Often a young ambitious business, often a technology business asks me about getting a Non-Executive Director or NED. Sometimes they ask me to be the NED.
I always say no to this. Partly because I spent a lot of my life in Scotland where NED means “non-educated delinquent” so I don’t feel qualified for this role. And mostly because those young ambitious businesses don’t need a NED of either variety.
What NEDs are good for
You might need a non-executive director if you’re going for a substantial angel or venture capital funding round and your board is made up of young techies who haven’t run a company before. The idea is that you bring in a “grey hair”, that is, someone a bit older who has been around the block a few times, probably built up a company and is now working part time, probably for the fun of it rather than for the money.
That’s the conventional wisdom anyway, but as with most “common sense” ideas about business, reality is a bit more complex. I want to take you through some of the common myths about NEDs so you can make up your own mind if you need a grey hair or not.
The myths of NEDs – and what happens in the real world
These are the common reasons why companies think they need a non-exec.
- We won’t get funding without strengthening the board
- I need someone with more experience who can help us out
- We’ve started this thing, it’s growing and now we’re all a bit nervous about what we’re doing
- We don’t have a clue and we’re all terrified
- They’ll have a great address book and will introduce us to funders/clients/important people
- They’ll be able to sell loads of stuff to big companies
Any of these sound familiar?
Here’s how it works in the real world.
Banks, angel investors and venture capitalists are all primarily interested in you, the business founder, and your business plan. If you glue a non-exec person on to your board just to make the company look good, they’ll see through this instantly.
If you think you need someone with more experience, what should they have more experience of? Do you need someone who can negotiate or sell for you? Get a sales person. Do you need someone to help you with strategic planning or to support you as a board or founder as you grow? Get a business advisor/mentor. If you need help planning out complex financial planning (especially for a funding round or big step up) get a part time financial director. All of these will actually add value to the business, and will be a lot cheaper than a non-exec.
Similarly, if you want to get introduced to the people who can make a real difference to your business, either use LinkedIn or google the right people and email them. If you’ve got a good proposition for investment or for a new piece of technology, you’ll get interest from the right people just by putting it in front of them. No one is going to fund you just because your non-exec suggests it to them, they’re going to assess whether that’s a good opportunity.
NEDS are not a short cut
Many of the myths around creating a successful business are based on a lazy approach, and the idea of the non-executive director is that they could create short cuts for you. Unfortunately, success in business is all about hard work. It’s about researching and learning (that’s why you’re reading this article isn’t it?) and finding out the right way to go about things, finding the recipe for how to create the business you want. You can find this stuff out for yourself, but you have to work at it.
Think about a business advisor who has done it before instead of a NED
If you’re uncertain as to how to grow your business, confused by all the conflicting advice out there, or don’t know who to trust, think about getting a busines advisor or mentor who has been in business, grown companies and been around the block. In my opinion, this is a more honest relationship, where you pay for business consultancy and advice, and get someone honest and on your side to help you with the business. And you don’t have to locked into a relationship where you’re paying someone a couple of grand a month just to look pretty on your board, or worse, interfere in your business, tell you what to do when they don’t know about your sector, and slow you down.
I’m writing the chapter of my book on business pricing which covers all the traditional ways of setting the price in a small business. Here are the different approaches I’m covering at the moment, but maybe you’ve got ideas for ones that I’ve missed or odd permutations you use in your industry.
- Hourly rate and daily rate
- Market rate – this one involved lots of examples of the different prices you can pay for chocolate
- mark up and margin on what you buy
- Value based pricing – involves jokes about dentists, plus a long sordid tale of a yoga holiday (honestly, it’s a true story, names changed)
- Fixed fee and capped fee
I’ve also done a bit on a slightly odd one used primarily by lawyers and accountants, the third, third, third pricing model. I’d be interested in seeing if people think this is actually a pricing model, or a way of crudely predicting profits – I think I’m so deep into this stuff now that I’m seeing pricing models everywhere.
Send me your ideas, and don’t forget to preorder the book to get your special price (it might be very special indeed if you get in this early)
The dream of most small business owners is to clone ourselves. We’d all love a workforce made up entirely of people just like us. Wouldn’t it be great if all our employees were just as dedicated to the business as we are, if they were all self starters and could take decisions. Wouldn’t it be lovely if staff cared as much about the business as we do?
Unfortunately, in the real world..
As human cloning is impossible, and a room full of entrepreneurial Julias would be a complete nightmare, we have to take on staff. And those staff are just not the same as us. Even if you get staff who are super competent, lovely, well trained, very experienced, it’s always going to be a job to them. They didn’t invent this company, they’re not going to make all the profit out of it, and even if they stay with you for 10 years, working for your business is not going to be their legacy in the same way as it is for you. It’s not their baby, it’s their job.
Getting people to care
Once you recognise that your employees are not going to be as crazy about your company as you are, and that they might have other things going on in their lives which they care about equally or perhaps more so, you have to add a new area to your job description as MD. You have to be the “head of employee engagement”, or that’s what it would be called if you had a 80k a year job in a big company.
As the head of employee engagement you have to think about how to get people to care. And that’s getting increasingly difficult, as people see their identities and life purpose more and more as something distinct from their jobs.
What do other people care about
Well, that’s something you have to find out by talking to your staff and finding out what’s important to them, what they’re into. If you were the head of employee engagement at a big company, you’d be talking about “aligning your company goals with the values of your staff”. For small businesses, this means if you’re interested in closing the sale and not worry too much about the last details of the quality to the customer as long as they’re happy enough to come back next time, you are going to have trouble with an employee who wants to take painstaking care over what colour paperclips you should use. Both are valid points of view, but the two don’t mix.
What people organise for their staff away days and training is always interesting as it says something about the perceived values of the company. The organisation which has a pampering day at a spa, probably has a boss who wants a spa day himself, and/or believes that staff are stressed or overworked. The company which organises a graffiti pros team building day, either has a boss who is interested in urban art, or wants to do something which everyone can join in, but is likely to appeal to the values of staff in their 20′s. Although these team building days look like fun for anyone, so you don’t want to assume that 55 year old Robin in accounts isn’t interested in being the next Banksy. He might be Banksy, for all we know.
More good stuff
I’m slightly obsessed with employee engagement for smaller businesses at the moment, so I’ll be writing more as I’m thinking about it. If you’d like to stay tuned for more good stuff, you probably want to sign up to my chunks of interesting business thoughts delivered by email, or follow me on twitter for a slightly more random selection of stuff. Or both.
I’ve been working with several professional services firms recently, a nice smattering of lawyers, accountants and consultants. There’s a tradition in these firms of using the third:third:third pricing model, so I thought I’d share my thinking with you about this model.
What’s a third, a third and a third?
Image by brizzle born and bred
The idea is that you set your price (or your target sales income) to cover a third for the staff wages, a third for the “desk” , and a third for the owners’ profits. Thinking about this has made me think of a very traditional Dickensian legal firm, so I’ll use the example of Ebenezer Scrooge and his employee Bob Cratchit, although of course, none of my clients are anything like Mr Scrooge.
Ebenezer’s firm employs Bob to do their lawyering stuff for them. They charge £90 per hour, which is based on £30 per hour to pay Bob, £30 per hour to pay for a share of the overheads, as they’ve had to give Bob a computer, some software, a phone, a desk and a chair. Scrooge’s firm is based in central Brighton, so they’re paying a hefty price for office space. That leaves £30 per hour for Scrooge’s profit.
The beauty of this model of course is that it’s very simple and easy to understand. If it costs £30 per hour to employ Bob, you need to charge three times that to make a profit. Easy. Nice. Simple. Or is it?
Where does this model fall down?
I’m sure you’ve worked out already that even with Brighton or London office rents, the cost of the desk isn’t the same as someone’s salary. So you have to make sure that you’re dividing in the cost of all the firm’s overheads here, not just the cost per member of staff. You need especially need to include all your marketing costs, the costs of all your non-billable staff such as the office manager and admin people, and all the bits and pieces which you end up paying out to run a business.
And remember that you won’t get 7 hours a day, 52 weeks a year of billable work out of anyone – most professional services firms will be doing well if they can get 75% billable hours from any member of staff, and that’s after you’ve been kind enough to give them some holidays and maybe some time off when they’re ill.
Unless you’re making a very hefty investment in marketing, or have massive expenses in terms of specialist equipment, you’re probably spending more on staff costs than the rest of your overheads. So the third, third, third model falls down here.
Will I make any money?
If you’re in Ebenezer’s position, you want to be able to make a profit from all the Bob’s you employ. But why would your profit be limited to this equation that you make the same profit as you pay out in salary for the billable hours people? That’s what the third, third, third model implies. Maybe you want to make more money? And maybe by being clever about how you do business, your scalability isn’t just about adding in more and more Bob’s to work for you. After all, even the best staff members in their world bring their hassle factors with them.
What should I do about this?
Before I started thinking about this in depth I was tempted to let people use the third, third,third model as a rough ready reckoner. It’s something Ebenezer could work out on the back of a fag packet with his quill pen.
But now we see that this model can be a limiter on profitability, I think you should just throw it out of the window, like the people used to do with their chamber pots.
How to set the right price
You might have noticed that I’m a teensy bit obsessed with pricing at the moment. That’s partly because helping my business advice client’s pricing is the number one thing I can do to help them make more money, and partly because I’m writing a book about how to set your pricing. If this post has made you think about how you set your own prices, you might want to pre-order the book.
I’m writing a book at the moment. It’s my first proper book, and it’s due to be published early next year. It’s all about business pricing. I’m 9276 words in so far, or 23.19% of the way through, according to my spreadsheet. In an effort to make sure I finish it, I want to tell you guys about it, so I’m accountable and have to finish what I started. Taking my own medicine, in fact.
This is a little glimpse of the introductory chapter, and I’ll be giving away and testing out some more excerpts as I go along. Comments, encouragement and supplies of posh coffee (this writer’s favourite fuel) are all welcome.
The price is right
I’m Julia Chanteray, and I’ve been running a company called the Joy of Business for the past 12 years. The Joy of Business is all about helping little companies grow up to be bigger companies. My job is to help people to make more money, and have more fun. This book is to give away one of my secret weapons in my crusade to help people build their businesses. Here it is:
you probably need to charge more money
Not exactly rocket science is it? It’s pretty obvious that if you charge more, you’ll make more money. Anyway, that saves you having to spend any money on actually buying the book and you’re all set now. Right? All you have to do is…(probably) charge more money.
The other “secret weapon” I use with lots of my clients is this one:
pricing is a marketing issue
How (and what) you charge for the stuff you sell affects how your customers see you. If you charge bottom dollar, your customers probably won’t appreciate you, and may well not see what you sell as being as good as one of your competitors. Your stuff might be a million times better than the other guy’s but if you price it cheap, they won’t think it’s as good.
The rest of this book is about those two issues – it helps you to work out how much more money do you need to charge, and how to feel confident that you’re charging the right price for your business. Not too much, and not too little, but the right price for you. And it will help you to start to do the work that you need to bring in the business at the right price.
Who is it for
This book is not for people who work in big companies. If you have more than 150 staff, you probably have esoteric pricing matrices, and goodness knows what to help you with setting your price. If you’re reading this and you work for a corporate, put the book back on the shelf right now – unless you’re thinking about leaving that world and setting up your own company, in which case you should be walking to the cash register, cos you’re definitely going to need this baby.
This book is for people who want to get serious about their business. Maybe you’re a freelancer who wants to get paid what you’re worth, but you’re not really sure what that is. This book will help you to work that out. Maybe you’ve got a business which is doing okay, but you know that it could be making more money. You want the first and most obvious way of increasing turnover, but you’re not really sure how much to increase prices by, or whether it’s too cheeky. Or maybe you’ve got a business which is in serious trouble, and you want to know if that’s because your pricing is all wrong. Quite possibly, it is.
As you read more, you’ll see that I’m very serious about helping businesses to make more money. I’ve had the sleepless nights in the past because of cashflow nightmares, and it was horrible. I don’t want anyone to have to go through that. I think that we all deserve to make decent money, and not have to worry about cashflow, making payroll, or about long term financial security. This book (and my consultancy work at the Joy of Business) is all about helping people to create enough money to live a good life, and not have to worry about whether you can afford to invest in your marketing or pay your rent.
Why you should read it
There are lots of books and blogs out there about pricing. There are lots of sets of instructions from the business schools on how to do pricing “properly”. I’ve read them.
This book takes all of that knowledge, throws out the out of date and the crappy thinking about pricing, and distils it into a short, easy to read manual for small businesses who want to grow into bigger businesses.
If that describes you, a friend of yours, or your partner (or your boss) then you should be reading this book. It helps if you pay for it too. Not just because I’d like some money for all the hours I spent on it (although I would) but because if you pay money for it, you’ll take more notice of it. Price is a marketing issue, remember.
Hopefully this is like the excerpts of the forthcoming book by a particular famous author you get at the end of books, and you’ll be ready to buy the book right now. You can’t because I’ve still got 30000 words to go on it, but if you’d like some more bits as they come out, do make sure you keep in touch through the email newsletter, twitter, or
hanging around outside my flat.