Overview of the “Board of One” Executive’s Role

To collaborate and “mentor” the Founders or Leadership Team on the implementation of the near-term and long-term initiatives of the organization through the utilization of best practices in the areas of governance, stakeholder balance, revenue growth, business model development, business process development, leadership, and management effectiveness. 

Responsibilities

Provide ongoing oversight and advisory activities consistent with a “Chairman of the BOD” role, including but not limited to:

• Strategy Development, and Implementation

• The setting of Organizational Near-Term Goals & Priorities

• Monthly and Quarterly Performance Reviews with Executive Management

• Implement Consistent & Timely Communication Rhythms and Process to all Stakeholders

• Be the Company’s “Resident Expert” on Industry/Sector Trends, Exogenous and Economic factors, and Market Opportunities

• Sector Representation and Sector Monitoring and Evaluation

• Ensure the Company’s Products and Services are “positioned” appropriately within the sector

• Tactical Decision-Making Support

• Capital Utilization and Procurement

Conclusions & Summary

From an exclusive professional perspective, in my nearly 45 years in the business world and during this wonderful career journey: I have experienced, lived, and worked through over 6 economic recessions or disruptive periods. While each of these “disruptions” have had their own specific differences and challenges, these experiences have provided me some “common instruction sets” that have come out of each of them.  

Therefore, for those of us who are entrepreneurs and leaders of small businesses, we must be in the constant modes of:

1.   Learning: learning should be a priority of each day and that learning should come from a variety of information sources. As difficult as it is for all of us to accept: the facts are none of us “knows it all”. Simply stated to be long term effective we all need to get “smarter”. Thus the need for Board of One concepts. 

2.   Changing: Effective change management and knowing how and when to insert all aspects of change will be critical to the longevity of success of the business and more importantly the founder’s career success.

3.   Process Development & Enhancements: Services business simply will not consistently succeed in the long-term, especially during disruptive periods, without continuous process improvement and enhancement and the application of technology to create a scalability and an “economic efficient” business model that is not solely dependent exclusively upon people skills.

4.   Adoption of New Concepts: it is well documented and proven, those organizations that have the commitment and skills to adopt, utilize and enhance the best of breed concepts which become proven, results in job creation and significant shareholder wealth, and simpler businesses to manage.

 From my own best practice perspective, rarely does a week go by that I do not seek the help and guidance from my vast resource network (My Board of One! & My trusted advisors) not only ensure that I learn, change and adapt, but to confirm that I am providing the best knowledge and guidance available from around the globe to our clients, our investors and our stakeholders.  

As I close, I am reminded of the well-known comment by Albert Einstein: