Finding Your M.O. is an on-going series on The Business of Fashion penned by Áslaug Magnúsdóttir, co-founder and CEO of Moda Operandi, on her experience at the helm of a fashion-technology start-up. Last time, in Part 7, we examined the complexities of serving global markets. Today, we tackle the topic of managing investors.
NEW YORK, United States — Late one night, about a year after launching Moda Operandi (M’O), I received an urgent e-mail from one of my investors. He was making a last minute trip to New York the following morning and wanted to meet to review a host of topics and materials when he was in town. I was exhausted, but jumped out of bed and scrambled to prepare. At 3am, bleary eyed, when I had finally pulled together everything he had requested, I thought to myself, “This can’t be right. Shouldn’t investors be a help rather than a burden?”
Finding the right investors, as discussed in Part 5 of this series, is a critical part of any business’ success. But managing your investors is perhaps even more important and challenging. You must strike a balance. Of course, you need to engage your investors to get the best out of them. But you also need to avoid being distracted by investors, so you can get on with running your business properly.
Different investors will have different needs. Board member investors typically require the most information and are hands-on. They usually have put meaningful money into your business and want to protect their interests by helping to shape the company. Non-board member investors are typically less engaged, although some of them may have distinct opinions about how you run your business. Finally, a company will typically also have passive investors who prefer not to be involved in decision-making at all, but expect regular reports about how the company is performing.
To be clear, every CEO needs to manage investors according to the specific dynamics of the company they are running. Some companies require very regular engagement with investors, where all levels of decision-making are discussed. In other companies, investors give management the autonomy to run the business without looking over their shoulders. It’s up to the head of any company to understand the company’s investors and manage them accordingly.
I have learned three key lessons about managing investors: (1) you need to manage your time and know when to engage, (2) investors aren’t always right and (3) ultimately, it’s the CEO and founders who are responsible for the health of the company.
Manage your time and know when to engage
During fundraising, a large part of a CEO’s time is spent engaging existing and potential investors. So it’s very important that in between fundraising periods, you aren’t distracted from running your company. Your investors may not necessarily understand this. If they lack operational experience, they may not appreciate, for example, how a series of small requests can add up fast and prevent you from honouring your core responsibilities. Therefore, you must manage your time and your investors’ expectations, providing them with sufficient information, but not to the detriment of the business. Learn how to say no nicely. Practice in the mirror or with a loved one — and then try it on your investors. Even if they grumble at first, they will ultimately respect you more for it.
• Get rid of monthly board meetings
Early stage investors will often require monthly board meetings. For first time entrepreneurs, these meetings can be useful as they help solve problems and keep deadlines on track and costs within budget. However, once a company is up and running, monthly meetings can become an unnecessary drain on time. In most cases, quarterly meetings are adequate — and they give the company enough time to progress before being measured against investor goals.
• Standardise your board pack
Standardising your “board pack” (the materials you assemble and present to investors) allows management to save time and focus on running the company. A board pack should be a brief overview that highlights key data related to a company’s business performance. There is no reason to re-invent the wheel and create a different format each time you need to put a board pack together. Decide on a template and use it every time.
• Send out flash reports
One way to minimise time spent on investors is to proactively send out regular information about the performance of the business. Many investor questions and concerns can be nipped in the bud by simply communicating key data via email. Give your investors a monthly (or weekly) one page update on how the company is doing. They will love you for it.
• Know your numbers
Investors are all about the numbers and they want to know that their management team is also. This includes not just revenue-to-cost numbers, but all kinds of statistics and metrics. At M’O, for example, our investors often want to know about total visitors, first time visitors, bounce rates, total customers, new customers, the proportion of international customers, conversion, average time spent on site, average transaction values, return rates and more. As CEO, you need to know your key performance indicators (KPIs) like the back of your hand. Never walk into a board meeting without memorising these numbers or at least having them at your fingertips.
• Engage your investors when problems arise
Your investors should never be the last people to hear about problems with your business. If an important problem arises, notify your investors immediately. This is one of the reasons you have investors after all: to help solve problems. So use them. Pick up the phone and leverage their expertise and experience. Whatever the problem, a professional investor is likely to have gone through a similar situation at some point. And they will appreciate that you came to them for perspective and input.
• Involve your investors in key decisions
Related to the previous point, you should consult your investors when making key decisions. The small stuff you can handle, but if there are big decisions to be made, they need to be part of the process. It’s tempting to use board meetings simply as opportunities to update investors on company performance, but I recommend using this time to also talk about the big decisions that need to be made.
Investors aren’t always right
Like parents, investors are sometimes right and sometimes wrong. When M’O raised its first round, I was compelled to make my investors happy. So I sometimes followed their suggestions and direction, even when it didn’t make sense to me.
For example, early on, one of our investors didn’t like our company’s name and suggested we hire a specialist to help us find a better name for the business. So we spent tens of thousands of dollars on a naming company only to have them suggest mediocre alternatives. It was a waste of time and money. This experience taught me that investors are people, too, and are, therefore, prone to error just like the rest of us. As an entrepreneur, you have an obligation to listen to advice from your investors. But ultimately, you need to do what you think is right for the business. That’s why you’re in charge.
The buck stops with you
As CEO, one way or another, you are accountable for everything. The company will live or die by your direction and you need to deal with investors accordingly. Board members will inevitably express concerns. Listen to them, mull things over, talk to your management team, call mom and dad if you like. But know that, at the end of the day, you are responsible for what happens to your company.
Go with your gut, because if things go wrong, nobody is going to blame the board.
Previous articles in the Finding Your MO series:
Part 1: From Big Idea to Launch
Part 2: The Need for Speed
Part 3: The Business Plan is Your Roadmap
Part 4: Making the Most of Mentorship
Part 5: How to Choose the Right Investors
Part 6: How Wise is Conventional Wisdom?
Part 7: Going International
Áslaug Magnúsdóttir is co-founder and CEO of Moda Operandi