LIVE Workshop Wednesday: 10 Rules of the Boardroom with Threshold VC

logging on. All right. Welcome, everyone. Thank you for joining Workshop Wednesday. Here every Wednesday at 10:00 AM Pacific, we will share detailed interactive workshops. We'll have some SAS experts come in. Go through a topic that they are in fact experts in, and then we'll have an interactive discussion on the topic. This week we will hear from Josh Stein, managing partner at Threshold VC, and Katie Evans, investor at Threshold VC. Welcome to you both.

Thank you.

Thank you.

Of course. So this week we will be discussing Founder's Checklist: 10 Rules of the Boardroom. We're trying to keep these sessions as interactive as possible, so if you have questions, drop them in the chat throughout the session. We will be messaging you, asking you if you want to ask these questions out loud, um, and we will start getting the ball rolling. Katie and Josh, welcome!

Thank you.

All right, let's dive in with a few warm-up questions. So question number 1, what is one of your favorite investments you or the firm has made in the past year?

Uh, let's see. So one that we actually just announced pretty recently is a company called CloudZero that we're pretty fired up about. It helps companies manage their cloud spending overall, but also you can instrument your code so that you can assign cloud costs down to like the feature level so you can understand your gross margin of different features and whether it's worth launching those features or not. Company's growing like crazy. We just announced, I think, a month ago.

Awesome. Katie, are you aligned with that?

I am. I think that there was a couple of things that I was really excited about that this company really had. One of them was that a pretty differentiated product. Now, as Josh was alluding to, the ability to track cloud spend across multiple clouds, i.e., you know, Azure, AWS, Snowflake, and others. And normalize all of those costs into a single data model for, you know, easy analytics and whatnot. It was pretty exciting for finance and engineering teams. And then, you know, it's a very strong team. We love the CEO there and the, the team that's built around him. And then there's strong market tailwinds really demonstrated by their enterprise business momentum.

Awesome, exciting stuff. Our second question is, what has most surprised you about venture capital this year?

Yeah, I feel like, as Josh said earlier, what hasn't surprised us about venture capital this year? I think that, you know, between SVB and the drop of ChatGPT, there's been a lot of dynamic movements in the space. I think it's very interesting to be in this career right now, because you're trying to place bets on hype cycles and figuring out what sustainability cycles are going to look like long term going forward. I think, you know, a lot of us are hungry to to get back to the 2021 investment pace. But patience is a virtue in this current market.

I've been doing venture a while. If you told me that I'd have a company with $400 million in cash on the balance sheet, that would've been surprising 10 years ago. If you told me that I was worried whether they could make payroll 3 days later, I would've found that highly improbable. But that's where we were in March.

Yeah, I'm gonna have to reframe this question because there is a clear answer. Um, next question and last question before I hand it to you. Who is one of your favorite co-investors?

I saw one of them, uh, log on just a second ago. So, uh, Jason and Sastre and Sastre Fund, uh, definitely we think of it sort of upstream and downstream investors. So people get involved typically before us and then those after us. Jason M. Lemkin, I think, is unrivaled in SaaS. I put people like Uncorked and HeavyBit in that category as well.

Yeah, and then maybe thinking more growth investors, I've had such a blast investing alongside Iconiq. We share a board with them that we will later discuss with the Fuller Group in this presentation. But being able to listen to the perspectives of really strong investors like Doug and Liz is really unparalleled experience.

Great. Well, with that, I am going to hand it off to you. As a reminder, put your questions in the chat throughout the session. We try to get to as many questions as possible. So put them in there early. And with that, I will hand it over to Katie and Josh.

Thanks, Caitlin.

Yeah.

Good morning, everybody. I'm Katie Evans, and this is my partner, Josh Stein. And together, we help lead software investments here at Threshold. Threshold is an early-stage venture firm where we're most typically the lead investor in Series A rounds.

So what brings us here today? Well, Katie and I get to sit in a lot of meetings. It's one of the best and sometimes worst things about venture investing. Especially board meetings, which is where we wanted to focus the points today. You know, I'm guessing most of the folks here have been in board meetings. You know, sometimes they're amazing, sometimes they're absolutely awful. They don't call them board meetings for nothing. So we're going to try and shed some light on why that is and how you can make it better.

Yeah, but before that, let's talk about our bona fides. So first, here's a great picture of what a board meeting should look like. This is the two of us with Doug and Liz, who I mentioned earlier at Iconiq. Our fantastic co-investors and board members at Sanity, a really interesting company in the content management space. So being Norwegian, Sanity CEO Magnus was smart enough to tire us out before a big board meeting with a vigorous hike in the fjords last summer. And so pro tip for everybody out there, getting outside never hurts to keep things lively.

For sure. And here's just some of the other companies we've been really privileged to work with. Since their early stages. All of which to say that, you know, we've seen a lot of board meetings and these are some of our observations. So why is it that board meetings can really suck? Well, I'd start with the fact that boards of directors are fundamentally just groups of people getting together. And in fact, there's a whole field of science dedicated to this, social psychology, which is how people within group contexts act in, in relatively predictable ways, sometimes for the good and sometimes for the negative. One of the things that we found is that if you understand social psychology and some of the cognitive biases we'll get into that go around that, you can actually make meetings significantly more effective. I've always been a computer guy. I actually was a social psychology major undergrad. I had no idea that it would be relevant in my business career, but I would say that, you know, between studying CS undergrad as well and also having an MBA, I spend my— the learnings I had from social psychology classes are actually way more applicable to the work I do every day in venture. So let's sort of jump right in. So One of the first things to understand is cognitive biases. So what are cognitive biases? Well, cognitive biases you can think of as basically shortcuts, right? So if we had to process all of the information that our ears and our eyes and our brains take in every day, we'd never be able to get anything done, right? So this happens unconsciously without us even recognizing it. And it tends to actually be highly effective because it allows us to operate quickly. But sometimes those shortcuts lead us in less predictive or less helpful ways. Um, so, uh, let's jump right in and kind of understand how we can fix that. So like, how do you— what's the first step to fixing cognitive bias?

Yeah, so as Josh said, cognitive biases are when heuristics steer us wrong. Heuristics by themselves are actually good things, but when they become cognitive biases, that's when things kind of go bad. And so as Josh asked, what do we do about it? So the first thing is really just to acknowledge that they exist. Being aware of biases and their impact on decision-making really does help fight that automatic nature of cognitive biases. Second, make sure that you are educating yourself about the different biases and their effects. We're going to talk you through 9 today, but there are actually over 180 different cognitive biases out there. So the more you know, the easier it'll be to recognize them. And then third, it may sound kind of obvious, but making deliberate decisions as a leader in helping your board overcome these cognitive biases is really important. Also make sure that you have an open mind and seek feedback openly. All right. Diffusion of responsibility.

All right. So number 1 with the bullet, always my favorite, diffusion of responsibility. We see this all the time. 30 people go into a room, things are discussed, maybe they even seem to agree or decided, and then people walk out and absolutely nothing happens. Why is that? Diffusion of responsibility. What it basically means is the larger a group gets, the less any one individual feels accountable for the result or the outcome, right? So it's basically the, the responsibility gets diffused out. Happily, this one has a very, very easy solution, which Katie's going to talk to us about.

Yeah, so I can't say this enough, but practicing active leadership as a meeting leader is a key for diffusion of responsibility. Be sure that you're hands-on and actively guiding the direction of your board conversations. You can do this by remaining visible and accessible, actively communicating and listening and collaborating with others. Second is understanding team size. Be sure that you're keeping team size manageable for more productive conversations. It's funny, but one of the simplest things that you can do is actually before the meeting even starts, which is asking yourself who really needs to be there. And what are the roles that you want each person to play. Be sure you tell people that ahead of time and keep the team meetings as small as possible, because when they get bigger, they're much more likely to cause challenges for you. One of the tools that we use for this is called the RACI framework, which helps clarify roles and responsibilities and actually also helps keep team sizes fairly small. A big reason that we aren't explicit enough is because we don't talk about who is responsible and who is accountable and who is consulted and who is informed. By using frameworks like RACI and articulating specifically either before, during, or after the meetings in terms of next steps, you do a pretty great job of breaking through people being unsure and that responsibility being diffused across many different people. So for example, if I say, okay, Josh, you're going to be responsible for running that down with engineering and bringing back answers to the group, it's very clear who is responsible. At the end of the day, people just aren't mind readers, and it's important that you do actively give them their responsibility. Responsibilities.

Totally agree. And I flag also that this is one that catches people by surprise because it gets worse as companies get bigger. When you're 5 people as a startup in a room, everything just happens kind of by osmosis. When you get to 50 people or 500 people, this— it's when it really starts to change. Um, one of the contributors to diffusion of responsibility is another of my faves, the Dunning-Kruger effect. So the Dunning-Kruger effect is It actually works in both directions. People with low actual competence tend to overestimate their competence, and people who actually have high competence and underestimate their competence, which contributes to— if you've ever seen a venture investor in particular who are known for overestimating their confidence as a group droning on to a 20-year veteran CMO about, you know, here's how they might think about the marketing strategy, you've seen the Dunning-Kruger effect in action. It's one of the things that can really kill the energy in a meeting and make people feel alienated. And again, there's some simple fixes. There are.

So first, it is critical to align airtime with expertise. This might be the single biggest responsibility of the board chair or meeting leader. And of course, you have, you know, experienced and valued people on your board for a reason, but be sure that you're also you know, listening to the less experienced people on the board. And as Josh said, don't let a confident subject matter novice outvoice your perhaps quieter subject matter expert. How do you do that? Be sure you solicit all views and benefit from the diverse perspectives that you likely have on your board. You know, that said, we know that some people can be somewhat sensitive to redirection and when the spotlight is taken from them. And so to combat this, there are some tools that you can use to redirect attention. So to Josh's point, when the blabbermouth VC has been going on and on, you can interrupt them with, no, what if that wasn't true? Katie, what do you think? Sometimes people really are just waiting for a pause in the conversation.

Another related one is authority bias. So we as humans have a natural tendency to be very uncomfortable speaking against what someone who we perceive at a higher authority than us, or let's say older than us, is saying. So I was a 26-year-old software founder prior to being in VC. I had, you know, 50-year-old people on my board who seemed ancient, had tons of experience. When they say red, it can be very hard to say blue or take the contrary view. Of course, this is the essence of startups, right? Startups come from challenging the status quo and conventional thinking. It's critically important to not just defer to authority for a whole bunch of reasons. One is authority is often wrong or speaking sort of casually. But also, the world changes. It's a dynamic place. And so yes, that may have been how we sold or marketed software 10 years ago, or even 2 years ago, but it may be different today. So remember that everyone in the room has a view and is there for a reason, to Katie's point about constructing the rooms. And here are some specific techniques you can use to try to counter authority bias and get people to talk.

Yeah, so dovetailing nicely with what Josh was saying, make sure you're creating a culture where critical thinking is encouraged, even if it does end up being wrong. So driving all members of your team to openly challenge authority and embrace perhaps more novice ideas does need to be a priority. So how do you do that? Two tools we'll talk you through today. First is something that we call the Five Whys, and I'm sure you've perhaps heard of it before, but it helps really drill down into the underlying reasons behind decisions. And so asking why 5 times or 5 layers deep, you do help expose either the validity or invalidity of the argument that somebody is making. And you also help people understand the reasoning behind each decision. So for example, rather than letting we need to cut sales and marketing by 50% because I said so be a valid standalone argument, Using the 5 Whys helps break down the logic to either strengthen the case or expose areas that it's flawed. Second tool is you can adopt or appoint somebody to have the role of devil's advocate. By having somebody intentionally make a counterargument, you give folks a simpler way to combat authority that feels a little bit less personally risky. And so they're able to speak freely. And if they're wrong, they're less personally accountable for their opinions because they were appointed that role. But if they were right, there's a good perspective there that otherwise would have gone not listened to or unheard.

Closely related to authority bias is our next one, conformity bias. So conformity bias, I'm 100% confident that everyone on this call has been a teenager at some point in their lives and is familiar with this. It also explains the great Patagonia vest and khaki explosion about 20 years ago in DC. But basically, this is we have a natural instinct to go with the herd. And if you think about how this sprung up in our brains from an evolutionary perspective, in nature, it often pays to stick with the herd. If you're the animal peeling off on your own, you're more vulnerable to predators, et cetera. But conformity bias is a great way to have a not transformative company and end up with a very mediocre result in technology. So it is critical that you create an environment where not just people aren't just deferring to authority, but also even if everyone's an equal in the room, if, you know, all 15 people seem to— 14 of the 15 people seem to be in agreement, you need that 15th person to say, wait a second, I'm not sure that's right. And that is a tough thing to do, especially as groups get bigger. But there's ways you can fix it.

Yeah, you can. So first, as board chair, be sure that you're setting good norms and a culture that encourages and in fact rewards independent critical thinking. And to Josh's point, expressing non-consensus opinions. You know, we've all also seen the person who just likes to be contrary. So please don't take this advice to a ludicrous extreme, but be sure you make people feel safe to express their real view versus just going along to get along. And so the first tool here is be sure that you're encouraging debate and open discussions. Sometimes it feels like you're walking on thin ice when you're challenging the status quo, but in reality, healthy debate is sincerely a bridge to progress. And second, be sure that you're encouraging open discussions with diverse perspectives to allow for a more robust decision-making process. It also puts pressure on the board to review materials and come prepared to sessions. And remember that as a board, the goal is really not to win arguments, but rather explore ideas and challenge assumptions and arrive at the best possible outcome. If your best efforts are still leading to trouble at the board and folks are quiet or, you know, all thinking the same thing, there's always every professor's favorite tool, which is cold calling to disrupt groupthink. So if I were to ask Josh in a board, do you really agree with this? I can almost guarantee you he will surely tell you what he thinks if you call him out like that.

And over the years, I've learned how to do that more constructively. But I would say, yeah, if you notice that there's a lot of head nodding in either internal meetings or in board meetings, there's not a lot of challenging assertions or kind of critical questions, it's worth taking people aside afterwards and asking, you know, why that is and whether they felt comfortable speaking up. And if not, why not? Because you're really doing yourself a disservice as a leader if you aren't creating an environment where people are— feel comfortable airing contrasting views. Okay, so we've talked about some of the things around, like, you know, how it makes people nervous to sort of speak up. We're going to turn a little bit to some of the cognitive biases around how data is presented. And how that can influence thinking. I always tell people we're going to present this in the positive light in terms of how you can make it better, but you know, if you want to be a mustache-twisting villain, you can also pretty easily imagine how you could use these to that effect as well. Number 1, anchoring bias. So we have a very strong predisposition to anchor on the first piece of information or early pieces of information that we're given. Board packs are long, right? It's not uncommon to have a board pack be 100-something pages with lots of numbers, lots of charts. The order in which you present information and the order in which you put data forward matters a lot. So if you're the one running the meeting, think about that very carefully and think about like, what is that first piece of information I'm putting out there? It may be that you have a very specific goal in mind and you want to try to— the most important thing is to sort of get buy-in to that idea. But if you're really trying to get to the right answer, you need to be careful that you're— both you with your own thinking, but also other people in the room— aren't getting too locked in on that first piece of information.

Yeah, and so the way that I like to think about combating anchoring bias is a 3-step process. So the first step is be sure that you are considering all available data for a decision, not just that initial information or what is driving the anchor. That includes looking at evidence that directly contradicts with the anchor. The second step here is challenge the basis of that anchor, look at all of the data that you have and explore other alternatives. You can use this as almost a brainstorming session. You know, you've got your anchor, how many other plausible outcomes or decisions can you come up with that, you know, aren't the anchor, maybe they incorporate parts of the anchor, maybe they don't have any of the same data that drove the anchor. And, you know, you know, to make that initial or last decision different than the anchor, be sure that you delay your judgment and compare all these different options to that anchor before deciding what is the best outcome or choice to make as a board. Sometimes it is the anchor, sometimes it's something wildly different from the anchor, but without going through these steps, you can oftentimes find yourself falling into this trap of going with what was displayed first.

A related bias, anchoring bias, is confirmation bias. So we also have a tendency to walk in with some belief, some existing belief, and then view all subsequent data that's presented to us selectively, cherry-picking effectively for things that support that belief. It's a very sneaky kind of insidious trap that our minds play on us. If you've ever heard the expression you know, what, you know, first impression is everything, or people make up their mind in the first 15 seconds. This is why, because they form that snap judgment and then everything that happens afterwards is that lens. Again, this is one where in your own thinking, just being aware of it, as Katie said, is the first step towards saying, hey, am I really staying open-minded here, or am I, you know, just looking for the data? But don't be that person that's just like selectively cherry-picking the data to just make your point and continue making your point over and over and over again in a board meeting.

Right, so ways to combat confirmation bias. So the most important part is to think critically about what you believe to be true versus what you know to be true, and be open and continuously learning with an open mind. Be sure you revisit assumptions that you may have held historically and really do look to change those. Growth mindset. So question both your assumptions and the assumptions of others. Look for evidence that discounts either a pre-held conclusion or helps shed greater insight on it. And then back to an earlier point, who's in the meeting? When bringing in a new board member, look for those who have good self-awareness and are able to question their own snap judgments or, you know, perhaps different sorts of beliefs that they were raised with or have continued to hold. Something that we say internally at Threshold is strong convictions loosely held. It's a skill that can be learned. But for some people, they're just naturally better at it than others. And those are the ones that you want in your boardroom at the end of the day.

Yeah, a useful little trick I'll sometimes try is, especially if you really think you know what the right answer to something is, you can spend the time in the meeting taking the opposite side, the devil's advocate side, internally in your own head that Katie was talking about and say, OK, how would I interpret this data if I believe the exact opposite to be true? And sometimes you'll be like, actually, I was wrong. And that can be highly useful. One of the other ones, and this one I'd argue is critically important both in startups but also in investing, is hindsight bias. So hindsight bias, basically, we think we have great memories about what happened in the past. We have crap memories about what happened in the past. As humans, we are awful. We lie to ourselves all the time. We don't even know it. So You see this manifest where, because of the fundamental attribution error, people tend to believe that people are trying to pull a game on them or conning them when they sort of remember events differently than you do. It's actually usually that they truly are remembering it that way. They're just wrong, or you're wrong. But understanding specifically what information was knowable when a decision was made in the past is critical, because without it, you can't improve the future process, right? So startups are all about moving fast, moving quickly, mistakes, and, and so is sort of investing. Mistakes are going to happen, but you need to make sure that you're evaluating those decisions in the context of what information you actually, uh, knew, or what information might have been knowable versus what information was only learnable after the decision was made. Otherwise, you're going to end up beating people up for things they had absolutely no control over. And that can be absolutely crushing to culture. So hindsight bias, intellectual honesty would be another way to kind of describe it. Absolutely critical. Katie can talk us through a couple of the tools we found useful.

Right. So first is to strive for intellectual honesty and avoid giving credit or beating yourself or others up for unknowable information. One strategy internally at Threshold that we've adopted to help with this is using living, working documents where we actually capture information in real time. These docs can grow over time, and we can scroll back and see what decisions were made and what really happened at a point in time so that we can ascribe correct thought processes to future or current reactions that we may be having. And, and that connect with past decisions. And so one of the biggest things that we focus on is also the difference between a known unknown and an unknown unknown. You can fault someone for not having done something at a time that should have been taken care of, meaning a known unknown that, you know, wasn't discovered or perhaps, you know, investigated deeply enough, but you really can't fault somebody for unpredictable unknown unknowns that may have happened. And so the key takeaway here is, in general, focus on the process rather than blaming people for poor results. Because if you can really get behind the process and believe in the way that you are achieving different decisions that you're making, then you will be happy with the decisions that you end up with once those processes are executed.

One of the other cognitive biases that can be an absolute culture killer is something called externalization of blame. So as humans, we love winning, we hate losing. There's nothing inherently wrong with that, except we've also all heard the expression that victory is a thousand parents and defeat is an orphan. Um, unfortunately, when things go wrong and we lose or don't get the result that we hope for, we have a natural tendency to try to push that blame outward and to look for somebody, uh, to blame. Uh, that combined with the hindsight bias can be very crushing in terms of encouraging people to take prudent risks. If you want to see this in action, ask anybody, how did your, you know, pick your sports team, how did they do last night? And 99% of the time you'll hear either we won or they lost, right? The we-they kind of framing. So this is, I'd say, it's my favorite bias because it's so prevalent, but it's also my least favorite bias because it's so obnoxiously annoying. The people— this one I would go so far as to say, like, you need to make sure you're institutionalizing in your culture the fixes that Katie's going to walk through. But if you see people that just won't go along with the fixes and continue to do that kind of, you know, we won, they lost kind of framing, you actually need to move those people out if they're toxic. But here's how you can fix it.

Yeah, so first step, as Josh was alluding to, be sure that you embrace the collective responsibility and avoid a we versus they mentality. We call it disagree but commit. You would truly be shocked if you made a point to use the word we as opposed to the, the word they or you, and how much of a difference that will make. So real leaders take responsibility for results, both good and bad. You don't slough it off on other people. And when you say we, you're including yourself and everybody else in the room as a responsible party. You know, vigorous debates, as we've covered throughout this entire workshop are part of a great decision that is being made. But when you walk out of that room, it really is a shift from a disagree to a commit. It becomes our decision, even if it wasn't the decision that you or I would have individually made. And so in whatever you do, nobody likes that person that was part of making a decision and doesn't necessarily stand by the process or criticizes it later. And so the thing to remember is supporting a decision doesn't mean insisting that it was right. It means believing in the way in which it was made. There's a saying, you know, united we stand, divided we fall. And when things go sideways, be sure that you share credit and stand together as a board. Adopt a solutions mindset instead of a problems mindset. And similar to the last point we made, be sure you attribute performance issues to processes rather than individuals, because it is a lot easier to change a process rather than do change management with a person in your company.

And I focused on how this can be negative and destructive, but can also be wildly positive. So we all have had those situations in our lives where we've made a mistake or we've done something wrong, and you always remember the people that stand by you, put their arm around the shoulder, say, "Hey, we're in this together." Whether you're an investor, an operator, really any kind of leader within a group, adopting that we mindset, especially when things are going bad, can be incredibly powerful. And then, okay, let's move on to, I think, our last one, uh, something called loss aversion. Okay, so it's closely related to we like winning and we hate losing. I would argue this is actually the cognitive bias that in some ways makes startups possible. But this refers to once we have something, we really hate losing it. In fact, it's been, uh, in study after study over decades, it's been shown to be a roughly 2x effect between we derive about half as much pleasure from gaining X amount of whatever it is, dollars, market share, likes on Facebook, whatever the thing is, as we do losing the equivalent amount. So what people get is loss, loss aversion, right? So they sort of try and hang on to what they have. But if you do that too much, you end up like a big company. This is why big companies get atrophied, The Innovator's Dilemma, et cetera. It's why startups can eat big companies' lunch because first of all, if you never had it, you can't lose it. But it's really how big companies get in their own way by being unwilling to lose things. It happens sooner than you'd think. So when you're, again, the 5 people in a room as a really, really early-stage startup, you don't feel this at all. But after you've raised a Series B or Series C and you've got some real value in the equity and you've got some revenues and customers, you start to feel this and it can manifest in all sorts of insidious ways. As with all of these, just simply being aware of the tendency and making sure, you know, hey, am I— is this what's kind of driving my thinking, can make a big difference. But we also have some more specific tactics that you can use.

Yep, so the solutions here are relatively obvious. The biggest thing is just understanding that loss aversion exists and it takes true mental energy to combat it. So first, if people start to rat hole down on the potential downsides, make sure you're thinking about the potential downsides of not taking that action as well. So an example of this could be getting nervous about lowering pricing by 30% and asking yourself, oh, well, what will that do to our profits? Be sure you're also asking the other side of what happens if you don't lower your platform fee by 30%. Perhaps you lose a bunch of customers to the competitor who has more competitive pricing. You know, while there's a cost of action, there's also an equal and sometimes greater cost of inaction. The other thing that you always need to be asking yourself is what is the actual probability of that potential loss? Using actual versus potential value of loss thinking is integral in combating loss aversion. And there are also the questions you can ask, which are, you know, what are things that may hurt us but not kill us versus game over? Sometimes those hide within potential versus actual losses, and be sure that you're able to You know, parse those out from one another is really important. Then lastly, part of loss is that people assume the world is more static than it actually is. Simply sitting still is usually not an option, and taking risks is mandatory. So keep that long-term focus on your business and understand that this is a hard game. You're doing a hard thing. And to Josh's point, you know, the innovator's dilemma is not innovating. And so, you know, if you're an entrepreneur for a reason, it was calling to you, and and take those risks.

So those are 10 of our favorite cognitive biases. As Katie mentioned, there's like 180 of these and more growing by the day, I'm sure. I think studying them is a great way to become a better leader, investor, operator, all of that. Just some concluding thoughts. Boards are teams, right? So like any team, it's a group group of people coming together to accomplish a shared mission. In most cases— I mean, there's always the, the rare cases with bad actors— but in most cases, they're well-intentioned people. If people are on boards or even in the boardroom, they're almost by definition, they're capable, intelligent people. They're trying to make very complicated and challenging decisions. But like all people, they're going to be constrained by some of these cognitive biases. We've all felt them at different times where it was like, gosh, I I disagree, but oh, should I say anything? Like, 14 people just said yes. I'm just going to go along with the crowd, that kind of stuff. Just being thoughtful about them, being aware of it. Really, if we could leave you with one thing, it's being aware that these things exist and understanding them and recognizing that true greatness often comes from being that 15th dissenting voice and challenging other people's thinking or being flexible enough to change your own thinking. When presented with, with data, that's really where the greatness comes out of here. So we try to incorporate this in our processes at Threshold, but by no means are we perfect. It's easier said than done. We hope this has been useful to you and happy to talk about more detail.

Great. Okay, with that, feel free to stop sharing your slides so we can see everybody's faces as we start asking some questions. Yeah, I know, right? Thanks, Josh and Katie, for that. I feel like everyone has a psych minor after that session. I feel like I should be handing out diplomas. That was so great. All right, our first question. How do you evaluate potential board members for these biases? Do you do anything upfront?

So I sit them on the couch. "Tell me about your childhood." No. I'm actually a huge fan of the trial run audition. I think you can have a potential board member that you're interested in, they've done the one-on-one interviews, etc., attend a board meeting as an invited guest or observer and encourage them to participate. I say to people, just sitting there silently is almost a fail in and of itself. We want to hear how you think and how you interact with people. And you can just sort of see how, whether people, you know, are prone to these sorts of things or not. I would also, if I had any concerns about that, I would also probably sit down and say to people, hey, here's some things that we think make a great board meeting. Yeah. Katie, any—

Yeah, the only thing I would add is, as you're bringing on a board member, especially if it's part of a round that you're raising, think about the different interactions that you've had with that board member. Say you're at your Series B level, you're bringing in your second or third board member. Figure out how you're connecting during those conversations. How are they asking you for data? How are they asking you the hard questions that they're wanting to get out of you? Are they, you know, forward? Are they combative? Are they hiding behind different sorts of, you know, softer questions? And there's really no one-size-fits-all. It is about what you like, and then also thinking about your board composition as it stands today, figuring out what pieces of the puzzle are missing.

Great. OK, our next question comes from Mauricio.

Yes, thanks, Caitlin. Josh and Katie, thanks for this great speech and webinar. It was very interesting. My question— let me look for it, I wrote it up here— was regarding the anchoring bias. And this probably applies to more than just board meetings. And it's regarding, you know, there's preferences between how people reason. Basically, some of them are deductive and they want all the evidence and then the argument at the end, and then there's inductive, those who prefer going right straight to the point and then showing the evidence. So my question is, how do you manage that knowing that boards tend to have both preferences? In my experience, boards have had more of an inductive preference, but Just curious to hear what you guys have to say about that. I can jump in. So I started a company in '99 with my 3 co-founders who were European. We used to call it the European versus the American method. It's sort of like, I prefer kind of like, tell me your hypothesis or assertion up front, and then I can, you know, then present me the data and kind of the process that got you there. They greatly preferred it the other way around. I think even just having a conversation about what style works best for people and then trying to figure out how can you blend that. Emily Melton, the co-founder of Threshold, and I have been working together as investors for almost 20 years. We're almost completely different people on every axis. One is that she is very much a verbal communicator and I'm very much a written communicator. And so we've kind of found that way to sort of happy medium together, like things like those living documents and such. I think with anchoring, it's really just making sure that you're— so many of these are closely related, but it's like anchoring and confirmation bias to me go kind of hand in hand. It's making sure you're not just making a snap decision and then interpreting everything else that you either see or presented in that context, but questioning that initial premise. Being able to make quick decisions helps us in so much of our lives, but when you're making big decisions, it can really work against you. And so making sure that you're— Katie mentioned a lot of the really successful tools, like asking someone to say, OK, what if that wasn't true? Or make me the case in the complete opposite. In the military, blue team, red team do this. I don't know if Israel actually does this or not, but I saw it in World War Z. It's like the sixth man in the room kind of thing, makes the— those are the kinds of techniques that can help avoid that because it's— we have an old expression at Threshold. It's like, if everybody agrees, we get really nervous. If we're looking at a new investment, everyone's like, yeah, this is the best thing ever. It's like, uh-oh.

Plus one to what Josh said.

[Speaker:JOSHUA MACHT] Thanks.

[Speaker:KATIE SABIN] This has inspired me to be a devil in every meeting today. So watch out if you have meetings with me. All right. Our next question comes from Zong.

[Speaker:ZONG] Hi, Josh, Katie. Thanks very much for the presentation. It's a great overview of the cognitive biases, which kind of remind me of Charlie Munger and Thinking Fast and Slow. So the question, really, is put into practice, you know, how do you— there's a saying that startups sometimes it's helpful to be a dictatorship. You move fast and be very effective. How do you balance being a dictator and versus being open to different opinions without sacrificing actions? That's the first question. I think dictators usually end bad. You know, one of the things that you need as you scale a company and organization, you— there are times for sure when you need to just make— someone needs to make a decision and it's the CEO, that's the CEO's job. But I think if you are just dictating to people, you don't have buy-in. and people are definitely not going to feel accountable for the result versus if you— I think the bigger part of the job is actually bringing people along, soliciting those contrasting views. It doesn't mean that it's a democracy or a vote at the end of the day, but having people bought into the process, I think, is arguably more important. Of course, there are exceptions. Like sometimes, hey, the Silicon Valley Bank weekend was a good example where sometimes things just had to move real fast. But that's, I'd say, is more the exception than the rule.

Yeah, the only thing I would add to what Josh said is think about the way in which you are leading your company in every single day operations. Are you sending out email blasts telling people things, or are you soliciting feedback in little things like, hey, are we liking our lunch orders on Tuesdays? Or, you know, Fridays, this is the way that we're working from home, is that working for everybody else? And being sure that you're asking questions, thinking questions, feeling questions to the team. When you put out information, to Josh's point, that is a little bit more time sensitive and resembles more of a dictator message, they will be more likely to accept that as truth and as their command if you give them opportunity of choice every other day of the month or year that you work with them.

Related to that is a second question is, It's, it's good to start from a clean slate and build a clean and pristine organization from scratch. It's easier. But how do you come back from a board that has been dysfunctional? Maybe if you could give us an example of companies that you work with before, without naming them, how have you come back from fixing a dysfunctional board that has had some bad blood in the past? Oh, brother, have I been in some dysfunctional board meetings, and have I caused some dysfunctional board meetings, like, personally. So, uh, uh, as I've gotten older, uh, I've become a big believer in this thing called using my words. Uh, you know, uh, you forget that, you know, people aren't mind readers. Uh, they, they don't know exactly what you're thinking. And also, by the way, you don't really know what they're thinking, or What's right? And then there's something in psychology called the fundamental attribution error. So we tend to attribute our own behavior to circumstance and other people's behavior to character. The kind of classic example being someone cuts you off in traffic, what a jerk. We cut people off all the time. It's, oh, I just didn't see them, that kind of thing. So just talking about it. We start every median threshold with something called red, yellow, green, where you sort of check in and you can just say red, yellow, or green, which is kind of your emotional state. And a lot of times people give into details. Like, so for like, someone might say, you know, I'm pretty red today, my kid's in the hospital, right? Or my pet died or something like that. You know, if they're a little short with you or seem a little distracted, now it makes sense, as opposed to like, do they just not like me or do they hate my idea, right? So it's like, that's a big thing, is use your words. If you've really had like a big blowup, definitely use your words. Like, I, you know, you gotta make it fit for your own style and the people. But like, even just saying, hey, I'm really sorry about how that went. Like, that felt bad to me. Like, I don't know if that felt bad to you, but like, how do we fix that? You know, can go a long way. Unfortunately, sometimes it's unfixable, but it's never too late to try. And I think it's also never too late to change culture. It can take a while, but, you know, with sustained effort, I think companies at any scale can do it. I'd argue it's maybe the thing that defines companies that break through different levels of scale is being able to reinvent themselves.

Yeah, the only thing I would add is you can also use different momentum moments or lack of momentum moments to have those conversations. Let's say a big customer that you are really excited about churned. You can have a conversation and say, all right, not only are we going to discuss this problem, but let's also discuss other problems that we've been having. Or let's say that, you know, something really positive happened, like you signed the big customer that you've been looking for. You can say, all right guys, like this is a very large inflection point in our business's growth trajectory. Let's make sure that we are aligned on all these other things that have felt a little bit out of whack before we continue along this momentum journey together.

Zong, any follow-up?

Just one thing I'd say, like on the authority bias, one thing I think We've all learned as we become more senior, like, your words really matter. As a board member, you have to remember, particularly if the broader team, the executive team, or maybe people below the executive team are in the room, it's really, really important to not— to watch your words carefully and to make sure that you're not undermining the authority of the CEO, for example. And so there's like a time and a place for different comments. It's very common that we'll start board meetings or check in before board meetings and say, hey, are there any things you either want us to really focus in on or stay away from? And that can be a very helpful technique. But if you've had a big blow-up, I mean, saying I'm sorry or just, again, that felt bad is a good first step. That's it. Thank you very much.

Thanks, Ong. Love those red, yellow, green check-ins as well. Our next question: What are thoughts on boards of +1? I've seen this a lot now. Founders that are efficient often end up with a board of just one VC plus the founders because they don't need to give up board seats in later rounds.

I think the giving— this comes from— there was such a long period of time where so many VCs were just so awful in their interactions with entrepreneurs and how they comported themselves as board members. I think that's largely actually very different now for a whole bunch of reasons, but a lot better. But the idea of giving up a board seat like it's a bad thing. A board plays a minor— it's a governance role that in startups is generally actually pretty minor. But it's also a place where a CEO and management team can come and explore ideas and get feedback on decisions and really tackle the tough strategic challenges in a way that's actually very hard to do. When I was a founder, I could be much more open with my board than I could with the rest of my team, because I didn't want to project uncertainty or doubt to the troops that you're leading. I think that constructing a board carefully, having— part of the question is VCs are not necessarily the ideal board members. That has to do with them also being fiduciaries to their funds. With 100% certainty, I can say of the most successful companies I've worked with, the outside board members, so like the independent outside board directors, if you're bringing them in to serve a specific role, can be absolutely critical. At Box, for example, I was on the Box board for 14 years. A couple of years before the IPO, we brought in a guy who had been the CIO for Jack Welch at GE. So he had a $4 billion IT budget. When we were talking about how customers might react to a pricing strategy change, or, or how we should think about targeting accounts and account strategy, you know, having somebody who bought $4 billion a year of IT on your side in that conversation, that was wildly useful, right? Um, you know, as a CEO, having somebody who's been a CEO of a company that's maybe 5 years ahead of where you are on scale can be incredibly helpful as a mentoring kind of a role. Um, but this idea that, you know, boards are like going to report to the teacher or something, or that they're all about, you know, mustache twisting, you know, firing founders is, yeah, it's a shame.

Anything to add there, Katie?

No, I think Josh said it well.

Okay, great. Somewhat going off of that, we have someone who's wondering that as a board member and very active in the operations and really active with the company in general, how is it possible to not be biased?

That's a really good question because it's of course impossible to not be biased. And recognizing that, to the first point you made, is part of it. I mean, we're all human. We're all like overgrown children, basically. So why do you have blow-up meetings? We're children at heart, right? We got our feelings, get hurt, etc. You're always going to have bias, but like, you can, by understanding, you can at least like mitigate it or overcome it to some degree. But like, I actually think that's one of the roles that board members play. So I again started a company, I was much younger, ran it for about 3 years. And I remember turning to my spouse one night about 2 years in and saying, I realize I'm not thinking rationally about this anymore because this has to work. I put 2 years of my life 100% into it. It's hard to not have that kind of bias. One role board members can play is that they're not 100% in on the company and they're also looking at a bunch of companies. They can bring in a breadth of perspective as opposed to the depth that the founder is typically going to have. So I think that's actually one of the key roles. But yeah, making sure you're not smoking your own exhaust as a board can be tough.

Yeah, I think that Josh hit the nail on the head with what he just said around the different types of help that somebody gives a board. And I think as a founder, I mean, I always say this, that founders are going to forget more than I'll ever know about their company, just because they are breathing it day in and day out. It is their lifeblood. It is their 9 to 5, it's a joke because nobody's working 9 to 5 if you're a founder. So at the end of the day, it really is just understanding the different segments of what you believe you have the biggest and most robust subject matter expert knowledge in. And having the ability to say to yourself, I'm really good at being a Series B founder. But if you want to IPO and you've never done that before, there is going to be somebody in your room that knows more about that process than you do. And being able to approach those people with, you know, open ears and growth mindset and say, all right, you know, I'm very biased about my own company, but do need help in these other areas. That's a good place to start, you know, figure out where you need your skill set rounded out by somebody else. And then you'll see, I'm sure after time, different ways that that permeates into more day-to-day business decisions as well that the board can we can help you with.

Yeah, something I talk to a lot, uh, with other VCs, it's like one of the first things on my bio is I believe very strongly that it's the VC's job to adapt themselves to each founder. So, you know, I've seen founders of all different kind of archetypes be successful. Um, our job is to help bolster where they need bolstering. Like, some are, you know, incredibly strong in product but don't have go-to-market. Uh, you know, some, uh, you know, are have the technology, technical knowledge, but maybe you're new to leading teams. So it's like, it's helping them, not, not pushing your way of doing it is really critical.

Yeah, I'm finding that self-awareness to be able to note where those strengths and weaknesses lie. Speaking of, how should founders measure where they stand with their boards? Do you recommend a poll or anything similar after each meeting?

I think that, yeah, go, go, please.

First thing that comes to mind here is, if your only interaction with how you're standing with your board is in a board meeting, you probably want to set up a little bit more frequent communication with the different board members you're interacting with. I think that like any good relationship, whether that be with a colleague or with your partner or with a friend, you don't want every single time you get together being something intense and this big discussion that you're having. You want more ad hoc conversation, opportunity for just relaxation together, because that helps strengthen that relationship. And the more personal your relationship can be, the more candid you can be with each other. And so good board members will tell you what they think broadly. But like you say to any employee at a review, you don't want there to be any surprises. And so making sure you have that relationship with the board that creates a surprise-free ecosystem really does pay dividends both ways because they will likely not surprise you with how they're secretly thinking about you. Really should be out in the open and a pretty obvious data point.

Can I steal— it's Jason. Can I steal one last question before we run out of time?

Absolutely.

What's your guidance to founders in managing and working with their board and investors when the company is struggling but not failing, not running out of money next week. We could spend an hour on that. It doesn't really matter. The only thing you should do there is not hide it, but you're struggling, you're struggling, you're growing 20%, 30%, 50% this year, but not running out of money. The feedback can be weird these days. Some VCs just check out, like they're just gone. They're, they're, others are more careful about, cautious about being critical. You don't know where you stand and you sometimes lose folks. So not to answer part of the question, but What's your learning and guidance in today's world on how to manage folks when things have slowed? I love how 50% is slow because, I mean, we have companies who are going a lot slower than that because there's all the reasons why growth challenges are now. I think it's communicating, it's showing you're open to feedback. Bad news should always travel faster than good news. There's a framing bias. So instead of asking somebody, how am I doing? Say, what can I be doing better? Invite the negative. Invite people to give you the critical thinking. If someone is checked out, I wouldn't let them check out. I would say, hey, can we get on the phone this week? Can we go for a walk? That kind of thing. One of the biggest challenges right now in venture— there are a whole bunch of things that are broken in venture right now. People have raised way too much money, done way too many deals. Kind of generally don't know what they're doing. But also related to the thing about giving up board seats, VCs have become so terrified of offending founders that they end up just not saying anything. And especially when things are going south, they're just like, it's easier to just move on to my companies that are working out or maybe the bigger fires. So it's like, show people that you're not going to be offended. Some of the best CEOs I've worked with are the ones that most actively seek the feedback. I also think, by the way, one of my absolute favorite CEOs right now made a very significant reduction to cost and has a huge balance sheet. And the logic being that we've got some things we got to figure out, we want to have gas in the tank for when we do figure it out. The weakest thing is to wait until you have to cut because you're running out of money, it's too late. Just like you said, at that point, What's— can't cut your way to victory. But if you're driving a car and all the engine lights start going off, here's an idea. Take your foot off the gas.

There's the small thing that I'll add to what Josh said is almost in the reverse. Make sure that as a founder, you're treating your board as your board members, not as prospective board members. And I think that that transition can oftentimes be difficult, especially when times are hard. You want to continue to sell. Your most recent VCs, especially because you made a decision in that particular founder, you want to make sure that VC is liking you. But the selling's over, you know, we're on this boat together now. And making sure that you are able to give the truth and the real information to your VCs, and respect them enough to give it promptly and in completion, will make those VCs feel more engaged in the decision versus continuously just delivering on happy years, is what we call it. So being able to tell the truth and the complete truth is important in that relationship.

Alignment structurally makes a big difference too. One of the things I like about where we play in the venture ecosystem is in the fullness of time, our equity ends up looking a lot like common. Like maybe we've got 15 cents a share of LickPREF or something, but it's irrelevant in the upside scenarios. The worst experiences I've had in venture have been doing structured rounds. Where you've got senior preferences or picks or multiple preferences or things like that. And you see the growth investors, especially in times like now, dangling that in front of, "Hey, we'll do at a higher price, but we're going to do it with this structure." When you have those different structural incentives, that's when you get really dysfunctional behavior. You want everyone kind of— you want with your investors to have it win-win or we win together, we lose together, not situations where they can win and I can still lose.

Great. All right. Well, we are past time. Soon Workshop Wednesday is going to be 4 hours long with all of your questions and interactivity. So thank you so much. And a special thanks to Katie and Josh. Thank you for this awesome session. We really had so many wonderful comments. Thank you.

Thank you, Zaster.

Thank you.

Of course.

We will see everyone next week for 10 Learnings on High-Velocity Sales to SMB. And this will be with Gorgeous. Okay, see you.