The Resilient Entrepreneur, Edition #87
Hi there
I hope you had a great week!
Here are the topics in today's edition:
- How to Avoid a Dysfunctional Board in a Startup
- Kids at Work: Why I Took My 13-Year-Old Daughter to a Trade Show
Please reach out if you have comments, questions, or suggestions for articles!
Talk soon 👋
Tom
KickKerK
LEADERSHIP FOR RESILIENT ENTREPRENEURS
How to Avoid a Dysfunctional Board in a Startup
A dysfunctional board can limit your startup’s freedom of action. But dysfunctionality isn’t felt every day, but only in important matters.
Does the shareholders’ agreement matter for startups? No, if everything goes smoothly. Yes, if things don’t go well. And in a world dominated by unpredictability, expect things to go wrong. Therefore, yes, the shareholders’ agreement is important for startups.
I am a proud engineer, and I am known for my love-hate relationship with lawyers. Nevertheless, a good shareholder’s agreement can save you a lot of trouble in dire times.
In all those years at the helm of Yonder, a B2B company I co-founded, I had to resort to the shareholders’ agreement only twice: When I had to fire a co-founder and when discussing board composition.
Let’s look into the board composition in more detail.
Phase 1: Seed Round
When we closed our seed round back in 2019, we were young and inexperienced. But we had the luxury of a trustworthy, experienced lead investor. Therefore, we gladly accepted their suggestion for the shareholders’ agreement.
Regarding board composition, the initial shareholder’s agreement read the following paragraph (it’s very untypical for my articles to contain legal lingo!):
The Board shall comprise a maximum of 5 Directors. Throughout the term of this Agreement:
- the Seed Investors shall have the right to be represented on the Board by 2 Directors nominated by the simple majority of the voting rights represented by the Seed Investors (each a “Seed Investor Director”); one of the Seed Investor Directors shall be nominated by the Seed Investor 1;
- the Founders shall each have the right to be represented on the Board by 2 Directors (each a “Founder Director”). Initially, this shall be Founder 1 and Founder 2; and
- the Board shall, upon its discretion, appoint 1 director from time to time (each an “Independent Director”).
What happened after the seed round was closed? The board consisted of 1 Seed Investor Director, 2 Founder Directors, and 1 Independent Director.
The fifth director? Missed in action. It was probably due to our inexperience that we didn’t insist on having a second Seed Investor Director on the board.
Phase 2: Series A
In 2022, our Series A followed, and with it, a new lead investor joined the team. Of course, they wanted to have a board seat. We adapted the existing shareholders’ agreement with the inputs from our new lead investor, and now the board composition article read as follows:
The Board shall comprise a maximum of 5 Directors. Throughout the term of this Agreement:
- the Series A Investor 1 shall have the right to be represented on the Board by 1 Director (“Series A Investor Director”);
- the Seed Investors shall have the right to be represented on the Board by 1 Director nominated by the simple majority of the voting rights represented by the Seed Investors (each a “Seed Investor Director”; collectively with the Series A Investor Director each an “Investor Director” and collectively the “Investor Directors”);
- the Founders shall have the right to be represented on the Board by 2 Directors, nominated by the simple majority of the voting rights represented by the Founders (each a “Founder Director”); and
- the Board shall, upon its discretion, appoint 1 director from time to time (each an “Independent Director”).
Believe it or not, but the new lead investor didn’t nominate an Investment Director. They delegated a board observer, but when it came down to votes, they couldn’t make decisions.
Phase 3: The Deadlock
The shareholders’ agreement paragraphs discussed above mention a right to be represented on the board, not an obligation. So why do I speak of a deadlock?
There is another paragraph in the shareholders’ agreement that mentions important board matters; for example, approval of the budget, appointment and removal of the CEO, or the sale of the company.
For these important board matters, it’s not enough to have the consent of the majority of the board members alone; they also need the consent of at least one Investor Director.
See the problem now? If there is only one Investor Director, even though the shareholders’ agreement foresees two Investor Directors, the sole Investor Director enjoys a de facto veto over important board matters. And that is in a company that is still founder-controlled, meaning the founders hold more than 50% of all the shares.
Phase 4: The Cure
It’s normal to disagree from time to time, but in democratic Switzerland, we cherish limited power and balanced decisions.
We experienced a situation of disagreement over an important board matter decision. The appointed Investor Director had a different opinion from the other institutional investors, but they weren’t represented on the board at that time. This created a deadlock for the company, costing me lots of time, nerves, and energy.
That’s why I had to throw all my dominance into the battle to get that second Investor Director appointed to avoid similar situations in the future.
This happened 10 years after the incorporation of our company, and 3 years after the Series A.
Better late than never.
INSPIRATION FOR RESILIENT ENTREPRENEURS
Kids at Work: Why I Took My 13-Year-Old Daughter to a Trade Show
Kids best understand what work is about when you have your kids at work. At a trade show, my daughter learned lessons school never teaches.
Kids can only learn from their parents what the parents know. Speaking for myself, my kids will never learn from me to sing opera, dance hip hop, or recite Goethe.
But my kids saw their dad building a business from a very young age, and they are learning from this experience every day.
I’ve spent the last years building Yonder, a B2B SaaS company, and my kids have been very close to my daily grind in building the company.
Now that the kids are a little older, it’s easier to show them the challenges of building a business using more complex examples than just helping to scan paper mail or explaining why jumping on a call during the holidays is a necessity.
Here is an in-depth example.
The Trade Show during School Holidays
One of the recent trade shows was scheduled during the autumn holiday period. As usual in a small company, you can’t say no to attending a tradeshow just because of a clash with the school holidays. Not even if you’re the founder and the CEO.
My 13-year-old daughter wasn’t amused that I would be on the road during the holidays. So I asked her, “Why don’t you come with me to the tradeshow?”
She asked me what she could help with during the tradeshow. My daughter is a very sociable person, so I suggested that she hand out chocolates to the visitors to attract them to our booth.
My daughter was excited, and she immediately agreed to join my co-founder and me for a 3-day trade show in Munich.
It was a three-day learning experience for my daughter. Because there are not just busy periods at a trade show, we had ample time to discuss the learnings. Here are some of the most important learnings my daughter took away from this non-standard holiday experience.
Learning 1: It’s more than handing out chocolates
When I pitched the event to my daughter, it was handing out chocolates to visitors that got her excited.
But she learned that a trade show is much more than just handing out chocolates and brochures: It starts with travelling to the location of the trade show. Once arrived, it continues with setting up the booth and installing all the necessary equipment. And after the tradeshow, you have to pack up everything and travel back home.
During the tradeshow, there are also some administrative tasks to do: Capturing leads in the CRM. Scanning receipts into the expense management tool. Organizing food and coffee for the team at the booth. We introduced my daughter to all these tasks, too.
Learning 2: Not everybody has a true interest
Just like with social media, learning who has a true interest in your person or company is difficult for a teenager. A tradeshow provides an excellent training ground to sharpen this sense.
Some visitors showed genuine interest in our product and seemed to be willing to continue the discussion after the trade show. Some of our partners showed up at our booth, saying hello and managing the relationship.
And then other visitors would rather belong to the categories of spies. They ask awkward questions, don’t disclose the company they work for, and request follow-up information that is none of their business.
In contrast to social media, it was easy to discuss every visitor to our booth straight after they left. This provided a great learning platform for my daughter on how to read people.
Learning 3: It’s not all fun; sometimes it’s boring
Trade shows are exciting. Sometimes. And sometimes they are plain boring. Manning a booth during a quiet period of a few hours requires stamina. You still have to uphold a professional appearance, even though no potential visitor is in sight. This can change at any moment, and when a high-potential lead shows up out of nowhere, you don’t want to be caught chewing gum, farting, chilling in your chair, or eating like a pig.
Maybe there is a reason why Dad always asks the kids to sit straight in their chairs, not to talk with a full mouth, and not to fart at the table.
Conclusion
In Switzerland, we cherish our dual education system. Besides the academic path, young people can choose the apprenticeship option. In contrast to the academic career, young people don’t just learn about the core business during their apprenticeship, but also about the soft skills and the professionalism that is needed to succeed in real life.
Irrespective of which path my kids will choose, it’s the real-life experience I prioritize to teach my children.
About Me
Growing a company 📈 in uncertain times 🔥🧨 is like running a marathon — it demands grit, strategy, and resilience.
As a tech entrepreneur 💻, active reserve officer 🪖, and father of three 👩👦👦, I share practical insights and write about entrepreneurship, leadership, and crisis management.
When I’m not solving problems, I recharge and find inspiration in the breathtaking mountains 🏔 around Zermatt 🇨🇭.
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