Posted on 23. May, 2012 in Kirchner Blog
As a Board member and investor, you are often at the mercy of the Management who sits on the Board and reports on all aspects of the business, perhaps spinning the story in a way that masks reality.
This is the value of seeking the independent perspective of actual business operators, who have seen the mistakes first-hand and know the right questions to ask at all levels of the company, not just the executive level.
I remember the case of a technology company that had been operating at a high burn rate for some time and revenues had consistently fallen short of budget. At the point that we were called in to carry out an operational assessment, the Company had essentially run out of cash and there were no options left to raise capital other than through a bridge from an existing investor. The investor was naturally nervous to provide this funding, given the track record to date.
So we took a close look, and subsequently found several key deficiencies. While the technology seemed well engineered and delivered, it was clear that the strategy and sales execution were critically flawed. Also, this small company’s ambitions were not met by its resources – it had production facilities in two locations in two continents and expansive sales plans not warranted by either the product or the market demand.
None of this was visible in the picture painted by Management, and only made clear once the Board asked itself, “How do we know?”