The Playbook for High Performing Boards - Michelle Zatlyn, Shawn Abbott, Mahendra Ramsinghani

Foreign.

I need some traction. You need some traction.

Hi everybody, this is Lloyd Lobo. I'm the co founder of Vost AI and Traction Conf. And today I'm super, super excited to have three industry heavyweights here. Michelle Zitlin, co founder, CEO of Cloudflare, Sean Abbott, partner at Inovia Capital, and my good friend, Mahendra Ramsingani, co author of Startup Boards, Business of Venture Capital and a security VC himself. So without further ado, I'll pass it on to Mahendra.

This session is about how we can help you to have a productive relationship with your board. Or if you're an entrepreneur who's yet to have a board. We'll share some ideas from Michelle, who started Cloudflare almost 10, 11 years ago and has now post IPO, continues to work with the company, build it, and more importantly, keep our Internet secure. With all that work that Cloudflare is doing, some of those who have seen the streets of San Francisco, Cloudflare did something I thought that was so cool with the DNS 1.1.1.1 being plastered on the walls and streets and. And there couldn't have been a better marketing message that says, we are here to protect you, care for you, protect your data. So thank you, Michelle, for joining us and bringing your years of experience. For the benefit of our audience, we have the honor of having Sean Abbott also share his views from the side of the Investor. Sean is VC for, gosh, almost 15 years now, or possibly longer. And looking at Sean's career, I think there's one thing if I'd like to do what Sean does really well is to fly an airplane. You know, Sean has both the heart and the head of a great human being. But more importantly, when I hear anybody who can fly an airplane, that just tells me that they're very diligent. There are no mistakes in their world, and when mistakes occur, they are very expensive.

Sounds like a startup, Mahindra.

Exactly, Sean, exactly. So having both of these sides sometimes in disagreement, most times in agreement, and when they work really well, you have great companies that get formed, like Cloudflare, companies like, like Twitter. Sean's partner is the chairman of Twitter's board. And over the past 48 hours, we've seen that company go through some very interesting times, and it'll be great to hear these stories. My background has been, I've been on the side of investments now for the past 14, 15 years. Prior to that, I was on the entrepreneur side. I was part of a company in Singapore called Isoftel. That went public. This was the late 90s and about six years ago I co founded a company that was in the healthcare space. Both experiences were very different, very good. And then as an investor, I've been involved in almost 50 different companies in various stages of their growth and had some very good experiences thereof. The reason I authored startup boards this book is because many times I would have founders share their concerns with me and there was a certain, you know, repetition of these patterns that you see. Founders sometimes don't know much about the protocols of a board. Like, you know, everybody, what does it mean to pass a vote? Or what are the rights that a board has in terms of governance, in terms of hiring and firing the CEO, in terms of on the next round, how do these change? So the construction of boards and protocols, but more importantly, having productive board meetings was where we felt like there were a lot of opportunities for both sides to work well with each other. On the founder side, some founders would feel extremely distraught, stressed about these board meetings. They would feel like it is a congressional hearing where they're getting dragged into a performance review every month. And, and many founders I've talked to would say, oh, I would just have this nausea that would start to build up before my board meeting. You know, that's not fun. No founder should go through that and nobody should be in a position of that kind. And vice versa, you had board members that would be extremely heavy handed. They were living their failed entrepreneurial dreams in proxy and telling the entrepreneur what to do at every step. And that's not healthy either, you know, so what is the right balance? You know, how do the two sides work well with each other? How. And that's what makes this relationship productive. And finally, and the most important part of the board relationship is empowerment. Now what does the board do that makes the CEO, the CEO, the founder feel empowered? You know what, how do they create that intellectual and emotional dynamic which makes them, makes the founder feel like I do not need to worry about control or losing control. I'm having fun. These, this board has my back. They are like an extension of my executive team and I can reach out to them whenever I have any concerns, questions, information. And we work well together. You know, we're like one well oiled machine that operates well together. Michelle, to share her journey from startup to IPO, multiple rounds, multiple VCs and the dynamics of the board that she has endured and enjoyed over this time. Over to you, Michelle.

Sure. Thanks Mahendra and thanks for those great remarks early on. A lot of things I was nodding my head because you brought back both good and bad memories of the early days of building Cloudflare. Hi everyone, I'm Michelle Atlen. I'm the co founder and chief operating officer of Cloudflare. As Mahendra said, We're about 10 years old, so I was starting my company about 10 years ago and 10 years later we just went public on the New York Stock Exchange in September of 2019, and today our market cap is just over about $10 billion. So in many ways I'm living the entrepreneur's dream. And through that we raised a lot of money, venture money. We never really did a Friends and family, friends and family around, but we raised a lot of professional money through a series A through d, about over $300 million and then went public, raised another 500 million when we went public and then just recently did a convertible debt offering. So at this point I've raised well over a billion dollars. I've always sat on the Cloudflare board since day one, that very first board meeting when it was just three of us. An idea to today where we're a public company and I'm one of the executive directors and so happy to share kind of some of the things I've learned along the way and things that if I was starting a company, I would do again and if I was starting company, maybe things I would do differently this time around. So really happy to be here and excited to be here with Sean as someone who I've gotten to know as I've built Cloudflare and has always been a really great champion of ours. So there you go, Mahendra.

Thank you. Thank you, Michelle. Sean, over to you. Would love to hear about. Tell us first of all, when did you learn to fly airplanes? And then tell us about the regular stuff.

Mahendra. Helicopters and airplanes are easy if you can fly a startup. That's what we're here to talk about today. Come on. And as my career has evolved, as you know, I've been on several dozen boards now and I really just love to focus on that interaction. Supporting a CEO as a coach and building a high performance board around a founder to support that aspiration of building an enduring global tech leader is what I'm all about. That's what my partners are all about. That's what we've done with our portfolio companies, companies like Lightspeed here in Canada, that have become consolidators and use the public market, as you know, Michelle, to enable that. And now we're doing with Top Hat with multiple Other companies. That's incredibly rewarding to be a part of those tight knit teams that are really committed to being great at what they're doing. And I think that's just the blanket observation that I want in the next 45 minutes, each of you as participants to walk away with, is that the board is not an obligation, it's a job, it's an opportunity. If you're bringing someone onto your board that's never done the job before, it's kind of like inviting a plumber over to your house to fix the toilet. And you kind of want to know, have you done this before? This is not something we should just experiment on the go. Let's think about building boards as a community. We have an opportunity to really step up our game here. There are so many bloody bad boards out there, you can't shake a stick at them. And there's no, I don't want any of you to be a part of any of these bad boards again. Let's get past that together. That's the attitude I want you to leave this hour with. I twisted your invitation a bit. Is that okay? Introduction, Mahendra. That's what's on my mind. That's the burning topic on my mind these days.

I'm very disappointed. Sean, you ducked my question very elegantly about how you like to fly airplanes. But in interest of our audience, I completely agree that if there's one thing we do well today, which is to help our audience shift their perspective a little, you know, the board has an appendage. The board has this negative connotation, the board that induces nausea. In fact, there are a lot of incubators, accelerators that induce that, like the board is your enemy, the VC is your enemy. And you know, they're out to get you, they're out to fire you, they're out to, you know, take away control from you.

Sometimes that's true, Mahindra.

That is, that is true. And, and occasionally, occasionally you have a Michelle, you have somebody who is able to say, look, I've got my purpose, I've got my intention, and I've got my performance, so don't you dare touch me. Right. That's, that's sort of the construct in which you see how the good performers are able to say, I'm going to deliver the performance to you, but I'm going to do it in a way that is my way, that is a gentle way, that's an appropriate way, whatever way you choose. I mean, the board, the Twitter board that your partner serves On Sean is a very different board. Right. So let's start with the first difference.

When you look at a company with great governance versus a company like Facebook, which is an autocracy where there's no governance. And look at then the presence that has the engagement with customers and with the market. What a stark black and white example that we're all just living this week.

Yeah. And in a time when elections are upon us, the role that companies play is equally important. I mean, I was bantering with Michelle before our panel started about the importance of cybersecurity and the role that Cloudflare plays in making sure that there is not only content, content delivery, network speed, but also security that is being brought to bear. So obviously the number one thing that good founders do is the sense of purpose about serving the society. I think that is something that we all contribute to and subscribe to and that's what brings us together. And the first question maybe Sean, you could help our audience with is what do investors expect from founders when it comes to board? Is it just the fancy decks? Is it great performance? Is it something less, something more? What do you expect from your founders before the board relationship starts?

Well, maybe I'll focus on the difference between those two questions. What do investors expect and what do I expect? Hopefully as a prototype for a good board member, too many investors do expect reporting and that's the trap. I don't want a great entrepreneurs to fall into what I expect. I've tried to put into my handbook for new board members, which I'm not selling. That's free. It's on my website, which is really to start by relating for board members to a founder and for a founder to her board members with trust and vulnerability and an intention of walking away from that board interaction stronger to go to go win with most importantly, a diversity of perspectives, views and experience brought to the two or three key challenges that a founder is wrestling with in any given quarter or month as the cadence of the board, board members, board meetings may be. And by the way, I did, I don't use the word diversity lightly. That only happens. You only get that strengthened resolve for the path forward from a diversity of perspectives and experience. If you populate your board with a diverse set of board members, by the way, in all, in all the meanings that has.

Thank you, Sean. And you know, when you think about trust and vulnerability, can you share one or two examples of how that is, how that is built, especially when we're all against time. The founder is trying to build stuff as fast as they can so that he can raise the next round. You have a dozen different things going on and a half a dozen boards that you sit on. We don't have time or luxury to build trust. What are you talking about?

Yeah, you do. You have to make time. If you don't have. It has to be okay to be wrong. The context has to not be providing the right answer. The context has to be asking the right questions and focusing the energy on developing options, creating a future through those interactions that didn't exist before the meeting. Using the resources, the network, the ideas, the experience, the creativity of everyone around your executive team as a founder and everyone around your board table as a founder to expand the ways that you can achieve that vision and be successful, overcome the hurdles, and yes, the inevitable near death experiences that every startup faces. There's no successful founder. Michelle will happily provide several near death experiences that she wouldn't have gotten through without teamwork and resources and support. And those founders who think they have all the answers, they can do it without any smarts from the money that they bring in. They're just looking for the cheapest check. Those are the ones that, you know, have colossal fails that we love to laugh at. It's not, it is a team sport. Entrepreneurism is not a solo adventure.

So you're saying, Sean, that our founders need to be comfortable in sharing responsibilities, letting go. They should feel that they don't have to do it all themselves and they should feel that doing it together helps everyone win. What a novel concept.

You're never going to be comfortable with that vulnerability. The only thing I can ask you to be comfortable with is being uncomfortable.

You know, when we were, when we, when we've met, interviewed board members over the years or even investors, really, one of the lens that we used was if we had. You're right. Even in the best success stories, a lot of bad things will happen to you when you build your company. Even if you're a success story, just a lot of hard situations come up, things go wrong. So Sean's exactly right. And one of the lens filters we used to use for ourselves, especially when we would raise our series B or series C, series D along the way, was if something went wrong, would we hesitate to call this person? And if the answer was ever I was nervous, I'm not sure how they would take it. We never took money or invited them onto our board. The filter we used was, would we be willing to call if something really bad happened? Would they be our first call or not? And it was actually a Filter we used to help us decide along the way who to work with and who to become part of this team that Sean's describing. And that was just a really practical filter. And, you know, a little bit. How do you decide? How do you know? I don't. It's not like I had a perfect algorithm that I could just share with all of you, but you kind of know. You get to know these investors, you get to know these board observers you're chatting with. You know, you talk about their track records. You know, Sean talked about letting a plumber into your house that's never done any plumbing before. I mean, again, if you're talking to investors who sit on other boards, everybody has bad news. How have they dealt with bad news in the past? And you can go and chat with some of your colleagues at other companies to get a sense. And that was a really helpful filter to us, to make some decisions along the way of who we wanted to work with and who we didn't want to work with. So I would just echo that.

I feel it from the other side, Michelle. When I get that text message from one of my founders on Sunday afternoon, I just found out my CPO is leaving. And they don't have the answer. They don't have the solution yet. They're just sharing. They need. You know, it's lonely. It's lonely running a company if you don't have people you can trust to find the answers with. If you. If you find yourself in the framework of feeling like you're being tested and you need to have all the answers. It's not a board. It's the wrong people you're working with.

So, Michelle, to this trusted partnership that you can aspire to build, the first phase of this relations are completely the opposite. The VC is short of grilling you, asking a ton of questions. I mean, this is part of their diligence process, right? So they're asking a ton of questions. Give us a few examples that you saw that in that phase, things were done well, and you said, you know, here's a person I could call, I could text, like somebody does to Sean on a Sunday afternoon. But also give us an example of, oh, this guy's a complete jerk. I am going to put him at the bottom of my list. Give us, you know, give us some experiences that you've had on both of those ends of the spectrum.

Of course. So, again, I think back to when I was early at Cloudflare and we were just relentlessly focused on momentum. I actually think momentum is entrepreneur's best friend making progress, going further along, saying, we're gonna get here and here's where we are along the journey. And I look back to that momentum and making progress. And that actually helps you early on, when you barely can't even describe what you're doing or how you describe what you're doing, keeps changing really quickly. And early on, you don't even have a product or you have a prototype or you have maybe some initial customers. And it's about this progress, momentum. And so we really use this idea of we were relentless, focused on execution and momentum. And so some things we did early on that helped us communicate that to our early board members or to those that we started to kind of meet in our ecosystem as potential investors were. And this was. Someone gave us advice early on that we really took to heart. Where we picked a few KPIs, we picked ones that changed quickly early on, revenue did not change quickly for us. So for a long time, revenue was not a KPI. We watched and we picked KPIs that we thought did a good job describing our business that changed quickly. And that meant, like when we were checking with our current board or potential board members or potential investors, we could go back to these KPIs that we thought did a good job describing where we were in the company against the progress of momentum as a business. And I think back to all the stories I've read as an entrepreneur of founders hating each other, VCs and founders getting to huge fights and then dysfunctional boards with Sean described all three. I totally understand now how all of them happen. Having lived through 10 years of building my company, and it's just one small thing can set off a cascading. Cascading. A cascading series of events could lead to a really bad outcome. And so some of the things that we did early on was this. I have a saying like momentum is entrepreneur's best friends. And we basically came up with a set of KPIs that we used for four years. The first four years, if you go back and look at all of our original board decks, they were the exact same same KPI dashboard the very first. And they were ones that we got to pick. And revenue wasn't one of them. Of thought things of like, these are the important things that you should measure us against about making progress. And again, and we inherently picked ones that would move quickly so you felt like you were making progress against it, which meant the board members came along with you, which meant investors came along with us, meant Our team came along with us and that was a really, really, really powerful tool. Because Earlonne, you're right, you don't know. You're just building. And there's a lot more questions than known facts. And so you got to find a way to bring people along with you. And that was a tool we use. I'm sure Sean has a bunch of other tool. Cause he sat on way more boards than I have. But like, that was a really effective, simple thing that we did. And for four years, the same KPIs, eventually we outgrew them. It was like no longer relevant and we picked new ones. But that was a really smart thing we did early on. That I think gave us a lot of latitude. And at the end of the day, if it's about building trust, Sean's used the word trusted advisor. You don't have trust on day one. You got to earn that over time. And it's both sides you got, both sides have to earn it. And so one of it, as entrepreneur, the way that you can build trust with your board is showing. Yeah, we said we're going to do this and we did it. And here you go. And vice versa, when you have bad news, which again, you will have bad news, that people like Sean don't freak out and they say, hey, no problem, you're going to get it next time. And over time you build these trusted relationships. Today, a couple of our board members have been board members since the very beginning. So we've kept them, Carl Ledbetter and Scott Sandel, and they've been an amazing advisors and partners to us. And definitely we would not be the company we are without them. And so I think that is a really positive output of how you can. And again, I think we did it. So it means you can do it too, if you want to.

Michelle, that is such a powerful story. If I could take just a minute to unpack 1, 2, 3, 4, 5 points of wisdom which really speak directly back to the core promise for today's session of giving founders something concrete to walk away with. The idea of momentum as the source of all authority you have as a founder to create fellowship amongst investors, customers, employees, the market, just broadly. And realizing the insight you've provided that you get to define what momentum is. And I frequently find in the first one, and hopefully at most two board meetings, it's selecting those KPIs. So let me say a word about that, because those KPIs for Cloudflare, I know, but when successfully chosen, they're not vanity metrics they're leading indicators of revenue. What are the things that will foretell whether it's three years from now or three months? But aligning the board, investors, employees on those and then turning around with employees and having the transparency and openness with the team of these are the KPIs and putting them up on the gecko board or whatever. Everybody sees them every day so that people know that's what we have. We get to decide what matters as founders. It's awesome. You get to write the story. And if you say that's what it is, you that's what it is. A, one, yes, momentum. Two, those leading indicators. Three is the alignment that you bring all parties to it with. And four, what you said super important is the continuity when you come back every board meeting, it's not a new set of what's great. And let me, let me twist the numbers in a different way. And this is an awesome picture. It's the same KPIs. And then you're. And then you say, well, this kind of sucked. This get like you've got it. And by the way, the board meeting is not about reading all that shit. Board members better do it before they come to the meeting. That's the job. Because we want to talk about. I have a simple test in a board meeting. What percentage of the time was spent talking about the future and what percentage of the time was spent talking about the past? If we go down rat holes on reading the board deck, all of that is in the part I don't care about. I could have done that on the plane when I was coming here. But if it's 80% talking about the future, that's a green flag for me that this might be becoming. It has a chance of becoming a high functioning board. And then the next thing, the last thing I think which you really hit on is accountability. That's what builds trust. The fact that you came back to it as a founder, every boardman. These were the KPIs I showed you three years ago. Here's how we're doing, here's what it means. That's what creates the trust. It's accountability. So well done. Is my translation okay?

Did I. Yeah, that was awesome. I love it. That's great, Sean. Excellent. I love it. Thank you. Very good. That's a huge skill actually being able to translate and synthesize. So good job. There's another blog post in your future, Sean. And one more blog post, you'll have a book like Mahendra.

I have a question for Sean, how do you read boat dregs while you're actually flying the airplane?

Read books while flying?

Read boat decks? No, sorry, that was.

This is not a public secret. I don't.

No, no. This is more in the silliness of our conversation. But, Michelle, going back to the formation years, and I believe the vast majority of our audience is in that phase where either they are getting ready to raise their seed round or they are somewhere in that early phase of post C. Some angels maybe, or Series A. So the question that comes up is, you pick the right KPIs, you were able to deliver momentum, which is an absolute delight. Everything works when you have performance on your side. Everybody loves you when the numbers are going up and to the right. But there's like 1% of all the companies, 99% of the companies, and Sean, that's your portfolio and my portfolio and everyone else's portfolio included does not work that way. So what advice do you have for those whose numbers are not doing this but are more like, ouch, I have a bump. I have a Covid. I have to repurpose my plan. I have to lay people off.

What.

Under those circumstances, what should I think.

Of when I'm engaging with my board?

Well, so I think that early on, when, before, you know, we used to ask ourselves a lot, is there real business here? Because you don't know when you start, if you have a real business, like, you're first, you're just trying to see if you can even solve what you set out to solve. And then the question is, can you build the technology? And then it's like, can you build a business around it? And it's really both of those together. What is what creates. Creates magic. And for a long time I didn't know whether we had a business around Cloudflare. I mean, we had some initial users and they were happy, but we weren't sure about the answer of is there a business here? And so a lot of times we'd come back to ourselves of, is there a business here? Is there something that could be big again? And we were swinging for the fences from day one. Cloudflare swung for the fences. And again, there's lots of other types of companies, and that's great too, but I'm talking specifically about swinging for the fences, but big, you know, again, 10 billion, $100 billion market cap type company. Like, we were swinging for the fences from day one. And so the idea was we worked really hard to come up with points of view of are we. Do we have A business here. And like, again, it kind of comes back to what I call this person. If there was a problem, there was some. Just these North Star questions we'd ask ourselves, even if the revenue wasn't there yet. And sometimes it would be qualitative because of something a customer said, or be qualitative because of something what a big part of partnership. Partner, partner Martley said, or something we read in the media and we're like, wow, yeah, this is why we exist. And that would kind of refuel us. And so you got to ask yourself, like, is the. And so then that means if there's a bump, you can say, yeah, it's a bump. But big picture, there's a big business here, so let's just get through this bump. And so the biggest thing is convincing yourself as the founder, is, is this a bump because you don't have a business, or is this a bump and you have a business? And it's. And it's much easier to weather a storm if you know, yeah, yeah, there's something big here. This is just a little bump along the way. And we got to deal with it, and we'll deal with, Will get past it, versus I'm not even sure if anyone's ever going to pay me for my service. Like, that's a wholly different problem. Like, because you don't have a business, you have good technology, but not a business. And so I think. And again, it took us years to have a strong point of view on. We have a really good business here. But I certainly wasn't on the no camp the first few years. I just wasn't sure. And so it was like, hey, how do we go and prove this out? How do we keep making progress and momentum against this? And I just, I remember the moment where we were doing budget planning. It was a few years in, we were four or five years into Cloudflare, and I was sitting there with Matthew, who's my business partner. He's our CEO. He's wonderful. We started the company together and our chief Revenue officer, who's still at the company today, and I remember we were budgeting for the year, and I looked up and said, wow, we have a real business here. It was almost like this moment, you know, I'd been asking myself many times, but it was this moment of, like, we definitely do, and things were going great. And so that was. That's something that helps you weather the storms, if you can believe on these bigger, these, these bigger points to hold on to. It's easier to weather the Downside, because again, things go wrong. But if you don't have a good business, then you gotta, then you gotta ask yourself, there isn't a business here. Well, then how do you go find it? Cause at the end of day, if companies get compared on business metrics, like it really matters. So you gotta, it's. The technology is cool, but like, how do your business metrics compare to other opportunities is ultimately how you get measured. And I don't think as an early stage entrepreneur, I did not have an appreciation for that. As a public company today, I have a much greater appreciation for that. And I think that we should talk more about that as founders.

I think that's a great point. Michelle, the first few years, is there a real business here? As a question that keeps hanging on, on top of the heads of all founders. And Sean, imagine you're in the boardroom for year one of Cloudflare and Michelle is struggling with this is the real business here. Many founders come and share like, hey, I have this imposter syndrome. I don't know if there is anything real here. Don't give it a big label like imposter syndrome. You're not trying to fool anyone. We're all in a discovery together. This is a journey. And the discovery requires time, requires effort to understand the customer. The customer themselves are discovered, discovering new problems that are coming up. But how would you react, Shawn, when you have a founder that says on a Sunday afternoon text message that I don't know if we have a real.

Business yet, I like to first of all pull back to what's the core sense of purpose that I backed the founder for? And we back founders who have a very strong founder market fit. They have a vision about how the world is going to be a different place in three years or five years or whatnot. And there's a conviction there, a sense of purpose that is absolutely an essential ingredient in success because that is the only way that you get through these tough times. And then from that, it's a lens that you can look at opportunity through. And the way I look at opportunities is stage wise, dependent. But certainly at the early stage companies, it's really about the voice of the customer and asking, what are the conversations we've had with customers in the last few weeks or couple of months that have changed our view of the object? Where is there just this monumental pain that our purpose matches up against? Because you can't work in isolation with the vision. It has to reflect what's happening in that conversation with customers. And yeah, the metrics start to show up eventually in terms of NPS and then revenue. But early on it is the anecdotal conversations that drive conviction that a board has to get aligned around. You're making leaps against that based on the founder's ability to create a future that doesn't exist. Spreadsheet jockeys don't make that happen. Visionaries make that happen. And there's a lot of ingredients that have to come together. But that is a key element of leadership that comes forth at those times of crisis.

Mahendra the other thing that's important that I like, that I think is so important as the founder, when I think about things, where things go wrong or right is there. And it's really interesting as a founder you should ask yourself which one you are. Because I know a lot of founders and people have different points of view on this. So this is just a really important piece is there are some board members who want to be really hands on and like want to be working on projects for you or doing more. And there's others who are there to probe and ask questions and I guess using Sean's word, being more coach and where they don't want to be hands on founders want different things. Like I know some founders who are saying, I'm paying that board member. They better be doing more than me than just coming to the board, more than just coming to the board members meetings. I want them to be doing other stuff for me. And then there's others I know who said no, I don't want the board anywhere near my business operating it. I want them to come and ask questions and probe. I think it works really, really well. If you know which one you're looking for from a board member and the board member knows what, which one they are. And you have that kind of like a social pact of great, I want you to be hands on, you're hands on, that's great. I don't want you to be hands on, you're not hands on, that's great. I think a lot of problems when again in the, in the in with bad news is if someone switches their style, if someone who is not hands on all of a sudden with bad news becomes hands on, that's a negative signal. And similar if someone who has been hands on all of a sudden something bad happens and they, they retract and become, no, no, I don't want to. I want to kind of stay arm's length away from it. That's also a negative signal. So I think that there's setting that again, I. This is something I've learned over the years. And Sean hopefully has a better framework to take what I'm saying and putting into words. But it's this idea of you got to pick. They're different. And we've always kind of picked the board. We've kind of been a little bit more on the probing, asking questions, not super hands on. And we didn't. We wanted to run our business, and we thought we were the operators. We were running our business, and we have a great board and we had a great relations with our board, and we found board members who wanted that. But there are a lot of founders who don't want that. And so you got to ask yourself which one you are. And I think find board members that match that and you'll save yourselves a lot of headaches.

I like it. It's interesting. It reflects against a couple of thoughts I have. One is that, you know, there's a public company board member saying, you should be nose in, fingers out. In other words, don't cross that line of managing the business. And in cases where board members take an operational role, I find it's best to really structure that around an assignment and not have management start to feel like the board has crossed that line because it disempowers. Right. It removes the accountability once board members step in. So it's a different view. It conflicts with your view that a founder might want. And you're right. I meet founders who are like, look, I want you. Here's my list. I want you to do these things well. I have a principal as a board member that CEOs should not delegate up. By the way, I was on the phone last week making a sales call for one of my companies. And I love to do that. I love to do that. But I think you got to be very careful about crossing that line. And those two adages have served me well. I like your notion of watching for changes when board member behavior. Sticking with founders through thick and thin has been a touch point for us as partners in our fund. We think about the relationship in the long arc, and our most successful investments have been ones where it was the next company or the employee that after the exit, went and started another bit. You know what I mean? So this is absolutely a relationship business. And I find now some of the most valuable relationships I have are people I've worked with through three or four company contexts over the years. And I'm quick to share that view. This is not a transactional business.

Sean. I don't think Our audience realized, and maybe this is because you are Canadian and even Michelle is Canadian, that the two of you so graciously had a disagreement.

Wow.

If this were to happen in Washington D.C. there would be a black eye, some blood and a bunch of Twitter, Twitter rant that would go on. But I think the point about loyalty is well made there, that the board and the loyalty to the performance of the founder, the founder themselves, is very important through thick and thin.

Word. It's a meritocracy. The board's first and only clear absolute responsibility is to hire, fire and manage the CEO. I mean, like, there's brass tacks here. That is the authority of a board. Now how do you do that in the context of everything else we've been talking about? If the CEO feels like there is, you know, a sword hanging over his neck, this is not going to work out very well as an open, trustful environment. And the way you do that, in my experience, is by quickly, by immediately providing negative assessments and positive assessment on a very regular basis at the end of the board meeting in the in camera session. And negative assessments build trust. Immediately hearing some negative feedback about what I did in the board meeting, and I get it from the CEO too, and I invite it. It goes, goes both ways. It's 360 is the way to disarm that elephant in the middle of the room. Because there does need to be performance evaluation and feedback in conjunction with the compensation discussion for the whole executive team and then for the CEO, which ought to fit in line with the recommendation the CEO is making for the rest of the executive team on a regular basis. So that's part of the plumbing, that's part of the machinery that has to work well. And it only works well if we get all this other stuff, day to day stuff working.

Right. I also think it's easier to hear the negative feedback if you're growing. Growth solves a lot of these problems. Back to my momentum, like I. Growth solves a lot of problems or momentum solves a lot of problems, where it's just like where you feel like you're making progress, we're going along. It's a lot easier to say, hey, you could do this better. It's like, okay, because if everything's going wrong, to hear that, it's just like, well, maybe I'm not the right person to be running this business. And if it's yours, like that's a really. I think that's a lot harder of a conversation.

Lloyd. I know that we're about 15 minutes away from top of the hour, what questions can we help our audience with? Because this has been a fantastic conversation between two Canadians and, you know, the rest of us get to applaud a little. But I think having the questions from our audience addressed would also be equally valuable.

Definitely. And I'll dive into these. One question into the tail end of this is once the relationship sours between the board and the founders, or maybe one or two board members and the founders, how do you resolve it? Like, do you remove the board member? How do you nip things in the bud? How do you keep going? And especially if the board member is probably your lead investor or maybe one of the investors.

Sometimes you need board renewal, sometimes you have to put the company first. And when you look at all the moving pieces, the board seat is not a right, it's a privilege and it shouldn't be enduring. It's not great. On the one hand, if an investor swaps out board meetings because they have something in the docs that allows them to do that, that's a huge upset unless it's very well considered. On the other hand, it's not great if you have a board member who's there because there's an investor. Right. Without it being the right person. So we've had cases where we've gone and found an independent board member who we felt would serve the company better than having one of our investment team on the board or we've changed the investment team member as part of a, as the result of a conversation with the board. I think the board compensation, having a governance or nomination committee on the board is becoming more common at earlier stages. Just to have that annual 360 feedback of board functioning. Have you asked? I often ask at the end of the day board meetings, I'll ask the CEO in the in camera, how's the board doing? Is it providing you value? Do you think the board is working? Just asking the question is not common today. Why aren't we doing that in every board meeting? Again, it comes back to principle number one. We started with. This is a job. It's something you need board members to make a commitment to being good at. If people walk into the room saying, I have a job and I'm going to be good at this and I'm open to feedback about what it means to be a great board member, then I think you get there to state the obvious. Once it's become caustic, you've made all those mistakes. I'd rather focus on how you do it right than how to Fix. Sometimes you can't fix it. And I've left boards because I can't see how to fix it. I mean, humble. I wish I knew how, but there are cases where I didn't have the answer. And I said, you know what? I'm not part of the solution here, and I'm not willing to be part of the problem anymore. I'm happy to help suggest some other great board members, but I'm not your guy right now. And that felt much better for me. It felt like the right thing to do.

Awesome.

The next question, let me just. Like from a founder's hat. Let me let that. Super helpful. I just have a couple things from a founder hat that I'd love to add early that I think might be helpful to the audience. I. I think early on, smaller boards are way better than big boards. I mean, we had four people. We had four people on our board until 2. A year and a half before we went public. And no one believes me when I say that we had a lot of observers. As we did more rounds, we brought more observers in, but four board members for a long time. And again, people are like, well, you're so lucky because you were growing. I was like, well, yeah, kind of back to growth solves a lot of problems and momentum. But if you want that, like, again, it wasn't a given. We have to negotiate it like you're in charge of your company. Like, that's smaller boards better than big boards. So I think it solves some of the things I sometimes I think founders think big boards are good, so do all this work for you. And I'm just like, I really. I also think it sets up a lot of problems, so some of this accountability. So smaller boards, and if there's problems, there's time can be. Time is both an asset and a liability. As a founder, sometimes time is on your side. There are natural inflection points. If there's a bad board member where it's easier to move them off than just, like, the next meeting. So sometimes you got to suck it up and wait for the natural inflection point to do something more thoughtful, to be less disruptive. And that might be the next fundraising round where you kind of negotiate it as part of the fundraising, where maybe that board member, especially if it's from a VC firm, you say, hey, you find a way to get them off. Let that fund put someone else from their partnership on the board, but you give them an observer. Right. Versus a board seat. There's things you can do. I think There are some assets you have as a founder that's so hard to do in between fundraising stages. But if you're going to raise money, kind of the giant eraser comes out anyway with terms. So it's a good natural place. So maybe you got to live with it for a little bit, but. And again, if you keep focused on driving results and momentum, it's easier to live with some of these where you don't see eye to eye. And yeah, I think the third lever is just what I mentioned is, you know, there are board seats, people have rights to vote, and then there's observers. And I think sometimes those. I think that there could be a whole other blog post that Sean should write about board seats versus observers. As a founder, we've used that as a tool in our toolkit to be able to manage our board. So those are three other things that I just wanted to say to the.

Able to invite an investor in an appropriate. An independent board member in at an appropriate time. Michelle. Or use that as a tool.

We use the. We did. We, we, we have independence now because you can't be. You have to, as a public company, have independence. But we really did it knowing that, like in advance of going public, knowing eventually you have to look more like a public board. And that's seven or seven, eight people minimum. Seven. You need, as a public company, you have to have A minimum of 7, number of 7 people on your board because you need so many people to staff your committees. There's three committees you need as a public company. We don't have any of that early on at Cloudflare. And so we kind of started to add folks in this, in pursuit independence to help us. And then to be on the New York Stock Exchange, there's certain governance criteria that board members have to meet as independent. And so like a year and a half, two years before we went public, we started to do that. So again, eight years, we basically had a board of four board members, but we had a lot of observers. You came to our. Not a lot. We had some observers from certain funds. And so we come to our room and it wasn't just the four of us, it was bigger. And very few things went to vote, so it didn't really matter, but it was like it was four of us. And again, I, you know, sometimes independent board members, when they hear me say that, really disagree. So again, if you're an independent board member, they're like, that's terrible governance. I just think early on you're just trying to make your idea Work. You got a lot of things on your plate as a founder early on you gotta like build it. You gotta get the people. And I managing the board is not high on my list. Like obviously you need to do it, it's important and you want them to be helpful, but it's not. You don't want it to be one of your main jobs early on. You want them to be partners in what you're doing, in my opinion, because you got a lot of products and customers to take care of early on. And once you have that, once you know you have a business, then good governance is critically important. But you got to get to that point and that is not a one year journey.

Why. So tying into that, one of the questions here is why did you decide to start a board or at what point did you decide to form a board? Because when you're early on you want to focus on the business, building the product, getting traction. Why do you even need a board early on? And do you get advisors versus board members? Why put yourself through that? Right, so let's hear your journey.

At what point? I mean kind of Mahindra's point of some accelerators really. I mean look, we took money, we raised money outside money early on. I mean look, some governance is good. I think it's helpful. We had, you know, asking questions, probing, like I think being held responsible, accountable, really good. Like that, that's good discipline. And so it's made it made us a better company. Yes, it was a bit of work and you got to get ready for the board members, board meetings. But like it made us a better company. So I would absolutely do it again early. I don't, sometimes I see some founders who don't want any board and it's kind of gross. I think again everyone's different but you just, they make bad decisions and they, I don't know, good governance matters. And some lightweight version worked well for us because we were really trying to build something big. So that was that. You can go talk to other founders, you'll get a different point of view. The advisor piece also really important. Also I think you could ask 10 people and you get 10 different answers. It was somebody early on in our who said to us he had a lot of white hair, gray hair and he said I and he did an operator and sat on many boards like Sean, but even more and basically said I can count on one hand how many times advisors actually paid their weight. So we've actually never had an advisor ever. It's like either hire them into your company or get them or they're so great, find a way for them to be involved somehow. But like, for us, advisors was just not something we ever did. And you know, we had people early on who helped us all the time, but that's different than giving them some equity that vest over four years. And basically what this person said to us early on, again, you ask 10 different people, you're gonna get 10 different answers. I'm just telling you can build a company without that. And his point was, you're gonna give them some equity that you really should be giving to the people who are showing up every single day and doing the work to make it happen. Because, like, you need, like it doesn't matter how talented you are. I mean, it's true as a founder, you set the vision, you have this point of view that no one else sees and you gotta go make it happen. But like, it doesn't matter how good you are, you need to assemble a team who shows up every single day who wants to put their blood, sweat and tears into it and cares just as much as you. And it's like an advisor who helps you once in a while is unlikely going to be that. So that was advice we got early. So we did all of this without advisors. It actually became really simple because a lot of people would come to us say, I'll help you be, I want to be one of your advisors. It's actually a great, like as an operator, I want to go make money and so I'll become an advisor and get equity from these companies. We just said we don't do that. It actually really sorted out people who really wanted to help us or just wanted to build their portfolio of advisory companies and make their next living off of it. So nothing wrong with that, it just we didn't want that.

And then tying into that, what was the most value your VC board members or board members brought in early on at series A and series B, what were the value points and how do you tying into that again is what are the value points you're looking for at different stages and how do you pick the right board members? Like early on you had four board members, how do you pick. And founders included in there, but how do you pick the external board members and then the value points at each stage?

I'll start and then Sean, you jump in. So like early on we needed some money to go prove out what we were thinking and we were Cloudflare again, big vision, lots of tech up front. We couldn't finance this on credit card so we are a perfect venture backed business where we took venture to go prove out an idea that one day could be really big, that works really great. If you're not building a company like that, then I don't know if venture is the right model for you. And there's lots of entrepreneurs. When I see entrepreneurs and VCs get into fights, it's because entrepreneurs think they're building a billion dollar plus business and they raise a bunch of money thinking that. But it turns out no, no, no, no. They're really like a great 70, 80, $100 million business which is amazing. You just can't raise a ton of money. Like you get, you get, you get, you get your cap table all messed up. Don't do that. So anyway, so for us we knew early we were swinging for the fences and so we raised some money to, to do that. And so early on we needed, we wanted people who just would, who said, who got it and said, huh, if you can do this, this will be a big company. And like that's just early on you talked to a hundred people. Most people thought we were crazy. I don't get it. What's the problem here? And so we found a couple people who are like, wow, I get it. And if you can do this, this will be really special. And so that was helpful to kind of validate. They gave us money and then they helped make introductions. Help hire some of those senior people. You could say call our board member who has Sean. No, Sean Abbott from Inovia. Is this amazing? Like Sean has a reputation. The fact that he's attached to your early stage company gives you more credibility versus like because it's all of a sudden now you're not just the three founders. There's three founders plus a board member from who has a, who has a reputation. And you know, they helped us close senior hires or critical engineer hires. And that was helpful. But mostly they just let us go and operate. And so that was what we needed early on. Later on it's different. I mean we at some point raised money from Google, Microsoft, Baidu out of China, Qualcomm and Fidelity and that they serve very different purpose because we were, this was our series C, we were doing really well. And the biggest objections we got in the marketplace were will the public market investors ever understand what you do? So we, Fidelity came in really early in a private round to show like yes, they get it. Like one day we could be a public company. Google, Microsoft were strategic investors and we had a lot of things about what About Google, we're like, well, they're an investor in us. It helps overcome that. Objection. What about mobile? Mobile matters so much on the Internet. So we got Qualcomm involved. So we kind of, we took objections as we heard all this feedback in the market of, oh, yeah, this is really interesting, but you're never going to get into China or you're going to get crushed by Google. And we turn these negative things into strengths. And that's how we thought about it as we figured out who we want involved later on. And again, that's part of a founder is making momentum. The other part is storytelling and connecting the dots. And all of a sudden it's like, oh, wow, Fidelity did your last round. All of a sudden this, wow, you're doing really well. And the public market investors invest in your private round. It just gave us a lot more credibility. And over some of these objections, people find it's so easy to find all the wrong ideas with ideas, you got to convince people of why they should believe in the positive ideas. And part of that is doing smart things, clever things.

Awesome. We'll take the same question from Sean and then Mahendra on how should startups think about boards at different stages. A seed stage, founder going to series A, going to series B. How do they find the right board members? What are the skill sets? How do they recruit?

I think Michelle gave a pretty good answer. I'm not sure.

I thought we agreed to disagree on this call.

That's a pretty good answer.

Yeah.

Certainly you want a smaller board. The role of the board changes as you grow. Absolutely. And at a seed round, maybe it's three people. Right. And that's fantastic. It's typical to have five after a series A or series B, and then you don't want to go any larger than that until you're getting ready to go public. So that if you wanted three rough parameters for different points in time, that's a good way to think about it. And as a founder and for the founders on the call, I would just focus on how do I have that time spent, valuable time spent. Right. Like that's the only thing you have in life. Add to the likelihood of success of the business rather than be a reporting obligation. So when I hear Michelle say, well, we had to spend some time to report to the board at that point, my question is, well, is that part of a management cadence that strengthening the operational success of the business? Because if I. When I hear a founder lamenting, reporting to the board, I said, well, you kind of fucked up before we even started. Like, it's not supposed to be a reporting, it's not supposed to be an extra layer. It's meant to kind of strengthen the operational discipline that's there. So that's what I come back to in thinking about the board and then with composition again, I love to get an independent involved very early. And if you look at a skills matrix of the people, just do a simple little Google sheet of the names and what are the attributes you think you want on the board? Maybe because of the type of business you really want a SaaS expert, someone who's kind of done this before. Maybe you want to have someone who really understands your customer market that can make introductions. Maybe you feel that's important, maybe that's your independent. Then you get someone who's, you know, maybe you want someone who connected with a major distributor in the market to signal to customers that you're a real player and they can't, you know, that can be very important. But make a little skills matrix for the board. Make sure you've got what you need. And that's how I would approach it.

Fantastic. We're getting at the top of the hour here we are. I want to take one last question, and this is essentially, we'll start with Mahendra here. What is the most entertaining board meeting you've been a part of? It could be crazy people throwing stuff at each other, or it could be, you know, just fun. Like, what is, what is it? I guess the most outrageous board meeting you've been a part of. Describe that, share that story with us, and we'll take that from each of you.

So you're asking, when was the last time I was at a circus? So I'll share a few examples, which are, you know, it's like, truth is always stranger than fiction. And I've included these, some of these nuggets in the startup boards book. There's one board member that would come to meetings and wanted to start the meeting by, can we have a refresher on what exactly does this company do? And to me, that is unacceptable. I mean, here's Sean talking about reading materials in advance. Here's Michelle slaving over preparing slides. And he's a board member, a very prominent board member. I won't name him. Very prominent individual in society who would come to the meeting and say, can you remind me what you do? I mean, that's like the dad showing up at the dinner table asking the kid, I forgot your name. What is your name? Okay, so in the category of bizarre and crazy.

That is one example that losing the plot.

Yeah. Then there's the other example where, you know, going back to some of the comments, you know, Michelle and Sean made about there's this gentleman whose ego was larger than the room or maybe even the planet, and he could not listen, he could not engage, could not come to the conclusion that this board meeting is about the CEO. It's about the company. It is not about you. And so what would end up happening in those conversations was it was just, you know, exhausting, futile board meeting. And Sean's point, I found a way to get off that board as soon as I could. And I told the CEO, look, it's not about you. I'm still here to help the company. You can call me at any time. And that CEO still calls me on Saturdays and Sundays and whatever the problems they have, But I just couldn't serve in that context. So those are some bizarre examples. I'd love to share the example where people are throwing stuff at each other, but that's not quite happened yet. Next. Next board meeting, I'll try that. Awesome.

Let's take the same one from Sean and then we'll end with Michelle.

I don't know about craziest board meeting. I mean, I've been a part of some board meetings that are dysfunctional and some that are super functional. I think it's more fun to model the ones that work. The dysfunctional ones usually have a pattern, though, of the board member being confused about their job and thinking that they are there as an investor and just fighting about their own rights. No clue that their job is to help the company be successful. And so, okay, there's a place for shareholder meetings. And sometimes if everyone in the room is a shareholder, you might say, well, let's scrap the board meeting and have a shareholder conversation. Just call it like it is. But that's the common thread that I would say feeds most dysfunction. A lot of the dysfunction. But the positive sides are where I'm working with a founder through a potential transaction and just the empathy required to understand that, you know, founder, you built this business for years. It's the vast majority of his or her net worth. This is a transformative event, and there's some crazy options on the table. They may look like very different shapes and sizes, and there's impact for everyone having to think about the different stakeholder groups helping to balance that. Seeing that in not just the exit transactions, but, you know, the financing that, the acquisition, assessing risk, that is just a very rewarding experience. When done right. And there's a real, genuine connection on the values that you're trying to apply to the decisions that are getting made. And, you know, some of them are. Obviously details belong in those rooms, but, you know, the Tholium transaction to Morgan Stanley, sitting in that room at that very moment with the founder in the conversation, like, those are. Those are golden moments you don't forget. And my own company, Rainbow, with the founder sitting beside me and sitting with an acquirer and sort of watching the body language and thinking about what's really happening here and what's important. What's really important is not the number. What's really important is the emotions and what people's underlying motivations are, helping bring that to a win win conversation, helping create the reality of a future that just didn't exist before you came into the room. And it is a team that comes together to do that. And there's a couple concrete examples. I mean, drivewise just hit the press this morning. It sounds easy. Hey, Alberta company, $60 million US transaction sounds great. Third one this year that I know he was involved in in Western Canada. I mean, blah, blah. 18 months, Lloyd. That took 18 months in the middle of COVID Do you have any idea how much drama happened to get there? It is a win. It is an unqualified win for all parties. Do you know how many stakeholders, how many complex equations are there? So then you feel pretty good about it for about 24 hours, then you go on to the next. The next crisis. So, yeah, awesome. Those outcomes only happen when you have a team of people who trust each other. That's the bottom line. That's the point. When it hits that critical moment when there's mistrust between parties and people are just kind of looking at their own spreadsheets, it doesn't work out. It does not work out. That's my point.

I will say that. Shawn, Mahindra, you're both class acts. I think if anyone takes this away, obviously people are super lucky to have.

You on your board.

Sean, you're super thoughtful. And class acts. I also don't have any. I don't have. Honestly, most for board meetings are so boring. Like, not, not, not, not like in the. In the best possible sense of that word. And I think that when people ask me, hey, well, how do you describe the culture at Cloudflare? This is not our official answer, but I always say to candidates and people, it's like, it's adult like. And I feel like our board meetings are all adult like. Like it's it's. And we've been really lucky. And it's, you know, Mahendra's example. I just. We have no one famous on our board, and part of it is we want people who believe in Cloudflare and what we're trying to do and want to be part of that, kind of in service to the company, not for their own agendas. And those were decisions along the way. We could have had famous people. I mean, not that. Not all. I'm sure some famous people would love your purpose, but I'm just saying, you got to really ask yourself, are they. Are you. Do you want this person on your board because they're cool and you feel like you'll be a little bit cooler or because they're the right person for the company? And. And again, we. Again, so ours are all really boring. So I have nothing to add, but I do just want to say that Shawn and Mahindra are both class acts, so this has been. I've learned a ton, so thanks so much.

I need some traction.