I received a call this week from the Chairman of the Board of Directors of a small publicly traded company who wanted to pick my brain about some of the transition and strategic issues that he was having with his own board. He thought his issue was a lack of strategic focus from the board, I mentioned to him that he may not have the strategic visionaries his company needed. I realized his situation is not unlike a lot of others that I have discussed with many board members and CEO's. These organizations are in a tough situation because they realize that the people they have on their advisory boards may not have the experience and background that the company needs to help them grow. This got me thinking about two other companies.

The first company (Company 1) is actually a very sad and common tale; the other company (Company 2) represents what could be. This is a true story about two companies which I have intimate knowledge of but I have masked the names of the innocent. Our story begins 2 years ago, Company 1 is in a very large market and has developed a very exciting software and service package that is unique with very few competitors and a huge opportunity for growth given their proprietary technology and processes. Company 2 is a professional services company in the very competitive and commoditized human capital delivery space with no real solid IP or differentiators from any of its competitors in the space.

Both of these companies have a board of governance because some dope told them to do so even though they did not need it at the time nor did they know how to manage this board let alone build it. So their boards are made up of friends, family members, consultants (attorneys, accountants, etc) and management, most of which have little strategic insight in the markets that they are in but "they are all really smart business people". Whenever I hear that I often wonder what the definition of "smart" really is? These companies have their processes down from a corporate governance standpoint and have spent a lot of money on consultants and attorneys to get them there. Both CEO's are very smart about their businesses and their respective industries one of which is a founder.

What they are both lacking are the strategic visionaries on their boards to help and collaborate with them in building and shaping their long term growth strategy. If they had this very strategic information that would otherwise be very difficult and costly to get, they could be confident in the decisions that they are making as it relates to the growth of their business in their current verticals and any other vertical opportunities that they may be or should be evaluating.

In order to help with this issue Company 1 decided to invite one person with a healthcare background to their board who also happened to be their first client and an investor in the company as well. The thinking was that someone with a background in their industry could provide some valuable information but other than that aspect and the client part I was never really sure what further value that person provided and the client aspect seemed to reek of a potential conflict of interest. I am also very sure that the Board of Directors and the CEO (I know this because I asked) had no idea other than those two qualifiers what value this person was going to provide in the overall growth and strategy of the company. Even hiring a new executive team, which was handled at a board level, consisted of a search of one person recommended by a board member who doesn't even know the industry.

Company 2 realized it would be difficult to disband their current Board of Governance nor could they add all of the expertise that they needed to their current board. They decided to set up a regional "advisory board" in a new market that they were about to launch into. This board was made of executives with skill sets that could help the company with its growth plans they also happened to be some of the top HR Executives of some of the largest companies in that market. This board rivaled their own board from in both experience and industry expertise and had bigger "names" than most of the boards of their publicly traded competitors. The CEO (along with their board)were very clear on what information they needed to have and the experience, skills and backgrounds of the individuals they were looking for beyond just their titles and companies they were with. This advisory board has now been the force behind this company in repositioning and redefining its service offering to more directly reflect what these executives would like to see from a vendor partner. In one example the company redesigned its pricing structure to more accurately reflect the needs of its perspective clients based on the information and ideas provided by the advisory board. This has almost doubled its margins while providing its clients a value add and the company a major differentiator compared to its competitors in a very commoditized space. In addition the company has now implemented its transition strategy for its current Board of Directors and has begun to evaluate moving some of its strongest advisory board members to that Board as other board members are transitioned out.

The moral of this story simply goes like this; most CEO's, no matter the market or service, need that strategic input that they otherwise could not get or could not hire, as a sounding board makes those very critical business decisions. So when you evaluate your board, do you currently have the industry expertise that your organization needs or do you have a group of really smart business people (friends) who really know nothing about your industry or vertical?

The real life fact of both of these companies and the ending to this particular story is that Company 2 has grown at almost 33% year over year and increased market share in a very competitive market since starting their advisory board and Company 1 has grown about 8% in two years and is falling behind as many other competitors have figured out what they are doing and realized how to take advantage of that. Information they may have gotten from their own very strong board members who know their industries.