MINDING YOUR BUSINESS

Look to outsiders to help you steer

Directors or informal board can widen perspective, give benefit of experience

By Ann Meyer | Special to the Tribune

November 5, 2007

CVM Solutions wouldn't be opening an office in London next year if it weren't for the customer board of advisers it set up two years ago.

"Our customers are the ones who have been leading the way on intelligent global expansion, rather than us just attacking it ourselves," said Mike Anguiano, chief executive of the Oakbrook Terrace-based supplier of diversity data and technology. "They told us if we wanted to continue as a supplier within those corporations, we also need to expand globally."

That was welcome advice for CVM, which is always looking for ways to improve and grow its business, Anguiano said. By listening to advisers, whether they be customers or independent directors, small businesses often gain new ideas and expertise they otherwise would be missing out on, experts said.

"A board of advisers provides a supercharged opportunity for a small company to take the next step," said James Schrager, associate professor of entrepreneurship at the University of Chicago Graduate School of Business. "Not only do you get other people thinking things through, but you are forced to think things through yourself."

CVM's customers also have helped steer the company to improvements, such as adopting the Six Sigma method of quality control, Anguiano said. "The more advice they give us, the more it helps us to be a better supplier to their organizations," he said.

Besides its advisory board of 40 large customers, CVM has a board of directors, which meets monthly to discuss strategy and challenges. The two panels fill different roles but both serve as sounding boards for Anguiano and co-founder Rajesh Voddiraju. "Having a fresh set of eyes is really beneficial to us," Anguiano said.

Responsibilities differ

The difference between an advisory board and formal board of directors comes down to the fiduciary responsibility directors have to protect the interest of investors. Directors "are the CEO's boss. Their primary responsibility is to hire and fire the CEO," said Steven Rogers, director of the Levy Institute for Entrepreneurial Practice at Northwestern University's Kellogg School of Management.

For most privately held companies, a board of advisers can be just as effective, Rogers said. He recommends bringing together four to seven people with expertise in different business areas, such as finance and marketing, as well as experience building a company. They also should be good communicators and willing to confront issues.

"You want to have someone who will challenge the entrepreneur, someone who is tough in terms of expectations and not embarrassed to exhibit that personality in the board meeting," Rogers said.

To identify potential members of either type of board, ask your accountant or attorney for recommendations. Alumni associations also might provide referrals, Rogers said. Larger companies often hire executive search firms to help.

Both types of boards should meet a minimum of twice a year, and quarterly is preferable, Rogers said. In between, it's important to keep directors informed of major developments through phone calls or e-mails.

Compensation for directors and advisers runs the gamut, with some volunteering their time. CVM's directors own an equity stake in the company and receive no additional compensation for attending meetings, Anguiano said.

Publicly held International Monetary Systems Ltd., a New Berlin, Wis.-based barter exchange that owns the Illinois Trade Association in Niles, pays its five outside directors in stock plus $300 per meeting, said Don Mardak, president and chief executive. Even then, "most are doing it out of a love for this company."

Despite the benefits, many entrepreneurs don't establish boards until their businesses are in trouble, Rogers said. Often, it's because of their personality. "Entrepreneurs don't particularly like people telling them what to do," Rogers said.

Rogers himself waited too long before setting up a board for a retail business he used to own, he said. Once he did it, Rogers recalled, "It just lifted the weight of the world off my shoulders. I had other people who were smart as well as experienced helping me."

Network offers support

The best governance format for a small business depends on what they hope to accomplish, but experts say even the smallest companies can benefit from some outside sounding board.

Often the format sole proprietors choose is less formal.

Writer Jenni Prokopy started IdeaXchange 3 1/2 years ago as a way for freelancers in creative businesses to share ideas and help one another solve problems. "It keeps my business strong," she said. "We remind each other of how to take care of the clients we have and turn a bad client into a good one."

The group, which meets monthly in living rooms, also has discussed strategy, Internet marketing and techniques for boosting creativity. It periodically brings in experts to discuss legal, accounting or insurance issues. Its new Web site, idea-Xchange.com, includes a blog. By communicating online, members can get answers to questions quickly, Prokopy said.

In addition to business ideas and resources, the group has provided emotional support in many forms, she said. When the roof of Prokopy's condo blew off during a bad storm in late August, five IdeaXchange members were at her home two days later helping her pack.

"It's a remarkable instance of freelancers and small-business owners rallying round to help one of their own -- a business-based group that becomes a support group in time of crisis," said marketing communications consultant Rickey Gold, a member of the group.

That is the type of bond often formed when entrepreneurs regularly share ideas and horror stories of running a business. "It's great to know there's a big group of people who will rally around me if I need it," Prokopy said.