Right to Win EP.5: Better Boards with Chris Hendriksen and Aaron Perrine – EP.280

(00:00:00) – Intro

(00:02:11) – Conference feedback and the state of Boards

(00:07:19) – What are your goals for the next year regarding Boards?

(00:12:36) – What does a well functioning board look like?

(00:18:00) – How can Searchers effectively form a board?

(00:25:27) – Best practices for forming a Board

(00:35:34) – What are the personal reasons that you’d be excited to join a board?

(00:43:20) – Recruiting new board members

(00:45:57) – Closing thoughts

Alex Bridgeman: Welcome to Think like an Owner and especially the Right to Win series. This is the fifth episode in that series, and earlier we covered episodes with Kyle Baer, Dan Calano, Alvin and Jordan, and our first AMA on the podcast. For the fifth episode, we are with Chris Hendrickson from Pacific Lake and Aaron Perrine from Trilogy, both part of the series and to talk specifically about boards, board formations, norms and how to maximize that time you spend in board meetings and selecting correct, the right board members for the right company. So, I’m excited to kick off but…

Aaron Perrine: And we should make sure we note it wasn’t- Lindsey, just because she lost the Super Bowl bet, it was not that she was scared away or that there is bad blood. Chris was just available and willing to participate and do this one with me. Lindsey, I think, is going to be back to do the intros of the rest of the season, and we’ll miss her in the meantime. I believe she does owe me a steak dinner, which I am delighted to cash in on next time I’m in Boston.

Chris Hendriksen: We’re happy to take another bet, Aaron, and even the square, even the score at some point…

Aaron Perrine: The only way this works… I double down and then lose. Like, that is 100% my history of any Seattle related sports betting. But I have meant to visually move on to baseball season by wearing my Josh Naylor jersey.

Alex Bridgeman: There we go. Love it. One thing we were kind of chatting about just before taping was some of the discourse out of the Stanford conference last fall where boards were kind of a keep topic of discussion amongst different circles and CEO groups and investor groups. And there were some materials that have kind of come out around that conference, Chris, that you were a big part of. Do you both want to share maybe like feedback that you heard from the conference and what was the sentiment coming out of that about the state of boards and setting up boards and then some of the things we’re all trying to do to address them?

Aaron Perrine: Can I just set the scene for this really quick? And because you, really Chris was the one that ran the work and so should talk about it. But it’s like, right to win, I mean, I think we mean to really lean into that theme, and we talked in earlier episodes of like what’s your right to win as a searcher and in developing close relationships with sellers and developing a really strong thesis where you have something differentiated about your approach. And I think, I mean, I think what you’re going to hear today is like that there is a real right to win in post acquisition governance too. And it really matters how you set up your board. It matters to us as investors. It matters for entrepreneurs. There is a range of excellence here… And so, it’s something that the community, the ETA community, which I know is just a group and a concept that Chris and I really are both passionate about, I mean, it’s kind of done a little self reflection and said like hey, this is something we really need to focus on. And so, it’s been a piece of the discussion with the work that Chris and others started and there’s another panel about it at the HBS conference. And so, it’s great then to kind of also bring that full circle and talk about it with you. But yeah, Chris, I love to- over to you because you really quarterbacked a lot of that work.

Chris Hendriksen: Thanks, Aaron. Yeah, I think there was really maybe two themes that were driving this that turned into conversation. And I think the first was the explosion of interest and growth in just the search ETA market in general. Like over the past decade, it has grown dramatically both traditional search, self-funded search, holding companies, all kinds of things. And the pace at which search has grown has outpaced the director availability of that, what’s in this ecosystem today. And so, I think we’ve all been talking about how do we solve that, and there’ll be little things we can talk about like oh, let’s do board terms, or let’s recruit people from the outside. But the theme was there. And then the second theme, this was part of the conversation at Stanford that I found particularly interesting, was… there’s this sort of just overall view that the quality and relationship of boards and CEOs is sort of declining. And I would say it’s driven by a couple things, and I’m going to come back to this and say I think it’s important, it’s both groups feel it, not one group feels the other group is doing it. It was two directional, which was just there’s less collaboration, maybe there’s less trust, maybe there’s less just high performing board CEO relationships. And what was interesting when you looked at it from both sides was I think the CEOs were saying, hey, I want more from my boards. I want more availability, I want more engagement, I want more like understand my business, I want more things. And the boards were saying, I want you to tell me more. I feel like you’re keeping me at a distance. I need to understand you and your team better. Like both sides were seeking more at the same time when we said, but there’s more companies and not enough directors. And so, I think what came out of that was, well, we need to find a way to do two things. One, we need to be able to train and build more directors. And so, we can talk about this more. But there’s a board development program. It’s meant to pair what I’ll call emerging or less experienced directors with more experienced veteran directors and go through real experiences because you can’t read how to be a good director and then be one. You have to actually live it and do it. And then the second part was, what are some norms, what are things we can say are table stakes if you want to be a director or a CEO and what you should expect from each other. And every company and every situation is different. There will be ways to sort of modify these. We felt like it was good to put those on the table, and so put together some materials, some best practices, some toolkits that we’ve shared openly and they’re a community living document. They are not owned by any one person, but they, I think, are pretty tried and true methods of what makes the best high performing boards I think that Aaron and I have both been part of and sometimes are like, we have to do better on this one. And you go back and look at these simple things and often go, yeah, we’re not following the basics here. It’s not rocket science for how to be really good at this. We just have to go back to being- following the forming, norming, storming type things that most organizations need to solve. So happy to share that or we can put it in the show notes or something if it’s helpful for people to see the toolkit or whatever. But I think that was a driver of we need to be more intentional. And a formal version, which an ETA is usually still pretty informal, but a more formal version of here’s a program that can help people become good directors in the spirit of boards and CEOs both want to do more or get more from that relationship.

Alex Bridgeman: So, Chris, in thinking about some of the work you’ve done around boards and establishing more norms and kind of bringing out some of that education, what are the goals for you and Aaron like today in the next year or two around boards in the community? What does that look like? What are you hoping to achieve and see happen in the next year or two and downward?

Chris Hendriksen: That’s a great question. I mean, I’m going to take… I’ll give you two answers. One is going to be maybe like the macro community answer. And then one will be my answer for myself personally because I think that’s- we’re all part of this. I think the macro answer is I would really like to see boards that if I came back together in a year and a half at the Stanford Conference and asked those same CEOs and directors that we asked last year, how is your board experience, how is it going? I want to see improvement. I want to see that the things we talk about like are you engaged, are you giving trusting conversations, are you having in person meetings, are you having executive sessions? Like are you doing the things that are kind of core tenants of boards, that they’re happening and that the results are visible, that CEOs and board members feel like they’re more effective. I think the other community wide thing I’d like to see is that there’s just more people, more emerging directors who are getting opportunities to serve on boards and are learning from it to become great directors in the future. I think like this is the planting that happens in a field, to make giant oak trees later, they have to be planted today. And I think that’s part of what we can do. So I’d love to see that happen. And we can talk more about why CEOs take board roles and I think of like existing search fund CEOs or ETA CEOs being a cornerstone of that, maybe people around the community that are wonderful board members but haven’t been pulled into the community enough. Like we can talk about who those are, but that’s what I’d see at the community level. For myself, I mean, personally, like I’m on boards, I’m a director, I spend time on this, a lot of time on this. I’d like to see two things for myself. One, I’d like to see myself live by these norms. I definitely miss sometimes. I definitely don’t always deliver on the pieces of being ahead, being prepared, being like proactively thoughtful about what the CEO needs or what the company needs and being able to push them. And that’s usually limited by time or distraction from other things. And two is I’d like to mentor somebody. I’d like to be a person who’s going to live in the board development program and say like, I’ll take somebody who wants to emerge and develop and hopefully help them do that. I think it’ll be fun. I think it’ll make me a better director. But I think it’s a good- it’s the right responsibility. So, yeah, if I looked ahead, I think those are the things I’d be looking for.

Aaron Perrine: I really like those. For me, there’s an overriding thing which is the responsibility that every entrepreneur that Trilogy backs that’s forming a board form a fantastic board. And so, that is the first order of business. We tell entrepreneurs that we will be shoulder to shoulder with you in forming a board, often with us on it, even if it doesn’t include someone from Trilogy, that we will make forming a great board our problem as much as your problem. And I say that because I just really believe in the search fund model of minority investors, but also strong lead investors who help with that, like my firm, like Chris’s firm. And so, like you’ve got to live- you’ve got to be the change you want to see in the world first and make sure that we are really putting together outstanding boards. And I really respect and admire and just am proud of being part of a community that also cares how it’s working for others even outside of our own sort of like pecuniary sphere. And so like, I have just total admiration for the team that Chris put together that kind of reported out at the Stanford conference and all the toolkits that we’ve been talking about. I think board work is like among the most- it’s such a privilege. It’s such a privilege to do. I mean, just, it’s the kind of the ultimate sort of like cognitive privilege. Like you get to be around for all of the most important, most strategic parts of what a fantastic operator has to go do. And then, you get to go on to the next one of those to some degree. And I think that privilege just is real. I really enjoy doing the work. I think it comes with a real obligation around trust and intimacy and engagement. And so, I guess for me there’s real compromises around like setting up the rest of what our firm does and how I spend my time to try to really make sure and deliver on that. And it’s not trivial. You get really excited about this work, and then a fiscal quarter ends and a month goes by while the books get closed. And then over the next four weeks, all the companies need to have their board meeting and that ends up being a really intense time, in a couple cases, dominated by Chris and I trying to figure out our mutual schedules and when we can make these different things happen. So, it’s really, really fun and meaningful. It’s also a huge part of our time commitment, I think, as investors.

Alex Bridgeman: So maybe one place to start that I think could be helpful too is understanding what does a well functioning board look like and feel like and sound like. There’s a set of norms and practices we’re going to get into and talk about. But what do some of those start to look like and feel like and sound like as you’ve, of course, been on both, many boards and you have a large sample size, what does that look like?

Aaron Perrine: Do you want me to take a first shot at that, Chris, and you can follow? And so, I’m sure we will put this board toolkit in the show notes and the idea of both people from different backgrounds and so investors, operators, potentially industry experts, and then also different board roles. And I really like how the document sets that up with someone like a lead director, which I think we are not consistent enough in sort of designating that role and the other roles that it proposes. I guess I would just say a couple things that kind of even come over the top of that for me. There’s just got to be trust between the entrepreneur and the board members. And I think this goes to something Chris was saying at the beginning about board members occasionally feeling like they’re not getting the right information about the company or like sort of bad news doesn’t travel quite fast enough. I think for us when we go on a board, it’s generally at the end of a long and challenging search process where we have spent a lot of time with that entrepreneur, it’s usually the person who’s kind of been the lead person working on that search with the entrepreneur who is going on the board. Not always, because there can be questions of industry fit or capacity or different things. And so hopefully there is a baseline of trust, particularly with your investor directors that an entrepreneur kind of starts out with. And I just think all the toolkits in the world and all the norms in the world won’t make up for not having that basic trust. And so, as a former consultant, there’s like a equation for this. It’s that trust is competence plus reliability plus intimacy, all divided by self-orientation or perceived self-orientation. And I think entrepreneurs want to know, is this somebody that’s like available to me? Are they good at this, and are they like reliably going to be there when I need them and is this all about them or are they really there for me? And I think if you start with that baseline of trust, a lot of the other stuff can get figured out because implicit in the trust is sort of like this idea of being engaged and available.

Chris Hendriksen: I agree with a lot of those things or all those things. I think when you asked the question, Alex, of, what does a good one look like? I was just envisioning sort of the feel of it or what one of those boards feels like. And what came in my head was more the concept of like, I’m thinking like a team sport. Like I coach my son’s 8th grade basketball team, and I’m thinking of like a really good basketball team where they all do different things. There’s a big guy, there’s a shooter, there’s a point guard, there’s somebody setting screens. But when it works, like it’s just flowing, and there’s just this like element of it’s fun, things are happening, you don’t make every shot, but you feel like you’re going to win the game. And I think that’s, when you’re in one of those board situations and company situations, it requires everybody on the field, everybody on the team to be doing their job and usually actually thinking about the others more than themselves. They’re not trying to score the basket. They’re trying to like set a pick for their teammate or help them out. And I think, and you have to be competent. Back to Aaron’s point, you have to be good at the things. You can’t have five people that all do one thing and don’t do the other things when we talk about roles. But when I think about the most fun versions, it’s that and it’s this idea that you’re a team and you’re working to win, and you all have different things that you’re good at, but you are trusting each other, you’re rooting for each other, you’re winning together, and you’re usually fighting something. It might not be another team, but it might be a problem. It might be another company. It might be another team. There might be a common thing we’re trying to defeat. And those are super fun, and you won’t win every game. You’ll have, like I said, you’ll have mistakes, you’ll miss shots, whatever that is. But that just came to me more as like the emotion or the visual of it. And we can talk about what makes a great team as we think about what makes a great board. And like, to Aaron’s point, it is about how do you build a great team? Because you start from a moment of a company, we’re buying this company and you’re the CEO on the first day, and we’re your directors on the first day. Like, that’s not the best the team’s going to be. We have to practice. We have to get better. But I think that’s the visual or the sort of emotion that came to me was this idea of like those fun ones. And… I’ve been on teams, and when those teams are winning and they’re fun, like it’s awesome. Like, you just- You’re high fiving and things are going your way. And I think that’s what the really good ones feel like. At the end, you remember you won. You don’t remember who scored how many points or who had how many rebounds or what. You don’t care. You’re just like, we won. And I think that feels really good.

Alex Bridgeman: Maybe building on that analogy further, a lot of that comes with a lot of reps, a lot of practice, a lot of time together building that trust and understanding everyone’s roles and how they all complement. What are some ways that searchers can do that prior to forming the board and ongoing through their search as they look at different companies and different deals? Because you form the board when you buy the company, not after you’ve been running it for a number of years and have built that trust while running the company. You kind of, if you want that trust, you have to have kind of been working on it before the deal closes. Hopefully not a month before. Hopefully a little bit earlier than that. So maybe what are some ways that you see searchers do that effectively or could do that effectively?

Chris Hendriksen: Yeah, I’ll jump on this because I feel kind of strongly about some of these things, and I want to put a pin in something you said to come back later, which is you’re forming the board before the deal gets done or when the deal gets done, not after. I just want to put a pin in the fact that like, we do form the board after too. You are constantly forming and reforming the board is like a good, is a good discipline we don’t always do well in this community, but that’s something we should come back to. I think you nailed on one of the things, which is if you think about it like a team, like you should be thinking about it earlier. Like, you should be thinking about it before and starting to test, hey, do I like working with this person? Do I think they’re capable? Do I feel like we can get along well? And that’s going to be generally from your investor group. That’s not going to be random people on the outside. It’s probably your investor group. So start to get who are the people that I feel closest to, that I trust, that I feel are capable. And that’s in some ways an individual and in some ways a firm, because you may or may not- if you’re targeting two specific people, you can end up with a very challenging process if one of those people can’t do it. So, I think one is like definitely start earlier. I think the other part is think about it like a team and think about it like a mosaic where you say, I want certain roles and ask for advice. Ask people who do you think would be great for this for me, rather than I want that person, and like ask, you may not know someone. Aaron might have a person he thinks is great for the board that he knows that you don’t know. And so, make sure you’re asking for advice whether that’s from your investors. I mean, we have an operating partner on the talent side who helps with board formation sometimes, and she’s great at that. So figuring out who can help me pick those people or build a list of people that I might want to have. And then I think the last thing I would just say is, if you really think about roles, like don’t just go for the most like senior or experienced directors all across the board, because you’ll end up with, I mean, we’ll go back to the team analogy, you’re going to end up with a bunch of veterans that are kind of slow and can’t shoot anymore. And like, you’ve got to have some veterans, but you’ve got to have some developing players. Just, you’ve got to have the team. And I think a lot of times people think my job is to go get the most three senior directors I can get, and those are probably all good individuals and they probably would all be excellent. And maybe you want one of them, but you may not want all three of them. And that can lead to just not the right dynamic. And so, we can talk about that in more specifics. I think that’s where I think about it, is like, go early, ask for help from people of like who would be good on this. And don’t set yourself on it has to be about seniority or title or whatever. Like, some of the best boards I’ve been on have been a very big mix of like levels of people. And there’s a reason. It’s because we all have different experiences, we all have different roles. And like, that’s been great. Those have been really fun ones to be on.

Aaron Perrine: The only thing I’d add, just something really tactical, which is I would even say it starts earlier. I mean, I think it starts actually at your fundraise. And those investors are from whom you are very, very likely to want to recruit lead investor directors. And look, if there’s like one person at that shop who is already on however many boards, and that’s your whole plan, I’d just respectfully submit that that’s not a super resilient plan. Also, if you are able to recruit a great investor director, what people find is that it opens up the aperture to other great director recruitment partially because despite, I agree with Chris about not just sort of finding the most senior famous person. For one thing, that’s probably around work that person did 20 years ago, not around board work they’ve done in the last 24 months. Also, they’re probably busy. Also, their priorities may have shifted. They may be great. But what they can do also is make it possible to recruit other great people, partially because they know that there’s going to be a lot of work done and a lot of context put into that board by that investor director. And now what we see is being able to get a great kind of industry expert, which can be, if done right, really, really transformational, get other- bring in other investor directors is actually a more straightforward proposition.

Chris Hendriksen: Let me add one thing to that. If we can go to it at a different topic if you want. But like, I also think it just connects back to the idea of like you don’t have to get this perfect on day one. I’d rather be smaller and adding than too big. It’s harder to take people off the board than it is to continuously add people later as you learn the business. And so, I’m not saying don’t have a board. I’m not saying only have one director. I’m not at the extreme end of this, but just that idea that we have these constructs in our head of I have to have all these directors and I have to have it all closed by the day. Like, you’ll learn a lot about the business, be responsible, have a real board when you close. But it’s okay to add someone later. It’s okay to learn that it turns out we really needed this skill we don’t have. Or we can talk more about like terms and transitioning people out and how the business changes and things like that too. But I would just take the idea of smaller is more flexible than too big. Like, it’s much easier to expand than it is to contract.

Aaron Perrine: I agree with that as long as it’s not an excuse to not like do really real work to get the right… The flip side of that is just speed matters and the best possible thing would be the perfect board immediately. It’s just that that’s not real some portion of the time, and whatever you thought was perfect evolves. And I 100% agree with the idea of like we have to have- board renewal is super, I think super important and something we don’t spend enough time on.

Chris Hendriksen: Yeah, the place this is the easiest to say, and I think this is not a focal point of what you should be doing, at least it is not your focal point of the board, but a lot of times people want an expert, like an industry expert or a technical expert. By far the easiest one to add later. Harder to add an investor director later. Like hey, I’m investing significantly, we’re 20% investor and then you try to convince them a year later. It’s possible. But yeah, that’s the easiest one where it’s like we can add that later. But I think to Aaron’s point, it’s not a let’s be lazy and do it later. It’s just a matter of like I would rather fail on the- lean towards the side of smaller and more flexible than bigger and we’ll contract later. That just doesn’t work. We can talk about size and roles and stuff too at some point if you want.

Alex Bridgeman: Well, I think formation is probably a good topic, kind of next topic here because those are themes I’ve heard a number of times now of leaving a seat open, being a little bit smaller to start, especially the industry expert kind of coming later, board terms almost as a way to recruit a member with the expectation that hey, if this isn’t working, if this isn’t something you’re intellectually interested in doing two or three years from now, there’s kind of an embedded out if you want to go do something different and that that can kind of help almost recruit a board member who may be harder to get otherwise. But maybe let’s dive into some of the idealized best practices in an ideal world for forming a board and what that looks like. And that allows us to kind of hit on some of the key roles that we’ve all been mentioning and talking about too.

Aaron Perrine: We have a best practice on this that wasn’t in the toolkit, and I wonder, Chris, if it was because I think there’s actually a little disagreement on this one, which is good. It makes kind of [?] one. Our view is there should be two year terms, and it’s not that those can’t be renewed, it’s just that every two years, there should be an opportunity for board effectiveness review and for a discussion with that board member around whether it’s still the right fit for them and it’s still the right fit for the company. And typically, we would want those to be like interlocking. So, it’s not that everyone is up every two years, but typically one investor director might take an initial three year term and then be on two year renewals. I’ve actually had our, Chris and I’s good friend Kurt at Miramar I think actually does have a different view on that. So I think there are, there is some dissent around whether board terms is always the right way to manage that, and I respect that. Our view is that the discipline of that is worth it. I think maybe a downside would be, is that an excuse for an investor director to roll off if a company is not going well? I actually think, we take being there when it’s not going well absolutely as seriously as we do being there when it’s going great. And so, for us, that’s less of a risk than just making sure that there is a formal process of making sure the configuration of the board is right over time. So, we are fans of board terms. We’re fans of in-person board meetings and committing to that, maybe not for a year, but certainly two, hopefully three a year in-person. Also, just to put it out there, I think we are advocates for like board fees, like significant board fees. And Trilogy’s view at least is that we have underinvested in boards, and one part of that has been our historical willingness as a community to set very low or even sometimes no board fees. And not all investors in the community agree with that. That’s fine. I understand that. It is essentially a very modest contribution on the part of investors who are not serving on the board to the time and expense of the investors who are serving on the board or outside directors who come in. And my view is there’s room for those to grow because the impact that people have when they are the right people and really engaged is- just seems clearly to be increasing the size of the pie and ultimately creating value for everyone.

Chris Hendriksen: I mean, I’ll jump in on the couple you brought up, I think, and then we can maybe go back to some of the other forming questions you had, Alex, if we don’t hit them. But I mean, I agree with you on term. I think it’s a good practice. I think you’re right that there’s differing views and that’s part of why there wasn’t a strong bold like we must have board terms in the community driven document because I think we felt like there was some disagreement or different perspectives. For me, the terms part, I think Alex, you hit part of this, but I think it’s important for, this is one of those, it’s important for both sides. I think it’s really good for helping to recruit a director to say, hey, commit to me for two or three years, and then we’ll see if it’s worth you continuing on. You framed it as the director getting enough out of it. But I think the same goes the other direction. Like are you the right director for the company? Like, there’s a very, very good director that I respect that I’ve been on boards with that he would tell you I’m the best in the first 18 months and I want to do that over and over again. And if you give him the opportunity to do a two year board term, you’re much more likely to get him, but you’re also going to get tons of value out of him in the first two years. And they might say it’s time for me to go. And you might agree because you’re like, great, now I need this other expert or industry person. And so, I think it’s good for both sides. And I can tell you I’ve been in situations where someone wants a board member to leave, or I had a board member I wanted to, not any of the people on my search board but a different situation. It’s really hard. Having that discipline actually makes it a reasonable conversation versus a personal, hey, you’re not doing your job. It’s time to move on. And so, I think it’s good for the community to have those. And so I would be a big advocate for that. And it’s definitely something I talk about with every board I join, and I often renew, but I don’t- But it’s not- for every company, it’s not for sure.

Aaron Perrine: There’s one other little part of this which is around like sellers being on the board, where very often, well, not- sometimes there is a reason why you want the seller to be on the board or the seller really wants to be represented on the board. It’s also really hard to tell both for the seller and for everybody else what life’s going to be like for the seller after this transaction. And so having off ramps that have low social friction can be really, really helpful for both sides. And if there’s just a general thesis of having board terms in the company, then you’re not singling that person out. So, it’s a little bit down in the weeds. But that can be another benefit of that because the sort of system of record which is basically automatic renewals every year ad infinitum, there are cases where you really don’t want to have that system in place and then have to go take an affirmative action to not renew someone. And so having some off ramps can just be a way to reduce the friction around that.

Chris Hendriksen: That’s a great call out. Maybe we can go back, Alex, you were asking about like forming, and I think we might have different perspectives on this and maybe that makes it more fun. Or maybe we’re the same. As you’re asking about forming, like I would say, I tend to lean towards smaller boards. I think the typical discipline is like, hey, three to five people. And I would say like many searches or ETA opportunities are just partners. So three to five is part of that range is like, is there one CEO or two CEOs? And like that makes- a five is more likely with partners and a three is more likely with solos. But that zone. And I’m always like the most important thing is, is there an operator on the board and is there an investor capital allocator on the board? Maybe more than one of each. Maybe someone can fill both roles. But that’s the two roles that I like have to have. And you have to have people who, back to Aaron’s point, are like engaged, experienced in those roles, not necessarily the most experienced board members but experienced in those roles. And like, if they have a good partnership, relationship and they can build trust with the entrepreneur, like that’s the foundation for a great board. And then you build around it. But I tend to be a small board person and I think that just lets deeper conversations happen, more trust gets built, and you can, like I said, bring advice and other expertise in outside that. Your investors can be helpful. You can have advisors, you can have other people come that aren’t board members. But sometimes when you have seven board members, it’s like, it’s a lot of airtime for everybody. There’s a lot of explaining, there’s a lot of different topics to cover, and you just don’t get to like the best stuff, which is in my opinion, usually small. So I would say form smaller, definitely an operator, definitely a capital allocator, and we can build from there. But those are like my… those are foundational. If you don’t do those things, like, I think you’re- the house is on shaky ground, and then we’re coming back years later to try to fix it.

Aaron Perrine: Yeah, I guess I basically agree with that. I think I had a moment, it’s probably been three or four years, when O’Shaughnessy had one of the guys from Shore on his podcast and they were talking about how they form boards and how much time they put into it. And I think I was running when I listened to it, I actually remember where I was running, and I was like, I just remember thinking like, oh man, we could be doing better. We could be doing that. And I think… that’s been a welcome part of their involvement in our ecosystem is some of the focus that they put on that. I think there’s a tradition of more incentive equity for those board members, I think often instead of fees… We’ve gone on boards that are that core group and it’s worked great, and we’ve added folks over time. I guess I want to say like, there is some audacity of like, if you can get the right industry person and they’re aligned and they’re there, and then that first 100 days set of decisions get the benefit of that person’s input as well as the investor director that’s helping with capital allocation and knows the CEO and that operating person, I just think that can be really, really good. So, we haven’t always achieved that for sure. I think it’s probably more of an exception case. But just as far as like right to win, I mean, I think there is a right to win in that if you can accomplish it. And so, I think it’s worth putting effort into. And it’s more often the case in my experience that that happens six months in, 12 months in, 24 months in. Your point around, in a sense, search fund boards, the sine qua non of it is like helping a first time CEO get their arms around a business and figure out what they’ve bought and professionalize systems. And that’s different than sometimes the guidance, it is different than what the guidance they’re going to need 36 months in is that might be more of like a sort of talent, strategy, risk framework. I mean, I think you and I are both, or at the board that we’re on together, it’s like definitely at that later stage of strategic guidance and growth and strategic capital allocation. And that’s not necessarily the same group that you started out with. Some people can make that transition. I really try to be one of the folks that can make that transition, but it’s really a transition, and if you’re not thoughtful about making it, then you end up, I think the worst thing is you can end up actually losing some trust with the entrepreneur because you haven’t sort of put your head up and helped them look out at the horizon as their business starts to accelerate.

Alex Bridgeman: I want to get into like the personal reasons that you would both be excited to be on a board. Like, if an entrepreneur is talking to you about their board and their company, what is it about that opportunity versus inevitably the next board opportunity you’ll have to join a board that makes you excited to be a part of that board with that entrepreneur and company and also knowing what you’re personally good at and what you enjoy doing. What is that discussion like, maybe that internal dialogue in your head about, is this a board that I’m excited to be a part of, or is this a better fit maybe for somebody else?

Aaron Perrine: Chris and I are looking at each other like who should start… Just something that happened earlier this week. A couple entrepreneurs we had been working with, they’re self-funding their search and they got something under LOI. It’s like way out. It’s very different than anything we’ve ever done. But my partner Mitch knew somebody who was in a similar industry and went and did a visit with them. And so, the scene is like he’s driving back from that and Mitch and I are talking to him and we’re trying to figure out like, could this be an interesting thing for us to do? And the guy’s like, yeah, I mean, these two guys, like, they just have- there’s so much energy. Like they’re so excited about this. Like, I think I’m going to like go on their board and like be an advisor. And Mitch and I were like, yeah, that’s like our whole- that’s like the whole thing, like that’s why we love doing this. Like you have this experience of seeing these entrepreneurs get so psyched, and sometimes they’re learning a lot of new things, but they’re like taking it on board. And so, I guess I think the first answer, there’s a whole bunch of reasons, and experience matters and capacity matters and check size matters. What mostly matters, I think, for me is this chemistry. I am in a privileged position that I don’t take for granted where there’s probably more opportunities to be on boards than I would have capacity to do. And the places where I feel like I am most just like on and helpful, it’s chemistry with those entrepreneurs and you just want folks to succeed, and then like getting on the plane and getting them a bunch of notes back to their document in advance, all the things that we talk about in this toolkit, they don’t feel like a task. They feel like just that’s the ticket to ride, to be part of this thing that they’re doing. So, at its simplest level, that’s what it’s about for me. It also would be super helpful if like I had some experience in what they’re going to do. Although look, we learn new business models every day in Trilogy, so there are times where we’re going to try to do that very audacious thing of being like a sort of first principles thinker, which is almost a little bit of a punchline. But in general, it’s also great if you know something about something.

Chris Hendriksen: Yeah. I mean, I totally share the same first principle, which is like energy, excitement and just chemistry with the entrepreneurs is critical, I think both directions. I encourage entrepreneurs to be picky about that too. That just gets you excited. That’s what makes you pumped up. When they call, you’re like excited to talk to them versus, oh man, I can’t believe I have to talk to this person. There’s just the chemistry. I think the other two for me are like, I do think it’s also like excitement and chemistry with the rest of the board. So I really enjoy when I’m working knowing who those other people are. And some of that goes to skills and capabilities. Some of that goes to just like, you’re going to spend a lot of time with this group. And I’ll go back to the team analogy. Like, is it a team I want to be on? I’m one player on this team, and I want to be on the team with the rest of this group. And when we’re winning, when we’re losing, when we’re in practice, in the game, like I want to be on this team. And so, like that’s the CEO or CEOs is like the most important one because it’s like the center point of that team. But yeah, who else is on it is important to me. And then last is like, I mean, Aaron said, do I have experience? I’m just like, can I be valuable? Am I going to be helpful to this person? And so, I think that has changed some of the things I like to be on over time. I’ve learned where I’m more valuable than other things, which I’m happy to talk about. But like, yeah, places where I’m valuable and can really help the entrepreneur and help the business. Like, that’s fun. That’s why we do this. It’s like, hey, I’m working with people I like on something I can be helpful on and things are going in the right direction. It feels like winning. I’m like, that’s the best. So those are the things I’m always evaluating, like that entrepreneur chemistry, the rest of the group. And then, can I really be helpful here? And as Aaron said, sometimes that’s really obvious you have experience or not. Other times, it’s not the industry. It’s not the particular business model. But yeah, it’s the stage that the company’s at or it’s something you can really be helpful on. That’s fun and that’s going back to terms, that isn’t always 10 years with the company. It might be a certain time, which is part of why like I want to be on it and then maybe not or join it later. I’ve joined some boards later that have been awesome, where you’re like, wow, this is the perfect time for me to be part of this.

Aaron Perrine: Do you think it’s fair, Chris, it’s like, if someone’s going to ask you to go on whatever it is, the marginal incremental board, your seventh board or eighth board, whatever the one is where you know like, hey, this is it, or this is one more than really should be it, but somebody you really know you’re going to enjoy doing it with is on that board. Like, I’ll just say, for me, that can be really motivating. Like somebody tells me, Chris Hendriksen is on the board, can you do it? Like, that’s a… There’s just an inherent problem with that too, which going back to like the board formation thing, which is there’s another way of looking at this, which is like we should sort of be spreading ourselves out and bringing on new people, and there is a dynamic that works the other way. And I just think we have to be candid about that, like it’s also about where we’re going to spend all of our time and how we know we’re going to interact with other people on the board. And sometimes that leads to kind of these agglomerations of talent rather than sort of separating it out to different companies.

Chris Hendriksen: Yeah, for sure. One thing I’ve learned is that I’m a better director if I could be on more boards with good other people that I’m excited to be partnered with than just less where I kind of feel like a lone wolf for myself and I don’t know the other directors and you could get two or three industry experts, I don’t know, that might be super valuable, but don’t- I’m just more productive and more engaged and more- And I just think I’m more helpful. And look, there’s an element of that that’s just like- I think we’re referencing it like, it’s just like, oh, it’s people I like or it’s people that are fun, but it’s also like people you can learn from and people you think have different skills than you. Like, that’s engaging, that turns my brain on. And so, I’m like- There’s a company I’m on the board of now that I thought the entrepreneurs did a great job. Like, they wanted me to join the board and I said no because I didn’t have the capacity. And then they said, well, would you do it for a shorter period of time? I said no. And then they said, well, but these other people are going to be on the board. I was like, oh, that’s really interesting. I really like those folks. I’m going to learn from them. I’ve never been on boards with those people before. Like, it’s actually not because I know them on boards, I haven’t. And so, it was an opportunity. And so, I eventually said, yeah, I’ll do it. And I had industry sort of expertise. I had Pacific Lake was an investor. They did a bunch of those things. But the thing that probably tipped me, I like the entrepreneurs a lot. I didn’t know them that well, but I liked them a lot. But what tipped me was probably the rest of the group that was on as being like, I’m going to learn. This is good for me. I’ll develop. And so yeah, that’s definitely something that can tip you over. But I think, yeah, it’s still entrepreneur first. Like you’ve got to really like the people you’re kind of deciding to back. And I think the same should be true. Again, I’ll say that, like entrepreneurs should hold that too. Like you meet someone who everyone says is a great board member and you don’t have chemistry, like I promise you won’t get as much out of that board member as you think because you just don’t have connection and chemistry and trust and all that won’t build. So look for that chemistry.

Alex Bridgeman: In thinking about like recruiting new board members to kind of take positions in companies, it strikes me there’s a number, there’s quite a few really talented operators that could be good board members. How do you think about bringing on current operators, current active CEOs running companies that are busy day to day and bringing them onto boards and kind of encouraging that trend?

Chris Hendriksen: Yeah, it’s a great question. I think we’re fans of it. I think that I can speak for my personal experience in a second of like the first time I went on a board and what it did for me. But I think we’re fans of having operators who are running search fund or ETA companies join a search fund or ETA board. I think it has to be measured in the sense that like that’s not their full time job. They can’t be on many, many boards. They’re still running a company and it’s very demanding. But in my experience, it’s really good for the entrepreneur who recruits them because you end up with someone who’s a few years ahead, has seen around some of those corners, has been through those same things, and they’re close to it, they’ve been there, they feel it, they have that emotional like understanding, but also like the skills, the tactical stuff that you’re going through. And so, I think that’s super valuable. It’s also, in my experience, really good for the entrepreneur that joins, like the CEO who’s in year four joining a board. For me, when I did that for the first time, I was blown away by how much I saw the business differently because I saw it as a director and understood, oh, I see why they’re prioritizing these things versus what I was thinking about in the business or how to communicate or how to strategize- do strategy and discussion. Like, I just became a better CEO by being a director on someone else’s business. And so, we’re big fans of it. I think it still goes back to they’ve got to be a good match and good chemistry fit, and they have to have time. So, realize that many of them won’t and many of them would say no. But I think that’s a great group to pull from, and like I said, I would lean towards more experienced, kind of three, four, five years in than a year in. But it’s a great group.

Aaron Perrine: I totally agree with that. And I think it also, for me, it does play into that, my own enthusiasm for the board. Like there’s been people where I was on their board. They’ve had a great experience, maybe they’ve sold, it’s going to- Or it’s time for them to go on their first board. I’m really excited to do that with them. And that’s kind of part of the board development piece of this. And so, I think you can actually, you can get some real synergy there. And I think we could probably both list off a number of folks that have had the opportunity to go on their first board in the last year where it’s just been an outstanding fit and been great for us as investors and really helpful for the entrepreneur.

Alex Bridgeman: Yeah, there’s a couple names that come to mind that I’d be pretty excited about. Any closing thoughts on boards as we wrap up the conversation here?

Aaron Perrine: Great. One point I wanted to make we didn’t quite get to is just around the importance of board effectiveness reviews. We’ve actually had really good luck, really good experience with having an outside party. We have an operating executive who works with us that sometimes does this, some of the great kind of CEO coaching folks in our community also do this where every couple of years, they will actually have a call with each board member, have a call with the CEO, and hold up a mirror on how the board’s doing, how effectively we think we are working with each other. I have found that just objective hold up a mirror view to be super helpful. And I wish we did it more and I wish we did it more consistently because I think it can provide a real roadmap for the CEO and the board on where our gaps are, both in terms of maybe adding a member or transitioning a member, but also in just how we’re working together. So, I guess just a plug for some type of board effectiveness review.

Chris Hendriksen: Yeah, I think it’s great. The one I will add is just, we might have alluded to it a little before, but I will put in a plug for doing executive sessions at the end of your board meetings, which for anyone who’s not familiar, it is the concept that at the end of a board meeting, the board without the CEO has a session where they talk about what’s going on, get aligned and give the CEO direct feedback on how the business is doing, how the meeting went, things they’re excited about, maybe things they’re worried about. It’s just direct feedback for the CEO. And I find that that is easy to get squeezed out of the agenda but probably one of the most valuable things you can do as a good board is give real feedback to the CEO. It gives clarity. It gives good guidance. Oftentimes it’s also giving really good positive feedback, which sometimes a CEO leaves a board meeting feeling like, wow, I don’t know how that went. I’m not so sure what’s going on. And like it’s our job to do that. And I think it’s just a requirement. And one of the things at the Stanford, that conference and in that survey where I talked- some of that was kind of, it’s less effective. That was one of the things that was clear that had gone down. The number of people doing that has gone down, and I think it going back up is something I would put a plug in for. So I’m going to do it myself. And I would sort of ask everyone out there who’s on a board to be the champion of that has to happen, and we’ll move other things around. And I think it will have a significant impact on board and CEO effectiveness and satisfaction.

Aaron Perrine: Chris, the board you and I are on together, initially, your colleague Keith was on that board with me. And there’s just a great story. After the very first board meeting, we had this executive session, and Jake and Cyrus walk back in, and it was like, are we still… Are we still the CEOs? …We’re like, guys, you’re doing an outstanding job. We’re so excited to be here. And just to your point about, a lot of times, it’s just taking the time to really formulate the really positive feedback that you want to deliver and just make sure that the CEOs are leaving with like a, hey, we went deep on some things, we might have poked you on some things, but like thank you for your effort. And there’s a just it’s a nice time to just take a moment to do that.

Alex Bridgeman: Love it. Well, Aaron, Chris, thank you both for sharing your time on the fifth episode of Right to Win. I always enjoy spending time with both of you, so thank you for sharing some of your expertise and thoughts and perspective on boards. This has been a ton of fun.

Chris Hendriksen: Thanks, Alex.

Aaron Perrine: Thanks, Alex. Thanks, Chris.